Stanford Law School - Robert Crown Law Library

Filed 1/31/11

IN THE SUPREME COURT OF CALIFORNIA

CALIFORNIA FARM BUREAU
FEDERATION et al.
Plaintiffs and Appellants,
S150518
v.
Ct.App. 3 C050289
STATE WATER RESOURCES
CONTROL BOARD,
Sacramento County
Defendant and Respondent.
Super. Ct. Nos.
03CS1776 & 04CS00473

The California Constitution provides that any act to increase taxes must be
passed by a two-thirds vote of the Legislature.1 On the other hand, statutes that
create or raise regulatory fees need only the assent of a simple majority.2 In 2003,
the Legislature passed amendments to the Water Code3 by a 53 percent majority.
Current section 1525 was enacted as part of these amendments. The threshold
issue here is whether section 1525, subdivision (a) imposes a tax or a fee. We

1
California Constitution, article XIII A, section 3, originally approved by
initiative as Proposition 13, sometimes referred to as the “People‟s Initiative to
Limit Property Taxation,” on June 6, 1978.
2
On November 2, 2010, the voters approved Proposition 26, which requires
a two-thirds supermajority vote of the Legislature to pass certain fees. None of the
parties have asserted that the law enacted by Proposition 26 applies to this case.
3
Hereafter, undesignated statutory references are to the Water Code.
1

hold that the amendments and section 1525 do not explicitly impose a tax and,
therefore, are not facially unconstitutional. However, because the record is
unclear as to whether the fees were reasonably apportioned in terms of the
regulatory activity‟s costs and the fees assessed, we direct the Court of Appeal to
remand the matter to the trial court to make these findings.
A second issue is whether the Water Code amendments, or their
implementing regulations, violate the supremacy clause of the United States
Constitution by over-assessing the beneficial interests of those who hold
contractual rights to delivery of water from the federally administered Central
Valley Project (hereafter, the federal contractors). We conclude that the statutes
are not facially unconstitutional. We further determine that the constitutionality of
the implementing regulations depends on whether they fairly assess and apportion
the federal contractors‟ beneficial interests. However, because of conflicting
factual assertions and an unclear record concerning the extent and value of those
interests, we also direct remand to the trial court for findings on this issue.
I. FACTUAL AND PROCEDURAL BACKGROUND4

The State Water Resources Control Board (SWRCB or Board) is
responsible for the “orderly and efficient administration of . . . water resources”
and exercises “adjudicatory and regulatory functions of the state.” (§ 174.) The
water in California belongs to the people, but the right to use water may be
acquired as provided by law. (§§ 102, 1201.) The SWRCB‟s Division of Water
Rights (Water Rights Division or Division)5 administers the water rights program,

4
The factual and procedural background is largely adopted from the Court of
Appeal opinion.
5
The Division consists of three sections: permitting, licensing, and hearings
and special projects. As noted by the Court of Appeal, “[t]he permitting section

(footnote continued on next page)
2

but its authority is limited. The SWRCB regulates all appropriative water rights
acquired since 1914. An appropriative right is the right to take water from a
watercourse that does not run adjacent to a landowner‟s property. Since 1914, all
appropriative rights have been acquired through a system of permits and licenses6
that the SWRCB or its predecessor state entities have issued. Before 1914,
appropriative rights were acquired under common law principles or earlier
statutes. The Water Rights Division has no permitting or licensing authority over
riparian7 or pueblo8 rights, or over appropriative rights acquired before 1914. The

(footnote continued from previous page)
„processes water right applications, petitions to change terms in water right
permits and water right licenses. Groundwater recordations, [and] statements of
water diversion and use, which are a recordation function [sic.] . . . .‟ The
licensing section enforces existing permits and licenses and handles work
associated with licensing a permit. The hearings and special projects section
assists the SWRCB with various types of administrative hearings, reviews
environmental documents filed in support of water rights applications and
petitions, assists with the implementation of the Bay-Delta Water Quality Control
Plan, and certifies water quality . . . .” Although the SWRCB has other divisions
in its organization, we are concerned only with the Water Rights Division.
6
Anyone seeking to obtain an appropriative water right files an application
with the SWRCB (§ 1225 et seq.), which issues a water right permit. (§ 1380 et
seq.) Beneficial use of water perfected under this post-1914 statutory scheme is
confirmed by a license issued by the SWRCB. (§§ 1605, 1610.) The license is, in
effect, a title or deed to the water right and is recorded in the county in which the
diversion takes place. (§ 1650.)
7
Under the common law riparian doctrine, a person owning land bordering a
stream has the right to reasonable and beneficial use of water on his or her land.
(People v. Shirokow (1980) 26 Cal.3d 301, 307 (Shirokow).) A riparian owner
must share the right to use water with other riparian owners. (See Harris v.
Harrison (1892) 93 Cal. 676, 681.)
8
“The pueblo water right—a distinctive feature of California water law— is
the paramount right of an American city as successor of a Spanish or Mexican
pueblo (municipality) to the use of water naturally occurring within the old pueblo

(footnote continued on next page)
3

SWRCB does have authority to prevent illegal diversions and to prevent waste or
unreasonable use of water, regardless of the basis under which the right is held.
(§ 275.) Riparian, pueblo, and pre-1914 appropriative rights account for 38
percent of currently held water rights.
Rights regulated under SWRCB licenses and permits include about 40
percent of state water subject to water rights. The federal government holds the
remaining 22 percent of water rights. The United States Bureau of Reclamation
(Bureau of Reclamation or Bureau) holds the permits and licenses to, and operates,
the Central Valley Project (CVP or Project.) The Project diverts and stores water
from numerous sources.9 The Bureau contracts out the responsibility to control,
distribute, and use water under the permits it holds. However, these federal
contracts involve use of less than 6 percent of the water over which the Bureau
holds rights. The remaining water is diverted and stored by the Bureau for
hydroelectric, wildlife and other purposes.
Historically, the operation of the Water Rights Division was supported by
the state‟s general fund (General Fund), with only 0.5 percent of costs covered by
fees. In 2003, the Legislative Analyst recommended that the Division‟s operating

(footnote continued from previous page)
limits for the use of the inhabitants of the city.” (Hutchins, The Cal. Law of Water
Rights (1956) p. 256.)
9
“In 1933, primarily to control flooding in the Central Valley, the California
Legislature approved the Central Valley Project (CVP), which is the nation‟s
largest water reclamation project and California‟s largest water supplier.
[Citation.] Originally a state project, the CVP was turned over to the federal
Bureau of Reclamation, which operates the CVP under rights granted by the
SWRCB.” (In re Bay-Delta etc. (2008) 43 Cal.4th 1143, 1154, fn. omitted.) To
achieve its purposes, “[t]he CVP operates 21 reservoirs, 11 power plants, and 500
miles of major canals and aqueducts.” (Id. at p. 1154, fn. 1.)
4

costs be shifted from the General Fund and covered instead by user fees imposed
on permit and license holders.10 The SWRCB strongly opposed the
recommendation. The SWRCB pointed out that its authority to impose fees did
not extend to those holding water rights that were not based on its permits and
licenses. While riparian, pueblo, and pre-1914 rights (collectively, RPP rights) are
protected by conditions in new (post-1914) permits and through the Water Rights
Division‟s enforcement of activity, the Division did not have authority to impose
fees on those RPP rights holders. As noted, the RPP holders comprise 38 percent
of water rights holders in California. The SWRCB argued that while permit and
license holders should pay their share, proportional fees on them could not cover
the total cost of the Division‟s operation. Additionally, as explained in greater
detail below, the federal Bureau of Reclamation and Indian tribes resist paying
fees, relying on the principle of sovereign immunity.
These difficulties notwithstanding, the Legislature adopted the Legislative
Analyst‟s recommendation and passed Senate Bill No. 1049 (2003-2004 Reg.
Sess.), repealing certain sections of the Water Code and enacting sections 1525-
1560. Together, these statutes are designed to make the Water Rights Division
entirely fee supported.
A. The Fee Legislation
We begin with a summary of the relevant statutes.

10
The proposal called for General Fund support for the first half of the 2003-
2004 fiscal year with fee increases covering the second half of the year.
Thereafter, total Water Rights Division operations would be fee supported.
5

Section 1525
Section 1525 sets forth the parties and entities subject to the new fees.11
Section 1525, subdivision (a) requires the SWRCB to adopt a schedule of annual

11
In relevant part, section 1525 provides:
“(a) Each person or entity who holds a permit or license to appropriate
water, and each lessor of water leased under Chapter 1.5 (commencing with
Section 1020) of Part 1, shall pay an annual fee according to a fee schedule
established by the board.

“(b) Each person or entity who files any of the following shall pay a fee
according to a fee schedule established by the board:

“(1) An application for a permit to appropriate water.
“(2) A registration of appropriation for a small domestic use or livestock
stockpond.

“(3) A petition for an extension of time within which to begin construction,
to complete construction, or to apply the water to full beneficial use under a
permit.

“(4) A petition to change the point of diversion, place of use, or purpose of
use, under a permit or license.

“(5) A petition to change the conditions of a permit or license, requested by
the permittee or licensee, that is not otherwise subject to paragraph (3) or (4).

“(6) A petition to change the point of discharge, place of use, or purpose of
use, of treated wastewater, requested pursuant to Section 1211.

“(7) An application for approval of a water lease agreement.
“(8) A request for release from priority pursuant to Section 10504.
“(9) An application for an assignment of a state-filed application pursuant
to Section 10504.

“(c) The board shall set the fee schedule authorized by this section so that
the total amount of fees collected pursuant to this section equals that amount
necessary to recover costs incurred in connection with the issuance,
administration, review, monitoring, and enforcement of permits, licenses,
certificates, and registrations to appropriate water, water leases, and orders
approving changes in point of discharge, place of use, or purpose of use of treated
wastewater. The board may include, as recoverable costs, but is not limited to
including, the costs incurred in reviewing applications, registrations, petitions and
requests, prescribing terms of permits, licenses, registrations, and change orders,
enforcing and evaluating compliance with permits, licenses, certificates,
registrations, change orders, and water leases, inspection, monitoring, planning,
modeling, reviewing documents prepared for the purpose of regulating the

(footnote continued on next page)
6

fees to be paid by each permit or license holder. This group does not include
riparian, pueblo, or pre-1914 rights holders. Subdivision (b) of section 1525
requires the SWRCB to establish the schedule for a one-time application fee for
permits to appropriate water, for approval of leases, and for petitions relating to
those applications.
Section 1525, subdivision (c) provides that the SWRCB “shall set the fee
schedule authorized by this section so that the total amount of fees collected
pursuant to this section equals that amount necessary to recover costs” of the
Division‟s activities. Subdivision (c) sets out “recoverable costs” in substantial
detail but the costs recoverable are “not limited to” those activities identified.
(§ 1525, subd. (c).) Subdivision (d)(3) similarly requires the SWRCB to “set the
amount of total revenue collected each year through the fees authorized by this

(footnote continued from previous page)
diversion and use of water, applying and enforcing the prohibition set forth in
Section 1052 against the unauthorized diversion or use of water subject to this
division, and the administrative costs incurred in connection with carrying out
these actions.

