LOS ANGELES (Oct. 5, 2:05 p.m. ET) — Plastic bag manufacturer Hilex Poly Co. LLC has filed a lawsuit in the Superior Court of Los Angeles County that charges the county's ban on plastic bags and 10-cent tax on single-use paper carryout bags violates State Proposition 26.
Proposition 26, passed by California voters last November, requires a two-third vote in both chambers of the state legislature for new statewide fees and taxes, and a two-thirds vote in local communities for the adoption of local fees and taxes. It also broadened the definition of a tax to include many fees.
The Hilex Poly lawsuit is the latest legal action in the plastics industry's effort to halt plastic bag bans. The Save the Plastic Bag Coalition—which is not part of the Los Angeles County lawsuit filed on Oct. 3 — has said that it will file an appeal with the First District California Court of Appeal to overturn the single-use plastic bag ban for unincorporated areas of Marin County that is scheduled to go into effect Jan. 1.
“Los Angeles County's bag ‘charge' on consumers violates Proposition 26, which clearly requires local taxes be approved by a two-thirds vote,” said James Parrinello, senior litigation partner at Nielsen Merksamer Parrinello Gross & Leoni LLP, which filed the lawsuit.
The suit was filed on behalf of Hilex Poly, which is based in Hartsville, S.C. and four California residents.
The American Chemistry Council, which had said in November that it was considering a lawsuit to halt the ban, is not a party to the Hilex Poly lawsuit.
“The 10-cent tax imposed on bags was never approved by voters much less by a two-thirds vote,” Parrinello said in a statement. “Proposition 26 was implemented to counter situations exactly like this one where taxes are labeled by the local government as ‘fees' in order to circumvent the electoral process.”
Teresa Casazza, president of the California Taxpayers Association, agreed.
“Voters approved Proposition 26 to stop lawmakers from enacting hidden taxes,” Casazza said in a statement. “Unfortunately, the Los Angeles County Board of Supervisors is turning a blind eye to the law by imposing this illegal tax.
“This government-imposed 10-cent charge on paper bags is a tax, because when a shopper pays for the bag, the payment covers more than the actual cost of the bag, and the revenue benefits others who don't pay,” she said. “Since the revenue is earmarked for a specific purpose, this is a special tax that cannot legally be imposed without the approval of two-thirds of the voters.”
Mark Daniels, vice president of sustainability and environmental policy for Hilex Poly, concurred. “This charge is not only illegal but it's a hidden tax, exactly what Proposition 26 was meant to stop.”
The Los Angeles law applies to unincorporated areas of Los Angeles County.
Gail Farber, director of public works for LA County — in a letter she sent to the board of supervisors last fall recommending they adopt the ban — said her interpretation of Proposition 26 is that the fee on bags is not a tax.
“The 10-cent charge for recyclable paper carryout bags is not a tax,” Farber wrote. “Taxes are imposed for general revenue purposes [and to] raise revenue to finance general government services and functions and are usually placed into a general fund to pay for a variety of public services.
“In this case, no portion of the 10-cent charge is being remitted back to the county,” she wrote. “The charge is being retained by the affected stores … to cover their reasonable costs of compliance with the ordinance [and] only applies if a customer chooses to use a recyclable paper carryout bag, and pay for that benefit or privilege.”
That's the same interpretation of Proposition 26 as the city of San Jose, which in December enacted a ban on plastic bags and a fee on paper bags that is scheduled to go into effect in January.
“The minimum charge for the sale of recycled paper bags is neither a tax nor a regulatory fee impacted by Proposition 26 because it does not result in revenue to the state or local government,” said city attorney Richard Doyle in a memo he sent to San Jose city council Dec. 2. “Rather, like the sale of any other product, the retail establishment retains the revenue from the sale without any requirement that the retailers pay for governmental activity.”
But Parrinello disagreed with that reasoning.
“The ordinance requires the retailer to keep the money and do with it what the government tells it to do with it,” — that is, use it for the costs associated with complying with the ordinance, the actual costs of providing recyclable paper bags, and to provide educational materials or campaigns for reusable bags, he said.
ACC had used the same argument when it sent a letter to the L.A. County Board of Supervisors last Nov. 11, urging them not to enact the law.
“The fact the stores collecting the fee do not remit it to the county does not appear sufficient to override the intent of Proposition 26, at least in part because the stores are required to act as an agent of the government to implement government policy,” said Karyn Schmidt, assistant general counsel for the plastics division of the ACC, in a Nov. 11 letter to LA County.
“The clear intention of Proposition 26, and the expressed will of California voters, is to limit the ability of state legislative entities to authorize additional financial burdens on state taxpayers,” Schmidt said. “The proposed ordinance achieves exactly the same result … as a tax. It involves state action to impose additional charges on consumers.”