A California judge on Wednesday ruled against us in the opening round of our lawsuit against the state’s retroactive business tax. This is the law change enacted by Governor Gavin Newsom in 2024 that rewrites how business taxes are calculated by using vague language that is difficult to comply with, and makes this rewrite apply going backward with no time limit. The state’s Franchise Tax Board (FTB) has started enforcement and will not commit to no retroactive enforcement, meaning potentially 57 years of retroactivity back to when the tax was first set.
After hearing oral argument on both sides’ motions for summary judgment, Judge Christopher Krueger ruled that the government should win. However, he based his decision on a technical jurisdiction issue, not on the merits of what even the government’s lawyer conceded is “an incredibly broad statute.” Judge Krueger held that a challenge to tax laws must first exhaust administrative remedies with the FTB, and that NTU has not done that. Of course not: we are a non-profit taxpayer advocacy organization, not a California corporate taxpayer.
No problem, the judge wrote, because instead we can just give him the name of an NTU member who has done so. This also presents a problem because we do not turn over names of our members to the government, and the First Amendment guarantees our right not to do so. We provided the judge with supportive California case law, but he decided it is important “to give the agency a chance to apply” the new law before taxpayers can challenge it.
The Good News
We’ll appeal the judge’s decision. This brazenly unconstitutional law should have its day in court sooner rather than later. Taxpayers have the right to challenge unconstitutional laws, and they can’t be compelled to waive their First Amendment rights, or wait for the agency to move first, to do so.
The case is National Taxpayers Union v. Franchise Tax Board, California Superior Court (Sacramento County) No. 24CV016118. We are grateful for the assistance of pro bono counsel from Greenberg Traurig’s California office in this matter.