“(d)(1) The board shall adopt the schedule of fees authorized under this
section as emergency regulations in accordance with Section 1530.” [¶] . . . [¶]

“(3) The board shall set the amount of total revenue collected each year
through the fees authorized by this section at an amount equal to the revenue
levels set forth in the annual Budget Act for this activity. The board shall review
and revise the fees each fiscal year as necessary to conform with the revenue
levels set forth in the annual Budget Act. If the board determines that the revenue
collected during the preceding year was greater than, or less than, the revenue
levels set forth in the annual Budget Act, the board may further adjust the annual
fees to compensate for the over or under collection of revenue.

“(e) Annual fees imposed pursuant to this section for the 2003-04 fiscal
year shall be assessed for the entire 2003-04 fiscal year.”
7

section at an amount equal to the revenue levels set forth in the annual Budget Act
for this activity.” (§ 1525, subd. (d)(3).)
In other words, the statute requires that the total budgeted cost of the
Division‟s operations be recovered from the fees. The SWRCB is to review and
revise the fees each year as necessary, to ensure they conform with the revenue
levels set in the annual budget act (Budget Act). If the revenue collected during
the preceding year is either greater or less than the revenue levels set forth in the
Budget Act, the SWRCB may adjust the annual fees to compensate for the
disparity. (§ 1525, subd. (d)(3).) The SWRCB is also authorized to adopt
“emergency regulations” to implement the fee schedule. (§ 1525, subd. (d)(1).)

Section 1537
Section 1537 generally covers collection. While the Board sets the fees, the
money is actually collected by the Board of Equalization (BOE). The BOE
collects and refunds annual fees collected under the Fee Collection Procedures
Law, part of the Revenue and Taxation Code, as limited by subdivision (b)(2)
through (4) of section 1537. The BOE has no role in reviewing refund claims
under section 1537 or the emergency regulations.
Sections 1540 and 1560
Section 1540 concerns the allocation of annual fees to federal contractors.
Section 1560 sets out the options that may be pursued when the federal Bureau of
Reclamation or an Indian tribe declines to pay a fee by relying on sovereign
immunity.12 As relevant here, the federal government and Indian tribes are the
entities eligible to assert sovereign immunity.

12
Section 1540 provides:
“If the board determines that the person or entity on whom a fee or expense
is imposed will not pay the fee or expense based on the fact that the fee payer has

(footnote continued on next page)
8

Sections 1550, 1551, and 1552
Sections 1550 and 1551 establish the Water Rights Fund, into which the
BOE must deposit fees collected on behalf of the SWRCB. The Water Rights
Fund is separate from the General Fund. Money in the Water Rights Fund may be
used only for purposes set out in section 1552, which includes SWRCB
expenditures necessary to carry out the work of the Water Rights Division, BOE

(footnote continued from previous page)
sovereign immunity under Section 1560, the board may allocate the fee or
expense, or an appropriate portion of the fee or expense, to persons or entities who
have contracts for the delivery of water from the person or entity on whom the fee
or expense was initially imposed. The allocation of the fee or expense to these
contractors does not affect ownership of any permit, license, or other water right,
and does not vest any equitable title in the contractors.”

Section 1560 provides:
“(a) The fees and expenses established under this chapter and Part 3
(commencing with Section 2000) apply to the United States and to Indian tribes, to
the extent authorized under federal or tribal law.

“(b) If the United States or an Indian tribe declines to pay a fee or expense,
or the board determines that the United States or the Indian tribe is likely to
decline to pay a fee or expense, the board may do any of the following:

“(1) Initiate appropriate action to collect the fee or expense, including any
appropriate enforcement action for failure to pay the fee or expense, if the board
determines that federal or tribal law authorizes collection of the fee or expense.

“(2) Allocate the fee or expense, or an appropriate portion of the fee or
expense, in accordance with Section 1540. The board may make this allocation as
part of the emergency regulations adopted pursuant to Section 1530.

“(3) Enter into a contractual arrangement that requires the United States or
the Indian tribe to reimburse the board, in whole or in part, for the services
furnished by the board, either directly or indirectly, in connection with the activity
for which the fee or expense is imposed.

“(4) Refuse to process any application, registration, petition, request, or
proof of claim for which the fee or expense is not paid, if the board determines
that refusal would not be inconsistent with federal law or the public interest.”
9

expenditures in connection with collecting the SWRCB fees, and the payment of
refunds. (§ 1552.)
B. The Emergency Regulations
To implement section 1525‟s fee requirement, the SWRCB adopted
California Code of Regulations, title 23, sections 1066 and 1073 (regulation 1066
and regulation 1073). These regulations set formulas to calculate annual fees for
permit and license holders, and for the federal contractors. Fees for issuance,
supervision, and modification of permits and licenses, i.e., the revenue-producing
activities now required to cover the entire cost of the Division‟s operations, were
to be paid by the permit and license holders regulated by the SWRCB. No money
would come from the General Fund. The Court of Appeal explained the difficulty
the SWRCB had in setting the fees: “First, the SWRCB had to raise $4.4 million
immediately to cover the cost of the water rights program in the second half of the
2003-2004 fiscal year. Second, the funding source had to be „relatively stable.‟
Third, because of time constraints, SWRCB had to rely on its existing data base in
calculating the amount of fees to be assessed. Fourth, although it cost SWRCB
between $17,000 and $20,000 to process an application to appropriate water,
SWRCB expected people would not seek SWRCB services if the one-time service
fees were too high. Fifth, because most persons and entities subject to the annual
fee held permits or licenses for less than 10 acre-feet of water,[13] a minimum fee
was necessary to cover the cost of sending out the fee bills. Sixth, SWRCB
anticipated that 40 percent of the water right permit and license holders would
refuse to pay annual fees. Seventh, the SWRCB did not have permitting authority

13
An acre-foot is “[t]he volume of water, 43,560 cubic feet, that will cover an
area of one acre to a depth of one foot.” (American Heritage Dict. (2d college ed.
1982) p. 75.)
10

over certain holders of water rights (specifically the holders of riparian, pueblo
and pre-1914 appropriative rights) amounting to approximately 38 percent of the
water diverted in the state.”
C. Annual Fee Formula for Post-1914 Permit and License Holders
Regulation 1066 applies to post-1914 permit and license holders.
Regulation 1066, subdivision (a)14 set the minimum annual fee as the greater of
$100, or $.03 for each acre-foot based on the total annual amount of diversion
authorized by the permit or license.
To determine the annual fees, the Board started with the $4.4 million
budget amount and assumed it would be unable to collect 40 percent of billings
from water right holders who claimed sovereign immunity or who refused to pay
their bills. It divided the $4.4 million mandated by the Legislature by 0.6 to
account for the estimated 40 percent non-collection rate. This increased its
targeted revenue to approximately $7 million.
D. Annual Fee Formula for Federal Contractors
Regulation 1073, which implemented the provisions of Water Code
sections 1540 and 1560, addressed rights held by the Bureau of Reclamation, but
contracted out to federal contractors. Regulation 1073, subdivision (b)(2) applied
a formula to calculate the annual fee imposed on those contractors “[i]f the
[Bureau of Reclamation] decline[d] or [was] likely to decline to pay the fee or
expense . . . for the [Central Valley Project].” In general, regulation 1073 assessed

14
Regulation 1066, subdivision (a) provided: “A person who holds a water
right permit or license shall pay an annual fee that is the greater of $100 or $0.03
per acre-foot based on the total annual amount of diversion authorized by the
permit or license.” (Cal. Code Regs., tit. 23, § 1066, subd. (a), Register 2003, No.
52 (Dec. 23, 2003).)
11

annual fees against contractors based on a prorated portion of the total amount of
annual fees associated with all Bureau permits and licenses, rather than the portion
available under the terms of their contracts.
E. Proceedings Below
In January 2004, the BOE sent fee notices to the section 1525 permit and
license holders and to the federal contractors. The Budget Act set a target of $4.4
million in fee revenue because the balance for the first half of 2003-2004 was paid
from General Fund revenue. $7.4 million in water rights fees was collected for
fiscal year 2003-2004. The imposition of water rights fees was challenged by
several groups of plaintiffs representing various water rights holders.15
Plaintiffs sought declaratory and injunctive relief and a writ of mandate.
They alleged that the statutory scheme adopted by the Legislature and the
emergency regulations adopted to implement the scheme were unconstitutional
both on their face and as applied. The trial court denied the writ of mandate,
ruling that the money collected constituted valid regulatory fees, rather than taxes.
It also rejected plaintiffs‟ other constitutional claims.
15
Plaintiff California Farm Bureau Federation (Farm Bureau) asserts it is
authorized to take judicial action to protect the rights of farm families that hold
water rights subject to the fees imposed by Senate Bill No. 1049 (2003-2004 Reg.
Sess.) and the emergency regulations. The individuals named in its complaint
hold water rights and have been assessed the section 1525 fees.

Plaintiff Northern California Water Association represents over 70
agricultural water districts within the Sacramento River Basin, some of which hold
water rights. Other members receive water under contracts with the Bureau of
Reclamation, and others operate hydroelectric plants licensed or regulated by the
Federal Energy Regulatory Commission.

