A California appeals court denied a challenge to the state’s lucrative cap-and-trade program by California business owners on Thursday—who argued the program constituted an illegal tax.

The Sacramento Bee reports that the highly-politicized “3rd District Court of Appeal upheld the California Air Resources Board’s program in a 2-1 decision, ruling that its auction sales do not equate to an illegal tax because the purchase of pollution credits by businesses is voluntary and the credits they buy are “a thing of value.”

In California—as a result of a 1978 Constitutional Amendment known as Proposition 13—a new tax can only be levied if passed by a two-thirds vote. In 2010, voters passed Proposition 26, forbidding legislators from levying “hidden taxes” by renaming them “fees.”

In January of this year, Chamber of Commerce attorney James Perrinello argued that it must be one or the other: “It’s either a regulatory fee or it’s a tax. That is the universe we operate from in California. The auction revenue is “essentially an enormous slush fund and they’re not necessary to meet AB 32’s greenhouse gas reduction goals,” he told the Sacramento Bee.

The cap-and-trade program now run by the California Air Resources Board (CARB)—authorized under the 2006 California “Global Warming Solution Act (AB32) designed to reduce greenhouse gas (GHG) emissions to 1990 levels by 2020—was passed by a simple majority and has brought in over $4 billion in additional revenue to the state’s perennially empty coffers. Much of that money has been diverted to affordable housing programs and Governor Jerry Brown’s pet project, High Speed Rail—neither of which has anything to do with reducing GHG emissions.

Justice Elena J. Duarte, writing for the majority, defended the program as voluntary, according to the Bee report: “These twin aspects of the auction system, voluntary participation and purchase of a specific thing of value, preclude a finding that the auction system has the hallmarks of a tax.”

The lone dissenting vote was cast by Justice Harry E. Hull, Jr., who stated in his dissent that the program does constitute a tax—siding with Morning Star, a Woodland-based tomato processor, and the California Chamber of Commerce.

“Given that the auction program is, for Morning Star and businesses that are similarly situated, compulsory if they are to remain in business in California and that the auction program creates, in actual effect, general revenue, I can only conclude that the program is a tax in ‘something else’ clothing and that the auction program, not having been passed by a 2/3 vote in the Legislature, violates Proposition 13,” Hull wrote in his dissent, reported Sac Bee.

Reaction was swift—and predictable—from those who make a living off government-mandated programs like cap-and-trade, including environmentalists—both in and outside California’s government.

“It’s a good day amidst a sea of darkness,” Alex Jackson, director of the Natural Resources Defense Council’s California climate program, told Scientific American. “It removes one of the key legal clouds hanging over the program and I think forcefully rebukes the notion that selling essentially the privilege to pollute constitutes taxation.”

“The court’s decision affirms the basic purpose and structure of the program–to deliver carbon reductions in a cost-effective and flexible manner, Mary Nichols, chairwoman of the Air Resources Board, told the Sacramento Bee. “The decision provides additional certainty for this keystone program, which supports all the other approaches California has underway to fight climate change.”

For those business owners forced to participate in the so-called “voluntary program,” the decision is a huge disappointment. SciAm points out the court failed to answer the fundamental question at issue—“that the program should be subjected to a court test known as Sinclair Paint, which is used to evaluate whether a charge is a tax or a fee. The state had argued against that approach, contending that cap and trade is a novel type of revenue-raising program.”

Chris Rufer, founder and owner of Morning Star, took the argument even further. In an exclusive interview with Breitbart News, Rufer said, “Cap-and-trade—call it a tax or a fee, it makes no difference—it’s just another trick, an excuse for the bureaucratic, parasitic class to collect income for their own benefit. And they’re doing it at the expense of the poorest among us, not the rich.”

Rufer went on, “These so-called liberal policies are pounding the poor, not helping them. It’s the poor who spend all their income on living expenses—not the rich, and tricks like cap-and-trade that drive up the cost of basic necessities like fuel, oil and food products hit them the hardest.”

Rufer advocated looking deeper, analyzing the potential motivations of the individuals involved.

“Given such a simple choice between a tax or a fee, the judicial creation of a mythical ‘third way’ or ‘something in between’ to which no rules apply, illustrates these justices owe their allegiance, not to the law, but to their own craven ambition—seeking to curry favor with Jerry Brown in hopes of winning a plum appointment to the California Supreme court.”

Both sides are likely to continue the fight as legislators gear up to pass bills in each house by a two thirds margin to inoculate CARB’s cap-and-trade program from any further legal challenges as an “illegal tax,” and plaintiffs are considering appealing Thursday’s decision to the California Supreme Court.

Tim Donnelly is a former California State Assemblyman and author, who’s doing a book tour for his new book: Patriot Not Politician: Win or Go Homeless. 

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