Water-right holders renew protest to state-imposed 'fee'

With litigation stalled over whether a fee imposed on water-right holders actually is an illegal tax, the state Board of Equalization mailed tax bills Nov. 3 to some 6,500 water-right licensees and permitees. Those individuals hold more than 13,000 state permits and licenses.

As in years past, California Farm Bureau Federation attorneys recommend water-right holders who receive a bill file a protest with the State Water Resources Control Board, this year by Dec. 3, to improve their chances of receiving a refund if the California Supreme Court ultimately decides the fee is invalid.

Farm Bureau sued the state in an effort to block the fees and, according to Associate Counsel Carl Borden, attorneys filed briefs in the case more than two years ago. But, Borden said, "the court has not yet set our case for oral argument, and there's no way of knowing when that will happen. Once the case has been heard, the court will need to issue its opinion within 90 days after the hearing."

Meanwhile, representatives for state agencies say that if the lawsuit does succeed, fee payers will be entitled to refunds only if they submitted to the water board a protest objecting to the fee.

The formal protest is known as a "petition for reconsideration." It must be sent, along with a copy of the bill—technically called a "notice of determination"—within 30 days of the bill's date.

Despite the state's position, the lawsuit seeks refunds of all fees paid by all water-right permittees and licensees, which to date total millions of dollars, including hundreds of thousands of dollars paid by small family farmers and ranchers.

In its lawsuit, Farm Bureau said the fees have been imposed in violation of Proposition 13, which since 1978 has required legislation that results in new or increased taxes to be approved by a two-thirds vote of the Legislature. Farm Bureau contends the water-right fees amount to unconstitutional taxes, because there is little connection between the amount charged and the benefits received by those who foot the bill, or burdens imposed on them.

Until the state's high court has ruled in the case, Borden outlined four possible courses of action for recipients of bills for the state's 2009-10 fiscal year:

• Pay the fee to the Board of Equalization now and mail a protest with a copy of the bill so it reaches the State Water Resources Control Board by Dec. 3. Persons who have already paid the bill to the Board of Equalization can still file a protest with the water board. The protest procedure is described in the bill under "Information Concerning Determinations." A sample protest form is posted on the Farm Bureau Web site, at www.cfbf.com/protestform.cfm. Members may also obtain the form by contacting the office of their county Farm Bureau.
• Pay the fee to the Board of Equalization by Dec. 3 without filing a protest. By paying the fee in a timely manner, annual interest and a 10 percent penalty would be avoided. However, the court might, as argued by the state, determine that fee payers who did not file a protest are not entitled to a refund even if the Farm Bureau wins its case.
• Don't pay the fee but mail a protest with a copy of the bill to the State Water Resources Control Board. Again, the water board must receive the protest by Dec. 3.
• Don't pay the fee and take no other action.

Borden cautioned that nonpayment under the last two options results in the addition of interest and a penalty to the fee. The Board of Equalization could seek to collect the unpaid amount by attaching the water rights holder's wages and placing a lien on his or her real property. If the court were to uphold the fee, the holder would owe the amount plus the interest and penalty. Also, the water board may ultimately revoke the holder's permit or license for nonpayment.

"If it were me, I'd pay the fee to the Board of Equalization by Dec. 3 and file a petition for reconsideration with the Water Resources Control Board by the same date," Borden said.

(Kate Campbell is a reporter for Ag Alert. She may be contacted at kcampbell@cfbf.com.)