Plaintiff Central Valley Water Project Association represents the interests
of some 300 agricultural and municipal districts, agencies and communities within
the Central and Santa Clara Valleys that have contracts for water from the Central
Valley Project.
12

The Court of Appeal reversed in part, holding that section 1525 was
constitutional on its face, but that “as applied” under the emergency regulations, it
imposed illegal levies. It remanded the matter to the trial court with instructions
that it “(1) stay further proceedings before the SWRCB and/or BOE until the
SWRCB adopts new fee schedule formulas and a procedure for calculating
refunds if any; (2) order the SWRCB to adopt valid fee schedule formulas within
180 days of the finality of this opinion; (3) order the SWRCB to determine the
amount of annual fees improperly assessed under regulations 1066 and 1073 for
the 2003-2004 fiscal year and establish a procedure for calculating refunds, if any,
due within 180 days of the finality of this opinion; and (4) order the Board of
Equalization, through the SWRCB, to refund any annual fees unlawfully collected
to fee payers who filed timely petitions for reconsideration with the
SWRCB . . . .”16
II. DISCUSSION
A. Standard of Review
Whether section 1525 imposes a tax or a fee is a question of law decided
upon an independent review of the record. (Sinclair Paint Co. v. State Bd. of
Equalization (1997) 15 Cal.4th 866, 874 (Sinclair Paint).)
The plaintiff challenging a fee bears the burden of proof to establish a
prima facie case showing that the fee is invalid. (See Sea & Sage Audubon
Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 421; Sargent Fletcher, Inc. v.
Able Corp. (2003) 110 Cal.App.4th 1658, 1668 (Sargent Fletcher).) In other

16
The terms “payor” and “payer” are synonymous and are used variably in
case law.
13

words, the plaintiff bears the burden of proof17 “with respect to all facts essential
to its claim for relief.” (Home Builders Assn. of Tulare/Kings Counties, Inc. v.
City of Lemoore (2010) 185 Cal.App.4th 554, 562; see Evid. Code, § 500.) The
plaintiff “must present evidence sufficient to establish in the mind of the trier of
fact or the court a requisite degree of belief (commonly proof by a preponderance
of the evidence). [Citation.] The burden of proof does not shift . . . it remains
with the party who originally bears it.” (Sargent Fletcher, supra, 110 Cal.App.4th
at p. 1667, original italics.)
This burden of persuasion is different from the “burden of producing
evidence” (see Evid. Code, § 110), which may shift between the parties.18 “[T]he
burden of producing evidence as to a particular fact rests on the party with the
burden of proof as to that fact. [Citations.] If that party fails to produce sufficient
evidence to make a prima facie case, it risks nonsuit or other unfavorable
determination. [Citations.] But once that party produces evidence sufficient to
make its prima facie case, the burden of producing evidence shifts to the other
party to refute the prima facie case.” (Sargent Fletcher, supra, 110 Cal.App.4th at
pp. 1667-1668, original italics.)
Thus, once plaintiffs have made their prima facie case, the state bears the
burden of production and must show “ „(1) the estimated costs of the service or
regulatory activity, and (2) the basis for determining the manner in which the costs
are apportioned, so that charges allocated to a payor bear a fair or reasonable

17
The terms “burden of proof” and “burden of persuasion” are synonymous.
(1 Witkin, Cal. Evidence (4th ed. 2000) Burden of Proof and Presumptions, § 3, p.
157.)
18
The “burden of producing evidence” has also been referred to as the
“burden of production” and the “burden of going forward.” (Sargent Fletcher,
supra, 110 Cal.App.4th at p. 1667.)
14

relationship to the payor‟s burdens on or benefits from the regulatory activity.‟ ”
(Sinclair Paint, supra, 15 Cal.4th at p. 878; see California Assn. of Prof. Scientists
v. Department of Fish & Game (2000) 79 Cal.App.4th 935, 945 (Prof. Scientists).)
B. Valid Fee or Invalid Tax?

Facial challenge
Plaintiff Farm Bureau contends that section 1525‟s annual fee requirement
is unconstitutional on its face because it imposes a tax, not a valid regulatory fee.19
We reject this contention.
California Constitution, article XIII A, section 3 requires that “any changes
in state taxes enacted for the purpose of increasing revenues” be approved by a
two-thirds majority of the Legislature. Senate Bill No. 1049 (2003-2004 Reg.
Sess.) passed the Legislature with only a 53 percent majority. Thus, if the amount
charged under section 1525 is a tax, it is invalid. If it is a regulatory fee, it is not
subject to the supermajority requirement.
We have recognized that “ „tax‟ has no fixed meaning, and that the
distinction between taxes and fees is frequently „blurred,‟ taking on different
meanings in different contexts. [Citations.]” (Sinclair Paint, supra, 15 Cal.4th at
p. 874.) Ordinarily taxes are imposed for revenue purposes and not “in return for
a specific benefit conferred or privilege granted. [Citations.] Most taxes are
compulsory rather than imposed in response to a voluntary decision to develop or
to seek other government benefits or privileges. [Citations.] But compulsory fees
may be deemed legitimate fees rather than taxes. [Citation.]” (Ibid.)

19
Plaintiffs do not challenge the one-time fees set forth in section 1525,
subdivision (b).
15

In contrast, a fee may be charged by a government entity so long as it does
not exceed the reasonable cost of providing services necessary to regulate the
activity for which the fee is charged. A valid fee may not be imposed for
unrelated revenue purposes. (Sinclair Paint, supra, 15 Cal.4th at p. 876; Pennell
v. City of San Jose (1986) 42 Cal.3d 365, 375.)20
The scope of a regulatory fee is somewhat flexible and is related to the
overall purposes of the regulatory governmental action. “ „A regulatory fee may
be imposed under the police power when the fee constitutes an amount necessary
to carry out the purposes and provisions of the regulation.‟ [Citation.] „Such
costs . . . include all those incident to the issuance of the license or permit,
investigation, inspection, administration, maintenance of a system of supervision
and enforcement.‟ [Citation.] Regulatory fees are valid despite the absence of any
perceived „benefit‟ accruing to the fee payers. [Citation.] Legislators „need only
apply sound judgment and consider “probabilities according to the best honest
viewpoint of informed officials” in determining the amount of the regulatory fee.‟
[Citation.]” (Prof. Scientists, supra, 79 Cal.App.4th at p. 945.) “Simply because a
fee exceeds the reasonable cost of providing the service or regulatory activity for
which it is charged does not transform it into a tax.” (Barratt American, Inc. v.
City of Rancho Cucamonga (2005) 37 Cal.4th 685, 700.) A regulatory fee does
not become a tax simply because the fee may be disproportionate to the service
rendered to individual payors. (Brydon v. East Bay Mun. Utility Dist. (1994) 24
Cal.App.4th 178, 194.) The question of proportionality is not measured on an

20
This case does not involve a special assessment or a development fee, two
types of fees that are routinely challenged under Proposition 13. (Prof. Scientists,
supra, 79 Cal.App.4th at p. 944.)
16

individual basis. Rather, it is measured collectively, considering all rate payors.
(Prof. Scientists, supra, 79 Cal.App.4th at p. 948.)
Thus, permissible fees must be related to the overall cost of the
governmental regulation. They need not be finely calibrated to the precise benefit
each individual fee payor might derive. What a fee cannot do is exceed the
reasonable cost of regulation with the generated surplus used for general revenue
collection. An excessive fee that is used to generate general revenue becomes a
tax.
Reference to the statutory language reveals a specific intention to avoid
imposition of a tax. By its terms, section 1525 permits the imposition of fees only
for the costs of the functions or activities described, and not for general revenue
purposes. Section 1525, subdivision (c) carefully sets out that the fees imposed
shall relate to costs linked to issuing, monitoring, enforcing and administering
licenses and permits, and lists the recoverable costs in some detail. Section 1551
directs that the fees collected be deposited in the Water Rights Fund, not in the
General Fund. Section 1552 describes the purposes for which the money in the
Water Rights Fund may be expended.21 Although the fees set forth in section

21
Section 1552 provides:
“The money in the Water Rights Fund is available for expenditure, upon
appropriation by the Legislature, for the following purposes:

“(a) For expenditure by the State Board of Equalization in the
administration of this chapter and the Fee Collection Procedures Law (Part 30
(commencing with Section 55001) of Division 2 of the Revenue and Taxation
Code) in connection with any fee or expense subject to this chapter.

“(b) For the payment of refunds, pursuant to Part 30 (commencing with
Section 55001) of Division 2 of the Revenue and Taxation Code, of fees or
expenses collected pursuant to this chapter.

“(c) For expenditure by the board for the purposes of carrying out this
division, Division 1 (commencing with Section 100), Part 2 (commencing with

(footnote continued on next page)
17

1551 come from various sources, including some that do not involve the services
described in section 1525,22 it cannot be argued that the fees are excessive just
because sections 1551 and 1552 list a variety of revenues to be deposited in the
Water Rights Fund.
Section 1552 does not describe how the various revenues deposited in the
Water Rights Fund should be allocated. However, no statutory language precludes
the segregation and application of collected fees to fund services described in that
section.23
Section 1525 does not require the SWRCB to collect anything more than
the administrative “costs incurred” in carrying out the functions authorized in its
subdivisions (a), (b) and (c). Also, section 1525, subdivision (c) directs the

(footnote continued from previous page)
Section 10500) of Division 6, and Article 7 (commencing with Section 13550) of
Chapter 7 of Division 7.

“(d) For expenditures by the board for the purposes of carrying out Sections
13160 and 13160.1 in connection with activities involving hydroelectric power
projects subject to licensing by the Federal Energy Regulatory Commission.

“(e) For expenditures by the board for the purposes of carrying out Sections
13140 and 13170 in connection with plans and policies that address the diversion
or use of water.”
22
Section 1551 provides:
“All of the following shall be deposited in the Water Rights Fund:
“(a) All fees, expenses, and penalties collected by the board or the State
Board of Equalization under this chapter and Part 3 (commencing with Section
2000).

“(b) All funds collected under Section 1052, 1845, or 5107.
“(c) All fees collected under Section 13160.1 in connection with certificates
for activities involving hydroelectric power projects subject to licensing by the
Federal Energy Regulatory Commission.”
23
The Court of Appeal referred to the situation as “an accounting issue that
concerns how the monies are treated within the Water Rights Fund.”
18

SWRCB to set the fee schedules so that the “total amount of fees collected . . .
equals that amount necessary to recover costs incurred in connection with” the
Division‟s administration of the provisions of subdivisions (a) and (b). Similarly,
section 1525, subdivision (d)(3) requires the SWRCB to “set the amount of total
revenue collected each year through the fees authorized by this section at an
amount equal to the revenue levels set forth in the annual Budget Act for this
activity.” (Italics added.) Although the “activity” subject to fees under this
section could represent all of the Division‟s activities, the Court of Appeal
correctly noted, “[T]here is nothing in the „total amount‟ or „total revenue‟
provisions of subdivisions (c) and (d) that requires the SWRCB to set the fees so
as to collect anything more than the administrative „costs incurred‟ in carrying out
the permit functions authorized in subdivisions (a), (b) and (c).” Also, there is a
safeguard in subdivision (d)(3) authorizing the SWRCB to “further adjust the
annual fees” if it “determines that the revenue collected during the preceding year
was greater than, or less than, the revenue levels set forth in the annual Budget
Act . . . .” (§ 1525, subd. (d)(3).) Thus, the fees charged under section 1525 are
linked to the activities the Division performs.

