On October 13, the deadline for Governor Gavin Newsom to sign or veto bills, the governor signed bills authorizing three more areas of the state to exceed the state’s 2 percent cap on local sales tax rates:
- SB 63 (Wiener) establishes the Transportation Revenue Measure District – a special district with operations in Alameda, Contra Costa, Santa Clara, and San Francisco counties – with authority to place a 1 percent transactions and use tax in San Francisco and a 0.5 percent transactions and use tax in the other counties on the November 3, 2026, ballot. The tax could last 14 years, and the revenue would be used to support the Bay Area Rapid Transit system and other regional transportation programs.
- SB 333 (Laird) authorizes the San Luis Obispo Council of Governments to adopt, with voter approval, a 1 percent transactions and use tax that would, in combination with other taxes, exceed the 2 percent cap.
- AB 761 (Addis) authorizes the Monterey-Salinas Transit District to submit a transactions and use tax to the voters, capped at 0.25 percent, and specifies that the tax would be exempt from the cap.
Newsom’s approval of the three bills continues a trend of the Legislature and governor weakening the 2 percent cap by waiving this taxpayer protection for significant swaths of the state.
“The Legislature has, on numerous occasions, granted specific statutory authority to exceed the general 2 percent rate limitation,” a Senate Rules Committee analysis of AB 761 noted. “Specifically, such authority has been granted to the Counties of Alameda, Contra Costa, Humboldt, Los Angeles, Monterey, San Mateo, Santa Clara, Solano, Sonoma, and Ventura. This authority has also been granted to the cities of Alameda, Berkeley, Campbell, El Cerrito, Lancaster, Palmdale, Pinole, Santa Fe Springs, any cities in the County of Solano, Victorville, and to the Peninsula Corridor Joint Powers Board.”
CalTax and the Howard Jarvis Taxpayers Association (HJTA) opposed the bills, noting that sales tax increases will make California less affordable, especially for lower-income residents, who are hit the hardest by the regressive tax.
Newsom vetoed another bill relating to local tax increases: SB 512 (Pérez), which would have authorized voters in any transportation district with the authority to impose a transactions and use tax to enact such a tax through a local initiative.
CalTax, HJTA, and a long list of taxpayer and business groups opposed SB 512 because it would expand and codify local governments’ misapplication of the Upland loophole, allowing transportation-related special taxes to be enacted with a simple majority vote, contrary to the intent of voter-approved constitutional protections, if proposed via an initiative.
Newsom opined in his veto message that local governments already have the authority proposed by SB 512.
“This bill reaffirms that jurisdictions may use the initiative process to impose transactions and use taxes for transportation purposes,” Newsom wrote. “The courts have consistently and repeatedly affirmed this existing authority; therefore, this bill is unnecessary.”
SB 512 included language stating that it is “declaratory of existing law,” but proponents argued that the legislation was needed to address “inconsistencies” between the state constitution – specifically, the sections added by Proposition 218 – and the state Elections Code.
In the days leading up to the bill-signing deadline, Newsom also approved two bills that provide property tax relief for victims of the wildfires that ravaged Los Angeles earlier this year. AB 245 (Gipson) extends the deadline for fire victims to rebuild damaged property without triggering reassessment and allows the Los Angeles County assessor to consider fire damage when establishing assessed values for 2025, even though the fires occurred after the January 1 lien date; SB 663 (Allen) also extends the deadline for property owners to rebuild without facing higher property taxes, and additionally provides that fire-damaged properties that qualified for the welfare exemption prior to the fires will be deemed to continue to qualify if the owner can provide documentation demonstrating an intent to reconstruct the property and resume the exempt purpose.
The Legislature is scheduled to reconvene January 5 to begin the final half of its two-year session. Measures introduced in 2025 and still in their house of origin (known as “two-year bills”) have a January 31 deadline to be revived and sent to the second house. Newsom, entering his final year as chief executive, has a January 10 deadline to propose a 2026-27 state budget.