“As applied” challenge
Plaintiffs also contend section 1525 is unconstitutional as applied through
the fee schedule in regulation 1066 because the fees are so disproportionate that
they are unreasonable. Central to the resolution of this issue is an understanding
of the extent and costs of the Division‟s regulatory “activity.” (§ 1525, subd.
(d)(3).) The parties diverge in their approach.
As noted, on its face the statutory scheme appears simply to permit the
recovery of costs the SWRCB incurs in annual supervision of water usage and the
processing of applications for new or modified rights. However, plaintiffs argue
the following: (1) While the Division engages in a variety of activities that benefit
19

all water rights holders, and the general public, it is only authorized to impose fees
on 40 percent of rights holders. (2) Because the statutory scheme requires that 100
percent of the Division‟s annual budget must be recovered through fees, the result
is that 40 percent of rights holders are charged for the entire cost of operations that
benefit all rights holders and the public at large. This disparity is brought to bear
not on the face of the statutes, but in the regulations authorizing fee collection.
Plaintiffs claim the regulations impose unreasonable fees because they are so
disproportionate to the benefit derived by the fee payors or the burden they place
on the regulatory system. (See Sinclair Paint, supra, 15 Cal.4th at p. 878.)
Therefore, plaintiffs contend the fees operate as a tax and are unconstitutional
because the authority for their imposition was not approved by a two-thirds vote of
the Legislature.
On the other hand, the SWRCB claims that the fees are proportional and
that plaintiffs‟ focus on the benefits of the regulatory program is misplaced. It
argues that the broad benefits of the program must be distinguished from its costs.
The Board contends that it can allocate the majority of its regulatory costs to
persons subject to the water rights permit and license system because its costs flow
primarily from the administration of that permit and license system. It
acknowledges that the benefits that result from the regulation of permits and
licenses may be characterized as benefits not only to permit and license holders,
but also to the general public, and other water rights holders not subject to its fee
system. But, the Board argues, that does not alter the fact that its costs are largely
due to its oversight and administration of the permit and license system and not the
regulation of the public or other water rights holders. The Board claims that some
95 percent of its time and expense are directed toward servicing and regulating
those licensees and permittees against whom the challenged fees were assessed.
As we explain below, however, the trial court made no findings on this claim.
20

In weighing these arguments, we look to our decision in Sinclair Paint,
supra, 15 Cal.4th at page 866. There, the plaintiff challenged the fee in question
on the basis that the fee was not regulatory in nature, but rather was aimed at
raising revenue.24 We acknowledged that “the term „special taxes‟ . . . „ “does not
embrace fees charged in connection with regulatory activities which fees do not
exceed the reasonable cost of providing services necessary to the activity for
which the fee is charged and which are not levied for unrelated revenue purposes.”
[Citations.]‟ ” (Sinclair Paint, supra, 15 Cal.4th at p. 876.) We held that the fee
in question was a regulatory fee and not a tax because it was “imposed . . . to
mitigate the actual or anticipated adverse effects of the fee payers‟ operations.”
(Id. at p. 870.) Thus, in Sinclair Paint, to determine the tax or fee issue, we
directed courts to examine the costs of the regulatory activity and determine if
there was a reasonable relationship between the fees assessed and the costs of the
regulatory activity. (Id. at pp. 870, 878.)25
Thus, the question revolves around the scope and the cost of the Division‟s
regulatory activity and the relationship between those costs and the fees imposed.
It is further complicated by the fact that not all those who hold water rights are
required to pay the fee. Unfortunately, the record before us is insufficient to
resolve the “tax or fee” question. The trial court‟s order lacks sufficient factual
findings for us to determine whether the fees, as imposed, were reasonably

24
The plaintiff also did not contend that the fees exceeded the reasonable cost
of the services provided or that they were charged for unrelated revenue purposes.
(Sinclair Paint, supra, 15 Cal.4th at p. 876.)
25
On remand, we also allowed plaintiffs “to prove . . . that the amount of fees
assessed and paid exceeded the reasonable cost of providing the . . . services for
which the fees were charged, or that the fees were levied for unrelated revenue
purposes.” (Sinclair Paint, supra, 15 Cal.4th at p. 881.)
21

proportional to the costs of the regulatory program. In fact, at the hearing on
plaintiffs‟ motion for a peremptory writ of mandate, the trial court stated it did not
believe it was required to make detailed findings.
We have previously noted that “[i]t has long been the general rule and
understanding that „an appeal reviews the correctness of a judgment as of the time
of its rendition, upon a record of matters which were before the trial court for its
consideration.‟ [Citation.] This rule reflects an „essential distinction between the
trial and the appellate court . . . that it is the province of the trial court to decide
questions of fact and of the appellate court to decide questions of law. . . .‟
[Citation.] The rule promotes the orderly settling of factual questions and disputes
in the trial court, provides a meaningful record for review, and serves to avoid
prolonged delays on appeal.” (In re Zeth S. (2003) 31 Cal.4th 396, 405.) Here,
the trial court erred by failing to provide a sufficient record to rule on the question
of law. Accordingly, this matter must be remanded. The trial court is directed to
make detailed findings focusing on the Board‟s evidentiary showing that the
associated costs of the regulatory activity were reasonably related to the fees
assessed on the payors. (Sinclair Paint, supra, 15 Cal.4th at p. 870.) Of course,
plaintiffs are free to renew their claim that the fees assessed exceeded the
reasonable cost of the Division‟s services. (Id. at p. 881.)26

The trial court‟s findings should include whether the fees are reasonably
related to the total budgeted cost of the Division‟s “activity” (see § 1525, subd.
(c)), keeping in mind that a government agency should be accorded some

26
Because we remand, we need not address the SWRCB‟s contention that
the “polluter pays” rationale justifies the annual cost allocation because the money
collected supports regulatory activities that serve an important public purpose and
are a valid exercise of the police power.
22

flexibility in calculating the amount and distribution of a regulatory fee. Focusing
on the activity and its associated costs will allow the trial court to determine
whether the assessed fees were reasonably proportional and thus not a tax.
(Sinclair Paint, supra, 15 Cal.4th at p. 870.) The court must determine whether
the statutory scheme and its implementing regulations provide a fair, reasonable,
and substantially proportionate assessment of all costs related to the regulation of
affected payors.
C. Federal Contractors
Plaintiffs Northern California Water Association and Central Valley Water
Project Association contend that section 1525, subdivision (a), is unconstitutional
because it improperly imposes an ad valorem tax on real property. This argument
assumes that water rights are real property rights, and that the fee imposed by
section 1525 is based upon the ownership of real property. Because the
assumption is faulty, the argument fails.
The water rights at issue are “usufructuary” only and do not confer a right
of private ownership in a watercourse.27 (Shirokow, supra, 26 Cal.3d at p. 307.)
California‟s water is owned by the people and the right to use water is prescribed
by law. (§ 102.) We agree with the Court of Appeal that “[p]otentially conflicting
water right claims and uses, not real property ownership, give rise to the need for
regulation through the system of permits and licenses administered by the
Division.” Appropriative riparian rights are incidental and appurtenant to the land
upon which they are used. (Fullerton v. State Water Resources Control Bd. (1979)
90 Cal.App.3d 590, 598.) It is the right to use the water that gives rise to the fee.

27
A “usufructuary” right is a right to use something, not to hold title to it. (12
Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 917, pp. 1106-
1107.)
23

On its face, section 1525‟s scheme is not an ad valorem tax on a real property
interest.

Facial challenge
These same plaintiffs also contend that sections 1540 and 1560 are
unconstitutional on their face because they violate the supremacy clause of the
United States Constitution. (See McCulloch v. Maryland (1819) 17 U.S. (4
Wheat.) 316, 425-437.) Under established principles of sovereign immunity, the
federal government is immune from state taxation absent its consent. (See Davis
v. Michigan Dept. of Treasury (1989) 489 U.S. 803, 812-813.)
Section 1540 provides in relevant part: “If the board determines that the
person or entity on whom a fee or expense is imposed will not pay the fee . . .
based on the fact that the fee payer has sovereign immunity under Section 1560,
the board may allocate the fee or expense, or an appropriate portion of the fee or
expense, to persons or entities who have contracts for the delivery of water from
the person or entity on whom the fee or expense was initially imposed. The
allocation of the fee or expense to these contractors does not affect ownership of
any permit, license, or other water right, and does not vest any equitable title in the
contractors.”
Section 1560 states that the fees imposed under section 1525 apply to the
United States and Indian tribes “to the extent authorized under federal or tribal
law.” (§ 1560, subd. (a).) Also, section 1560, subdivision (b)(2) provides that the
SWRCB should allocate the fees as provided in section 1540 should the United
States or an Indian tribe refuse to pay them.
Thus, the plain language of section 1540 provides that if a federal or tribal
obligee asserts sovereign immunity under section 1560, the SWRCB may allocate
the fee, or a portion of the fee, to persons or entities that have water delivery
contracts with the obligee. This practice is permitted under federal law when a
24

private contractor‟s use of United States property may be taxed.28 But the
allocation is limited to the extent the contractor has beneficial or possessory use of
the property. (See United States v. County of Fresno (1977) 429 U.S. 452, 462
(County of Fresno); United States v. Nye County Nevada (9th Cir. 1991) 938 F.2d
1040, 1042-1043 (Nye County); United States v. Hawkins County, Tennessee (6th
Cir. 1988) 859 F.2d 20, 23 (Hawkins County).)29 We reject the contention that the
statutory scheme imposes the fees on water rights of the United States and not the
private contractors. Clearly, any attempt to impose fees on the federal government
would be resisted on sovereign immunity grounds.
Accordingly, neither section 1540 nor section 1560 authorizes imposition
of a fee that facially violates the supremacy clause or state and federal rights to
equal protection and due process.
“As applied” challenge
We next address the implementing regulation. Under regulation 1073, the
SWRCB assessed annual costs against the federal contractors, prorating among
them the amount of annual fees associated with all the Bureau of Reclamation‟s
permits and licenses—over 116 million acre-feet. However, while the Bureau
holds all the permits and licenses, the contractors have contractual rights for water
delivery over only 6.6 million acre-feet or about 5 percent of all rights held by the
Bureau. The Court of Appeal held that regulation 1073 violated the supremacy

28
When conducting a supremacy clause analysis, federal courts do not
distinguish between fees and taxes. (See Novato Fire Protection Dist. v. United
States (9th Cir. 1999) 181 F.3d 1135, 1138-1139; United States v. Anderson
Cottonwood Irrigation Dist. (N.D.Cal. 1937) 19 F.Supp. 740, 741.)
29
Also, section 1560, subdivision (a) provides that the fees are only to be
collected “to the extent authorized under federal or tribal law.”
25

clause because it required “the federal contractors to pay for the entire amount of
annual fees that would otherwise be imposed on the Bureau.”
To successfully defend a supremacy clause challenge to a tax on persons or
entities that contract with the federal government, the taxing authority must
segregate and tax only the beneficial or possessory interest in the property. (See
County of Fresno, supra, 429 U.S. at p. 462; Nye County, supra, 938 F.2d at pp.
1042-1043; Hawkins County, supra, 859 F.2d at p. 23.) Thus, although the
SWRCB has the authority to impose regulatory costs on the federal contractors, it
can do so only to the extent of the contractors‟ interest.
Regulation 1073‟s formula required the federal contractors to pay for the
entire amount of annual costs that would be imposed on the Bureau of
Reclamation despite the fact that their contractual rights represented a small
proportion of the whole. Plaintiffs claim that the result is a disproportionate
assessment of fees, thereby making regulation 1073 unconstitutional under the
supremacy clause.30 (County of Fresno, supra, 429 U.S. at p. 462.) They contend
that the fees should be based on the amount of water they contracted to deliver.
The SWRCB counters that the imposition of the fee should not be limited
to the amount of water actually deliverable under the federal contracts. The
SWRCB argues that it correctly calculated the fees using the face value of the

30
We reject plaintiff Northern California Water Association‟s contention that
because the federal government is immune from the fee under federal law there
should be no fee imposed on the federal contractors. (County of Fresno, supra,
429 U.S. at p. 453.)

Plaintiffs also argue that the annual fee is unconstitutional because the
SWRCB failed to provide any evidence showing that this amount is reasonably
related to the cost of the regulatory burden. This argument fails. The SWRCB
presented evidence to the trial court in support of the amount charged for the
annual fee.
26

permitted and licensed water rights. The face value is the total annual amount of
water diversion authorized by the federally held permit or license. The SWRCB
argues that the amount of diversions authorized by the federally held permits and
licenses generally exceeds the amount of the water delivery contracts. The
difference between the amount available for diversion and the amount actually
delivered is due to factors that include hydrological variation, the need to hold
water in storage for future dry years, conveyance and evaporation losses, and
water releases to mitigate for project impacts on fish and wildlife.
In addition, the SWRCB argues the following. The Bureau of Reclamation
controls the CVP water under permits and licenses issued and regulated by the
Water Rights Division. The water is held for two primary purposes: hydroelectric
power generation and water supply. The SWRCB sought to apportion a fair share
of the regulatory costs associated with these permits and licenses to those water
users who benefit through their water delivery contracts with the Bureau. As a
result, the SWRCB initially discounted the value of the permits and licenses by
approximately 50 percent to account for hydroelectric power generation use, then
allocated to the federal contractors a pro rata share of the regulatory costs to the
remaining value of the Bureau‟s permits and licenses that related to water supply.
Accordingly, the Board argues, these charges were reasonably calculated because
they apportioned the Division‟s costs of administering the Bureau‟s permits and
licenses, exclusive of those costs related to hydroelectric generation, to the federal
contractors who benefited from the receipt of the water.
The SWRCB asserts that this is a fair apportionment of costs that
withstands a supremacy clause challenge. It argues the federal contractors‟
beneficial interest is not properly valued by a simple calculation of the proportion
of total CVP water the contractors are entitled to receive under their contracts. It
claims that a fair determination of the federal contractors‟ beneficial interest must
27

include consideration of the system that supports and ensures the delivery of the
amount contracted, not just the amount of water contracted for delivery. Thus, the
SWRCB proposes that the federal contractors have a taxable interest in the “face
value” of the Bureau‟s water rights held under permits and licenses, less any
amounts used for hydroelectric generation.
We agree with the SWRCB. However, again due to conflicting factual
assertions and an inadequate record, we cannot determine how much of the total
water in question is used to support the water delivered and can thus be allocated
to the federal contractors‟ beneficial interest. Accordingly, we remand for the
trial court to determine the contractors‟ beneficial interest and the value of that
interest. The trial court shall make findings as to whether the Board has fairly
evaluated the federal contractors‟ beneficial interest, such that water not actually
under contract for delivery is fairly attributable to the value of the delivery
contracts themselves.31

31
Because we reverse the Court of Appeal‟s judgment and remand this matter
to the trial court so it can make findings and a determination as to whether the fees
were improperly imposed, we need not address plaintiffs‟ claim that the Court of
Appeal erred by limiting refunds.
28

DISPOSITION
We affirm the Court of Appeal‟s judgment holding that the fee statutes at
issue are facially constitutional. However, the Court of Appeal‟s judgment is
reversed as to its determination that the statutes and their implementing
regulations are unconstitutional as applied. We remand this matter for the Court
of Appeal to remand to the trial court for proceedings consistent with this opinion.

CORRIGAN, J.

WE CONCUR:
KENNARD, Acting C. J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
MORENO, J.
GEORGE, J. *

_______________________
* Retired Chief Justice of California, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

29

CONCURRING OPINION BY MORENO, J.

I concur in the majority opinion. I write separately to offer these additional
reflections on the “as applied” challenge to the fee as a tax.
A charge that is labeled a regulatory fee may indeed be a tax in disguise if
“the amount of fees assessed and paid exceeded the reasonable cost of providing
the [regulatory] services for which the fees were charged, or [if] the fees were
levied for unrelated revenue purposes.” (Sinclair Paint Co. v. State Bd. of
Equalization (1997) 15 Cal.4th 866, 881.) Here, there is no allegation that the fees
in question are being used for unrelated revenue purposes. Rather, it is contended
that only 40 percent of water rights holders are being charged a fee that by right
should be charged to all water rights holders, and therefore the fee is not
sufficiently linked to the regulatory costs generated by those on whom the fee is
imposed and constitutes a tax.
Every government entity that imposes a regulatory fee must decide who
should be subject to the fee and who should not. A number of factors may go into
that decision, including assessments of the regulatory burdens imposed by the
various actors and the administrative convenience of imposing the fee. As the
majority states: “ „Legislators “need only apply sound judgment and consider
„probabilities according to the best honest viewpoint of informed officials‟ in
determining the amount of the regulatory fee.” [Citation.]‟ ” (Maj. opn., ante, at
1

p. 16.) So, too, legislators and regulators need only make reasonable decisions
about who should be subject to a regulatory fee.
In the present case, the State Water Resources Control Board claims that
“some 95 percent of its time and expense are directed toward servicing and
regulating those licensees and permittees against whom the challenged fees were
assessed.” (Maj. opn., ante, at p. 20.) The support for this contention stems
primarily from a document produced by the board on April 15, 2004, shortly after
the present litigation commenced. Because of the uncertain reliability of this
document, as well as the trial court‟s lack of findings, remand is appropriate to
determine whether the board‟s decisions regarding who would be subject to the fee
were reasonable.
MORENO, J.
I CONCUR: WERDEGAR, J.

2

See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion California Farm Bureau Federation v. California State Water Resources Control Bd. __________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 146 Cal.App.4th 1126
Rehearing Granted

__________________________________________________________________________________

Opinion No. S150518
Date Filed: January 31, 2011
__________________________________________________________________________________

Court: Superior
County: Sacramento
Judge: Raymond M. Cadei

__________________________________________________________________________________

Counsel:
Gibson, Dunn & Crutcher, David A. Battaglia, William E. Thomson, Eileen M. Ahern, Kahn A. Scolnick;
Nancy N. McDonough and Carl G. Borden for Plaintiff and Appellant California Farm Bureau Federation.
Somach, Simmons & Dunn, Stuart L. Somach, Kristen T. Castaños, Robert B. Hoffman and Daniel Kelly
for Plaintiffs and Appellants Northern California Water Association and Central Valley Project Water
Association.

O‟Laughlin & Paris, Tim O‟Laughlin and William C. Paris for San Joaquin River Group Authority as
Amicus Curiae on behalf of Plaintiffs and Appellants.
Jason E. Resnick for Western Growers Association, California Cattlemen‟s Association and California
Grape and Tree Fruit League as Amici Curiae on behalf of Plaintiffs and Appellants.
Harold Griffith as Amicus Curiae on behalf of Plaintiffs and Appellants.

Downey Brand, Kevin M. O‟Brien, Jennifer L. Harder and Joseph S. Schofield for Association of
California Water Agencies, Regional Council of Rural Counties and Family Water Alliance as Amicus
Curiae on behalf of Plaintiffs and Appellants.

Erica Frank; Michele Pielsticker; Law Office of Anthony T. Caso and Anthony T. Caso for California
Chamber of Commerce, Personal Insurance Federation of California, Association of California Insurance
Companies, Wine Institute, Federation of Independent Business Legal Foundation and California
Taxpayers‟ Association as Amici Curiae on behalf of Plaintiffs and Appellants.

Trevor Grimm, Jonathan M. Coupal and Timothy A. Bittle for Howard Jarvis Taxpayers Association as
Amicus Curiae on behalf of Plaintiffs and Appellants.

Fulbright & Jaworski, Jeffrey B. Margulies; and Heidi K. McAuliffe for National Paint & Coatings
Association, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Page 2 – S150518 - counsel continued

Counsel:
Bill Lockyer and Edmund G. Brown, Jr., Attorneys General, Amy J. Winn, Acting Assistant Attorney
General, David S. Chaney and Paul Gifford, Assistant Attorneys General, Gordon Burns, Deputy Solicitor
General, William L. Carter, Matthew J. Goldman and Molly K. Mosley, Deputy Attorneys General, for
Defendant and Respondent.
David R. Owen; Rossmann and Moore, Antonio Rossman, Robert B. Moore; Hamilton Candee, Katherine
S. Poole; and Joanne S. Spalding for The Planning and Conservation League, Natural Resources Defense
Council and Sierra Club as Amicus Curiae on behalf of Defendant and Respondent.
Diane F. Boyer-Vine, Robert A. Pratt and Marian M. Johnson for the California Legislature as Amicus
Curiae on behalf of Defendant and Respondent.

Counsel who argued in Supreme Court (not intended for publication with opinion):
Stuart L. Somach
Somach, Simmons & Dunn
813 Sixth Street, Third Floor
Sacramento, CA 95814
(916) 446-7979
Molly K. Mosley
Deputy Attorney General
1300 I Street, Suite 125
Sacramento, CA 94244-2550
(916) 445-5367

Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in an action for writ of administrative mandate. This case includes the following issues: (1) Does Water Code section 1525, which was amended by the Legislature by majority vote in 2003 to impose annual fees on the persons and entities holding permits and licenses issued by the State Water Resources Control Board, impose an invalid tax or a lawful regulatory fee? (2) If section 1525 is valid, may the Water Resources Control Board permissibly collect a fee levied on an entity which has sovereign immunity from a person or entity who has a contract with the immune sovereign? (3) If the statutory scheme is valid, but the regulations implementing it are invalid, did the Court of Appeal err in limiting refunds to only those persons and entities filing petitions for reconsideration before the Water Resources Control Board?

Opinion Information

Date:	Citation:	Docket Number:	Category:	Status:	Cross Referenced Cases:
Mon, 01/31/2011	51 Cal. 4th 421, 247 P.3d 112, 121 Cal. Rptr. 3d 37	S150518	Review - Civil Appeal	submitted/opinion due	Sinclair Paint Co. v. State Bd. of Equalization, 937 P.2d 1350 (Cal. 1997) U. S. v. Fresno County, 97 S.Ct. 699 (U.S.Cal. 1977) Sargent Fletcher, Inc. v. Able Corp., 3 Cal.Rptr.3d 279 (Cal.App. 2 Dist. 2003) California Assn. of Professional Scientists v. Department of Fish & Game, 94 Cal.Rptr.2d 535 (Cal.App. 3 Dist. 2000) Constitutionality of statutes affecting riparian rights, 56 A.L.R. 277 (1928) M'Culloch v. State, 17 U.S. 316 (U.S.Md. 1819) Davis v. Michigan Dept. of Treasury, 109 S.Ct. 1500 (U.S.Mich. 1989) Novato Fire Protection Dist. v. U.S., 181 F.3d 1135 (9th Cir.(Cal.) 1999) Barratt American Inc. v. City of Rancho Cucamonga, 124 P.3d 719 (Cal. 2005) People v. Shirokow, 605 P.2d 859 (Cal. 1980) Sea & Sage Audubon Society, Inc. v. Planning Com., 668 P.2d 664 (Cal. 1983)

Opinion Authors
Opinion	Justice Carol A. Corrigan
Concur	Justice Carlos R. Moreno

Dockets
Feb 23 2007	Petition for review filed   Appellants California Farm Bureau Federation, etal Attorney David A. Battaglia & Nancy N. McDonough
Feb 26 2007	2nd petition for review filed   California State Water Resources Control Board, the California State Board of Equalization, et al., respondents by Molly K. Mosley, Deputy Attorney General
Feb 26 2007	3rd petition for review filed   Appellant, Northern California Water Association. by counsel, Stuart L. Somach.
Mar 8 2007	Record requested
Mar 8 2007	Received Court of Appeal record   one doghouse
Mar 9 2007	Received additional record   five doghouses in a box ( volume 4 thru 8 )
Mar 13 2007	Answer to petition for review filed   Northern California Water Association, et al., appellant by Stuart L. Somach, counsel
Mar 15 2007	Answer to petition for review filed   for State's answer to Farm Bureaus peititon for review California State Water Resources, Control Board, The California State Board of Equalization, et al., respondents by Molly K. Mosley, counsel
Mar 16 2007	Answer to petition for review filed   Appellants California Farm Bureau Federation, etal Attorneys David A. Battaglia & Nancy N. McDonough
Mar 19 2007	Answer to petition for review filed   for State's answer to the Northern California Water Association's petition for review California State Water Resources Control Board, the California State Board of Equalization, et al., respondents by Molly K. Mosley, counsel
Mar 23 2007	Reply to answer to petition filed   California State Water Resources Controal Board, et al., respondents to answer filed by appellant Northern California Water Association by Molly K. Mosley, counsel
Mar 26 2007	Reply to answer to petition filed   California State Water Resources Control Board, respondents to answer of appellant California Farm Bureau Federation. by Molly K. Mosley, Deputy Attorney General
Mar 26 2007	Reply to answer to petition filed   Appellants California Farm Bureau Federation, etal Attorneys David A. Battaglia & Nancy N. McDonough
Mar 28 2007	Reply to answer to petition filed   Northern California Water Associaiton, et al., appellant by Stuart L. Somach, counsel
Apr 11 2007	Petition for review granted (civil case)   Petitions George, C. J., was absent and did not participate. Votes: Moreno, ACJ., Kennard, Baxter, Chin and Corrigan, JJ.
Apr 24 2007	Certification of interested entities or persons filed   by counsel for appellant, Central Valley Project.
Apr 25 2007	Certification of interested entities or persons filed   by counsel for appellant, California Farm Bureau Federation.
May 2 2007	Request for extension of time filed   By counsel for Respondent, California State Water Resources Control Board, et al requesting a 30 day extension to and including June 11, 2007 to file respondent's opening brief.
May 8 2007	Certification of interested entities or persons filed   California Farm Bureau Federation, et al., appellants submitted by: Stuart L. Somach, Robert Brown Hoffman, Kristen Troy Castanos, Daniel Kelly, counsel for appellant
May 11 2007	Extension of time granted   On joint application of appellants, Northern California Water Association et al., California Farm Bureau Federation et al., and respondents, The California State Water Resources Control Board, The California Board of Equalization et al., and good cause appearing, it is ordered that the time to serve and file the opening briefs on the merits is hereby extended to and including June 11, 2007.
Jun 11 2007	Opening brief on the merits filed   Appellants California Farm Bureau Federation, etal Attorneys David A. Battaglia and Nancy N. McDonough
Jun 11 2007	Opening brief on the merits filed   California State Water Resources Control Board, California State Board of Equalization, et al., respondents by Molly K. Mosley, Deputy Attorney General
Jun 11 2007	Request for judicial notice filed (granted case)   California State Water Resources Control Board, California State Board of Equalization, et al., respondents by Molly K. Mosleyl, Deputy Attorney General
Jun 11 2007	Opening brief on the merits filed   Northern California Water Association, et al., appellants by Stuart L. Somach, counsel
Jun 29 2007	Certification of interested entities or persons filed   California Farm Bureau Federation, et al., appellants by Stuart L. Somach, counsel
Jul 10 2007	Answer brief on the merits filed   Northern California Water Association, et al., appellant by Robert B. Hoffman, counsel
Jul 10 2007	Opposition filed   Northern California Water Association, appellants by Daniel Kelly, counsel
Jul 11 2007	Answer brief on the merits filed   California State Water Resources Control Board, et al., respondents by Molly K. Mosely, Deputy Attorney General
Jul 11 2007	Answer brief on the merits filed   The California State Board of Equalization, et al., respondent by Molly K. Mosely, Deputy Attorney General
Jul 11 2007	Answer brief on the merits filed   California Farm Bureau Federation, et al., respondents David Battaglia, Nancy Mc Donough, counsel
Jul 12 2007	Received:   Proof of service of errata to State's Answer Brief by Molly KJ. Mosely, Deputy Attorney General for respondents - California State Water Resources Control Board, and California State Board of Board et al.
Jul 18 2007	Received:   revised page 15 to the State's Answer to Brief on the Merits by Molly K. Mosley, Deputy Attorney General
Jul 18 2007	Received:   Proof of service of Errata to State's answer brief by Molly K. Mosely, Deputy Attorney General for California State Water Resources Control Board, et al.
Jul 30 2007	Reply brief filed (case not yet fully briefed)   California State Water Resources Control Board, et al., Respondents by Molly K. Mosley, Deputy Attorney General State's Reply Brief on the Merits to Answer Brief of Northern California Water Association, et al.
Jul 31 2007	Reply brief filed (case not yet fully briefed)   California State Water Resources Control Board, et al., respondents by Molly K. Mosley, Deputy Attorney General State's Reply Brief on The Merits to Answer Brief of California Farm Bureau Federation, et al.
Jul 31 2007	Reply brief filed (case fully briefed)   Northern California Water Association, et al., appellants by Stuart L. Somach, counsel
Jul 31 2007	Reply brief filed (case not yet fully briefed)   Appellants California Farm Bureau Federation, etal Attorneys David A. Battaglia and Nancy N. McDonough
Aug 1 2007	Received:   State's reply to NCWA's opposition to request for judicial notice.
Aug 23 2007	Received application to file Amicus Curiae Brief   Association of California Water Agencies, Regional Council of Rural Counties, and Family Water Alliance. by Kevin M. O'Brien, counsel
Aug 27 2007	Received application to file Amicus Curiae Brief   Harold Griffith, non party
Aug 28 2007	Received application to file Amicus Curiae Brief   Planning and Conservation League, The Natural Resources Defense Council and the Sierra Club in support of Respondent, State Water Resorces Control Board et al.,
Aug 29 2007	Received application to file Amicus Curiae Brief   The California Chamber of Commerce, Personal Insurance Federation of California, Association of California Compenis, Wine Institue, Federal of Independent Business Legal Foundation and California Taxpayers' Association in suuport of appellants by Anthony T. Caso, counsel
Aug 29 2007	Received application to file Amicus Curiae Brief   Howard Jarvis Taxpayers Association in support of appellants by Timothy A. Bittle, counsel
Aug 30 2007	Received application to file Amicus Curiae Brief   National Paint & Coatings Association in support of appellants by Jeffrey Margulies.
Aug 30 2007	Received application to file Amicus Curiae Brief   California Legislature in support of respondents by Marian M. Johnston, counsel
Aug 30 2007	Permission to file amicus curiae brief granted   Harold Griffith in support of appellants. Answer is due within twenty days.
Aug 30 2007	Permission to file amicus curiae brief granted   The application of the association of California Water Agencies, Regional Council of Rural Counties, and Family Water Alliance for permission to file an amicus curiae brief in support of appellants is herby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
Aug 30 2007	Amicus curiae brief filed   Harold Griffith in support of appellants. Answer is due within twenty days.
Aug 30 2007	Amicus curiae brief filed   Association of Calfiornia Water Agencies, Regional Council of Rural Counties and Family Water Alliance. by counsel, Kevin M. O'Brien.
Aug 30 2007	Permission to file amicus curiae brief granted   Planning and Conservation League, Natural Resources Defense Council and the Sierra Club in support of respondents.
Aug 30 2007	Amicus curiae brief filed   The Planning and Conservation League, the Natural Resources Defense Council and the Sierra Club in support of Respondents. Answer is due within twenty days.
Sep 7 2007	Request for extension of time filed   California Farm Bureau Federation, et al., appellants requesting till October 19, 2007 to file the answer to amicus briefs by David A. Battaglia, counsel
Sep 7 2007	Permission to file amicus curiae brief granted   Howard Jarvis Taxpayers Association in support of appellant.
Sep 7 2007	Amicus curiae brief filed   Howard Jarvis Taxpayers Association in support of appellant. Answer due within twenty days .
Sep 7 2007	Permission to file amicus curiae brief granted   California Legislature in support of respondent.
Sep 7 2007	Amicus curiae brief filed   California Legislature in support of respondent. Answer due within twenty days.
Sep 7 2007	Permission to file amicus curiae brief granted   The California Chamber of Commerce, Personal Insurance Federation of California, Association of California Insurance Companies, Wine Institute, Federation of Independent Business Legal Foundation, and Taxpayers' Association in support of appellants.
Sep 7 2007	Amicus curiae brief filed   The California Chamber of Commerce, Personal Insurance Federation of California, Association of California Insurance Companies, Wine Institute, Federation of Independent Business Legal Foundation, and California Taxpayers' Association in support of appellant. Answer due within twenty days.
Sep 7 2007	Permission to file amicus curiae brief granted   National Paint & Coatings Association in support of appellants.
Sep 7 2007	Amicus curiae brief filed   National Paint & Coatings Association in support of appellant. Answer due within twenty days.
Sep 10 2007	Request for extension of time filed   California State Water Resources Control Board, California State Board of Equalization, et al., (respondents) requesting extension till October 19, 2007 to file answer to amici curiae brief
Sep 18 2007	Extension of time granted   On application of appellants and good cause appearing , it is ordered that the time to serve and file the answer to amicus curiae briefs is extended to and including October 19, 2007.
Oct 19 2007	Response to amicus curiae brief filed   California State Water Resources Control Board, California State Board of Equalization, et al., respondents by Molly K. Mosely, Deputy Attorney General
Oct 19 2007	Response to amicus curiae brief filed   Northern California Water Association, et al., appellants ansewr to the California Legislature's Amicus Brief. by Stuart Somach, counsel
Oct 19 2007	Request for judicial notice filed (granted case)   Northern California Water Association and Calfiornia Farm Bureau, appellants by Stuart L. Somach, counsel
Oct 19 2007	Response to amicus curiae brief filed   Response to AC Brief of California Legislature Appellants California Farm Bureau Federation, etal Attorneys David A. Battaglia and Nancy N. McDonough
Oct 23 2007	Response to amicus curiae brief filed   Northern California Water Association and California Farm Bureau Federation, et al., appellants joint answer to amicus curiae brief of Planning and Conservation League, Natural Resources Defense Council, and Sierra Club. by Stuart Somach, counsel
Oct 30 2007	Received:   10/23/07 letter from Timothy A. Bittle of amici Howard Jarvis Taxpayers Association re: "Errors in the State's Brief Answering Amici."
Nov 2 2007	Opposition filed   California State Water Resources Control Board, et al., respondents objection to NCWA's request for judicial notice. by Molly K. Mosley, Deputy Attorney General
Nov 7 2007	Received:   NCWA's response to state's objections to NCWA's request for judicial notice by Daniel Kelly counsel for appellants - Northern California Water Association, et al.
Aug 1 2008	Supplemental brief filed   re: New Authorities Appellants California Farm Bureau Federation, etal ~Attorneys David A. Battaglia & Kahn A. Scolnick
Oct 8 2008	Supplemental brief filed   Respondent's Supplemental Brief California State Water Resources Control Board, respondent by Molly K. Mosley, Deputy Attorney General
Oct 27 2010	Case ordered on calendar   to be argued Tuesday, December 7, 2010, at 9:00 a.m., in Los Angeles
Oct 27 2010	Order filed   For purposes of oral argument, the appellants will argue first and may reserve time for rebuttal; respondent will argue second.
Nov 22 2010	Request for judicial notice granted   The request for judicial notice filed on June 11, 2007 by the California State Water Resources Control Board, California State Board of Equalization, et al. is granted. The request for judicial notice filed on October 19, 2007 by the Northern California Water Association and California Farm Bureau Federation is denied.
Nov 29 2010	Received:   letter from State Water Resources Control Board, respondent by Edmund G. Brown, Attorney General
Dec 7 2010	Cause argued and submitted
Jan 3 2011	Justice pro tempore assigned   George, C.J. (retired), appointed as justice pro tempore to this case.
Jan 28 2011	Notice of forthcoming opinion posted   To be filed Monday, January 31, 2011 at 10 a.m.

Briefs
Jun 11 2007	Opening brief on the merits filed
Jun 11 2007	Opening brief on the merits filed
Jun 11 2007	Opening brief on the merits filed
Jul 10 2007	Answer brief on the merits filed
Jul 11 2007	Answer brief on the merits filed
Jul 11 2007	Answer brief on the merits filed
Jul 11 2007	Answer brief on the merits filed
Jul 30 2007	Reply brief filed (case not yet fully briefed)
Jul 31 2007	Reply brief filed (case not yet fully briefed)
Jul 31 2007	Reply brief filed (case fully briefed)
Jul 31 2007	Reply brief filed (case not yet fully briefed)
Aug 30 2007	Amicus curiae brief filed
Aug 30 2007	Amicus curiae brief filed
Aug 30 2007	Amicus curiae brief filed
Sep 7 2007	Amicus curiae brief filed
Sep 7 2007	Amicus curiae brief filed
Sep 7 2007	Amicus curiae brief filed
Sep 7 2007	Amicus curiae brief filed
Oct 19 2007	Response to amicus curiae brief filed
Oct 19 2007	Response to amicus curiae brief filed
Oct 19 2007	Response to amicus curiae brief filed
Oct 23 2007	Response to amicus curiae brief filed

Brief Downloads
al. to state respondents state water control et al's request for judicial notice in support of brief on the merits.pdf (46370 bytes) - Opposition of NWCA to SWRCB's Request for Judicial Notice in Support of Brief on Merits
answer brief on the merits of california farm bureau federaton.pdf (490141 bytes) - CFBF's Answer Brief on the Merits
Answer to Petition for Review of California Resources Control Board et al.pdf (238235 bytes) - CFBF's Answer to SWRCB's Petition to Review
Appellants California Farm Bureau Federation et. al. Petition for Review.pdf (964177 bytes) - CFBF's Petition for Review
Appellants, Northern California Water Association, et al., Petition for Review, Feb. 26 2007_0.pdf (1555773 bytes) - NCWA's Petition for Review
ental brief of California Farm Bureau Federation Et Al. Regarding Recent California Supreme Court Authority, Aug. 1, 2008.pdf (133154 bytes) - CFBF's Supplemental Brief Regarding Recent California Supreme Court Authority
Mar 26 Reply to Answer for Petition for Reivew.pdf (138913 bytes) - SWRCB's and BOE's Reply to Answer for Petition for Review
NCWA petitioners answer to state's merits brief.pdf (469102 bytes) - NWCA's Answer to SWRCB's and BOE's Brief on the Merits
NCWA Petitioners Opening brief on the merits.pdf (505837 bytes) - NCWA's Opening Brief on the Merits
NCWA petitioners reply brief on the merits.pdf (215916 bytes) - NCWA's Reply Brief on the Merits
NCWA Petitioners Reply to Answer to Petition for Review.pdf (129641 bytes) - NCWA's Reply to Answer to SWRCB's Petition for Review
NWCA Petitioners Response to Responsdents' Petition for Review Mar 19.pdf (185474 bytes) - NWCA's Response to SWRCB's Petition for Review
Opening Brief on the Merits California Farm Bureau Federation.pdf (769849 bytes) - CFBF's Opening Brief on Merits
Reply Brief of California Farm Bureau Federation Et Al.pdf (257786 bytes) - CFBF's Reply Brief
Reply in Support of Petition for Review.pdf (161893 bytes) - SWRCB's Reply to NCWA's Petition for Review
Respondents' Brief on the Merits_0.pdf (509029 bytes) - SWRCB's Brief on the Merits
Respondents reply to Petition for Review Filed by Northern california water association mar 23 2007.pdf (148653 bytes) - SWRCB's reply to NCWA's Petition for Review
State's answer brief on the merits to brief of NCWA.pdf (322478 bytes) - SWRCB's and BOE's Answer Brief on the Merits to NCWA's brief
State's Answer to Farm Bureau's Petition for Review.pdf (230888 bytes) - SWRCB's and BOE's Answer to CFBF's Petition for Review
State's Answer to the Northern California Water Association's Petition For review.pdf (221299 bytes) - SWRCB's and BOE's Answer to NCWA's Petition for Review
state's reply brief on the merits to answer brief of nothern california water association.pdf (195365 bytes) - SWRCB's and BOE's Reply Brief on the Merits to Answer Brief of NCWA
state's reply brief on the merits to answer brief of California farm bureau federation et al.pdf (175178 bytes) - SWRCB's and BOE's Reply Brief on the Merits to CFBF's Answer Brief

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website

May 24, 2011 Annotated by Joshua Cooley

THIS OPINION WAS MODIFIED BY THE CALIFORNIA SUPREME COURT ON APRIL 20, 2011, BUT THE MODIFICATION DID NOT AFFECT THE JUDGMENT. TO VIEW THE MODIFIED OPINION, CLICK HERE. General Summary A group of California water rights holders challenged the constitutionality of a statutory and regulatory scheme that authorized the State Water Resources Control Board to collect annual fees from them. Facts Under article XIII A, Section 3 of the California Constitution (the amendment instituted by the notorious Proposition 13 of 1978), an act to increase taxes requires two-thirds Legislative support. Conversely, statutes that create or raise regulatory fees require only a majority of Legislative support. By a 53% majority, the California Legislature passed Senate Bill No. 1049 in 2003, enacting and amending Water Code sections 1525-1560. Amended Water Code section 1525 specifically stipulates that the State Water Resources Control Board (SWRCB) is responsible for creating and implementing an annual schedule of fees for its Water Rights Division so that this Division can recover its costs for issuance, supervision, and modification of permits and licenses. The fees are collected by the State's Board of Equalization (BOE). Previously, activities of the SWRCB's Water Rights Division had been funded by the State's General Fund, not by such user fees. Under the amended Water Code, fees are to be paid by the permit and license holders regulated by the SWRCB. These permit and license holders represent those who acquired appropriative rights after 1913 to take water from watercourses that do not run adjacent to their properties. This group controls only about 40% of the water in California that is subject to water rights. Other water rights are held by groups whose water rights the SWRCB has no authority to regulate (those who acquired appropriative rights in 1913 or earlier, those who hold riparian/pueblo rights, and the federal government). To implement section 1525’s fee requirement, the SWRCB adopted California Code of Regulations, title 23, sections 1066 and 1073 (regulation 1066 and regulation 1073). These regulations set formulas to calculate annual fees for permit and license holders, as well as for federal contractors. Regulation 1066, which applies to post-1914 permit and license holders, establishes the minimum annual fee as the greater of $100, or $.03 for each acre-foot based on the total annual amount of water diversion authorized by the permit or license. Regulation 1073, which implemented the provisions of Water Code sections 1540 and 1560, addressed rights held by the Bureau of Reclamation, but contracted out to federal contractors. Regulation 1073, subdivision (b)(2) applied a formula to calculate the annual fee imposed on those contractors “[i]f the [Bureau of Reclamation] decline[d] or [was] likely to decline to pay the fee or expense . . . for the [Central Valley Project].” Regulation 1073 assessed annual fees against federal contractors based on a prorated portion of the total amount of annual fees associated with all Bureau permits and licenses, rather than the portion available under the terms of their contracts. Thus, even though contractors have contractual rights for only 5% of Bureau’s rights, they must pay for the entire amount of annual fees otherwise imposed on Bureau. In January 2004, both section 1525 permit and license holders and federal contractors received notices for their new user fees. The users believed the fees were disproportionately large compared to their regulatory burden for several reasons. First, many California water rights predate 1914 requirements for permits and licensing, and therefore, the holders of those rights do not pay fees. Second, due to sovereign immunity, the federal government cannot be forced to pay fees to the State, yet it holds numerous water rights that account for much of California’s water diversion. These two aforementioned reasons mean that only 40% of water rights' holders are being charged a fee that plaintiffs argued should be charged to all water rights' holders. Third, in determining the minimum fee amounts, the SWRCB assumed it would be unable to collect 40% of billings from water rights' holders who claimed sovereign immunity or who refused to pay their bills. Fourth, the SWRCB charged federal contractors based on the face value of the federal government’s water rights (the total amount of annual costs associated with all Bureau of Reclamation permits and licenses) rather than based on the amount of water the federal contractors had contracted to deliver. Individuals and agencies that contracted with the federal government for water deliveries were assessed a fee that was more than 10 times higher than the fees charged for those engaged in the direct diversion of water. For these reasons, water permit/license holders and federal contractors felt the fees were not sufficiently linked to the regulatory costs they themselves generated and thus constituted a tax. Several plaintiffs’ groups representing various water rights holders challenged the imposition of these fees as unconstitutional. They alleged that the statutory scheme adopted by the Legislature and the emergency regulations adopted to implement the scheme were unconstitutional both on their face and as applied. They sought declaratory and injunctive relief and a writ of mandate. Procedural History In 2005, the trial court denied the plaintiffs' writ of mandate, ruling that the money collected constituted valid regulatory fees, rather than taxes. It also rejected plaintiffs’ other constitutional claims in their entirety. In January 2007, the 3rd District Court of Appeal reversed in part, holding that Water Code section 1525 was constitutional on its face, but unconstitutional as applied to the SWRCB’s implementing regulations. The Court of Appeal found the regulations were not proportional to their benefits, and hence were taxes rather than fees. It thus invalidated the regulations that establish the amount of annual fees that water right permit and license holders pay each year, as well as the regulations that establish water rights’ fees for federal contractors, holding that that the SWRCB limited as to how much of the fees it could pass on to contractors. In addition, the Court of Appeal remanded the case to the trial court with instructions that it “(1) stay further proceedings before the SWRCB and/or BOE until the SWRCB adopts new fee schedule formulas and a procedure for calculating refunds if any; (2) order the SWRCB to adopt valid fee schedule formulas within 180 days of the finality of this opinion; (3) order the SWRCB to determine the amount of annual fees improperly assessed under regulations 1066 and 1073 for the 2003-2004 fiscal year and establish a procedure for calculating refunds, if any, due within 180 days of the finality of this opinion; and (4) order the Board of Equalization, through the SWRCB, to refund any annual fees unlawfully collected to fee payers who filed timely petitions for reconsideration with the SWRCB.” The SWRCB requested the Supreme Court to review the Court of Appeal’s opinion, and the Supreme Court granted certiorari in April 2007. Issues 1. Whether California Water Code section 1525(a) imposes an unlawful tax (requiring 2/3 supermajority approval by the Legislature) or a lawful regulatory fee (requiring only majority approval by the Legislature)—i.e. Is the statute unconstitutional on its face? 2. Whether the SWRCB regulation implementing California Water Code section 1525(a) (Regulation 1066) imposes an unlawful tax (requiring 2/3 supermajority approval by the Legislature) or a lawful regulatory fee (requiring only majority approval by the Legislature)— i.e. Is the statute unconstitutional as applied? 3. Whether Water Code sections 1540 and 1560 impose an unlawful ad valorem tax on real property. 4. Whether Water Code sections 1540 and 1560 violate the Supremacy Cause by collecting funds for water permits from both federal and state sources—i.e. Is the statute unconstitutional on its face? 5. Whether the SWRCB regulation implementing California Water Code sections 1540 and 1560 (Regulation 1073) violates the Supremacy Clause by collecting funds for water permits from both federal and state sources—i.e. Is the statute unconstitutional as applied? 6. If the Court of Appeal correctly ruled that the Water Code statutes were facially constitutional but their implementing regulations were unconstitutional, did the Court of Appeal err in limiting refunds to only those persons and entities filing petitions for reconsideration before the SWRCB? Holding and Analysis Issue 1. The Water Code amendments and their implementing regulations do not explicitly impose a tax and, therefore are not facially unconstitutional. The word tax has no fixed meaning, and distinctions between taxes and fees are frequently “blurred.” The Water Code’s language was specifically intended to avoid a tax. Section 1525 permits the imposition of fees not for general revenue purposes but only for specific enumerated functions and activities: the recovery of costs that the SWRCB incurs for its annual supervision of water usage and the processing of applications for new or modified water permits and licenses. Furthermore, in setting its fee schedules, SWRCB ensures that the “total amount of fees collected . . . equals that amount necessary to recover costs incurred in connection with” the Water Rights Division’s administration. The Court further noted that the statutes authorize the SWRCB to adjust the annual fees if the revenue collected during the prior year is greater than the amount set forth in the annual Budget Act. Issue 2. The Water Code amendments and their implementing regulations may be unconstitutional as applied. Fees impose an unconstitutional tax if they are not reasonably apportioned. The record is unclear as to whether the fees were reasonably apportioned given the regulatory activity’s costs and the fees assessed (issue remanded to trial court for further findings). “In fact, at the hearing on plaintiffs’ motion for a peremptory writ of mandate, the trial court stated it did not believe it was required to make detailed [factual] findings.” The trial court’s findings should assess whether the fees reasonably relate to the total budgeted cost of the Water Rights Division’s activity, remembering that a government agency should be accorded some flexibility in calculating the amount and distribution of a regulatory fee. Issue 3. Section 1525 does not impose an ad valorem tax on real property. Arguing that section 1525, subdivision (a), is unconstitutional because it improperly imposes an ad valorem tax on real property falsely assumes that water rights are real property rights, and that the fee imposed by section 1525 is based upon the ownership of real property. Water rights are usufructuary, and thus do not provide a right to hold title as real property rights do. * (holding and analysis amended by April 20, 2011 modified opinion. Modified opinion makes this issue “premature” for consideration or moot.) Issue 4. Water Code sections 1540 and 1560 do not facially violate the Supremacy Clause. Federal courts do not distinguish between fees and taxes when analyzing the Supremacy Clause. Moreover, these fees are imposed on the water rights of private contractors, not on the water rights of the United States. These fees can be charged to those contractors who receive water deliveries from the federal government even though the fees cannot be directly collected from the federal government under principles of sovereign immunity. The fees are fair because they are limited to the extent that a contractor has possessory use of property or benefits from it. Issue 5. Conflicting factual assertions and an unclear record concerning the extent and value of federal contractors’ beneficial interests make it impossible to decide if Water Code sections 1540 and 1560 are unconstitutional as applied (issue remanded to trial court for further findings). The trial court should make findings as to whether the Board has fairly evaluated the federal contractors’ beneficial interest, such that water not actually under contract for delivery is fairly attributable to the value of the delivery contracts themselves. On remand, the SWRCB will need to produce additional evidence to support its claim that 116 million acre feet of water is required to deliver 6.6 million acre feet of contract supply, and that this water is not otherwise diverted and then used for different purposes. Issue 6: The Supreme Court declined to address this issue because the Court of Appeal erred in finding the Water Code’s implementing regulations were unconstitutional. Justice Moreno’s Concurrence Justice Moreno’s concurring opinion provides additional reflections on the “as applied” challenge to the fees. He underscored that a charge that is labeled a regulatory fee may indeed be a tax in disguise if “the amount of fees assessed and paid exceeded the reasonable cost of providing the [regulatory] services for which the fees were charged, or [if] the fees were levied for unrelated revenue purposes.” (Sinclair Paint Co. v. State Bd. of Equalization 15 Cal. 4th 866, 881 (1997). Justice Moreno questioned the credibility of SWRCB’s claims that 95% of its time and money are allocated toward fee payors because these claims were based primarily on a document produced shortly after litigation commenced. He also emphasized that SWRCB’s decisions regarding who may be subject to a fee may or may not be reasonable. For these reasons, he supported the majority’s decision to remand the case to the trial court for further evidence about whether the SWRCB’s implementing regulations were reasonable. Tags taxes vs. regulatory fees, federal contractors’ water rights, sovereign immunity, water rights permit and license holders, Proposition 13, California Water Code, water rights fees, ad valorem tax on real property, water rights as real property rights, money for water rights, funding water rights, paying for water rights, assessment of water rights, valuation of water rights, expenses for water rights, charges for water rights, constitutionality of taxes, constitutionality of fees, supermajority vs. majorityCalifornia Farm Bureau, Central Valley Water Project Association, Northern California Water Association, State Water Resources Control Board Related Key Cases, Statutes, Regulations, and Legislation Article XIII A, Section 3 of the California Constitution Senate Bill No. 1049 (introducing the legislation that led to the Water Code amendments) California Water Code Section 1525 California Water Code Section 1537 California Water Code Section 1540 California Water Code Section 1551 California Water Code Section 1552 California Water Code Section 1560 California Code of Regulations, Title 23, Section 1066 California Code of Regulations, Title 23, Section 1073 If session timeout, click here first and open any title before opening above regulations. Sinclair Paint Co. v. State Bd. of Equalization, 15 Cal. 4th 866 (1997) (determining whether a statute imposes a tax or a fee is a question of law decided upon an independent review of the record; holding monetary impositions on paint manufacturers were regulatory fees, not taxes). People v. Shirokow, 26 Cal. 3d 301 (1980) (relied on in arguing part of this opinion that was deleted in modified opinion). California Assn. of Prof. Scientists v. Dept. of Fish & Game, 79 Cal. App. 4th 935 (2000) (holding proportionality not measured on collectively basis considering all rate payors; fees cannot surpass cost of regulatory services or programs they are designed to support). Trial Court’s Documents: Sacramento County Superior Court (Select case number format “other” and search for case number: “03CS01776"). Court of Appeal’s Case Summary and Docket Citations to this Case NO. 5 Miller & Starr, California Real Estate Newsalert 26, PROPERTY TAX DEVELOPMENTS (2011) CA Jur. 3d Evidence s 89, Generally (2011) CA Jur. 3d Property Taxes s 5, Fees distinguished (2011) CA Jur. 3d Water s 294, Conditions of the license (2011) CA Jur. 3d Water s 893, Cooperation (2011) AN INTERPRETATION OF THE INTERNAL REVENUE CODE AND TREASURY REGULATIONS SUPPORTING THE TAX DEDUCTIBILITY OF THE VOLUNTARY CHARITABLE CONTRIBUTION IN PERPETUITY OF A PARTIAL INTEREST IN AN APPROPRIATIVE OR RIPARIAN WATER, 17 Hastings W.-N.W. J. Envtl. L. & Pol'y 93, 159 (2011) COUNTY OF SISKIYOU, Petitioner, v. SUPERIOR COURT OF SACRAMENTO, Respondent, Environmental Law Foundation, Pacific Coast Federation of Fishermen's Associations, Institute for Fisheries Resources, and State Water Resources Control Board, Real Parties in Interest., 2011 WL 1464671, *1+ (Appellate Brief) (Cal.App. 3 Dist. Apr 01, 2011) Application for Leave to File Brief Amicus Curiae and Brief Amicus Curiae of Natural Resources Defense Council Supporting Respondent and Real Parties in Interest (NO. C067252) HN: 3 (Cal.Rptr.3d) GREAT OAKS WATER COMPANY, Plaintiff and Respondent, v. SANTA CLARA VALLEY WATER DISTRICT, Defendant and Appellant. Great Oaks Water Company, Plaintiff and Appellant, v. Santa Clara Valley Water District, Defendant and Respondent., 2011 WL 700357, *700357+ (Appellate Brief) (Cal.App. 6 Dist. Feb 11, 2011) Santa Clara Valley Water District's Supplemental Brief on the Merits Appeal (H035260) Regarding California Farm Bureau Federation v. State Water Resources Board (NO. H035260, H035885) Annotated by Joshua Cooley.

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