Northern California Water Association, et al. v. California State Water Resources Control Board, et al.

The United States operates the Central Valley Project (CVP), the largest reclamation project in the United States, and obtains water rights for the CVP from the State of California. In fiscal year 2003- 2004, the California Legislature enacted a statute that shifted funding for the State Water Resources Control Board (State Water Board) from the General Fund to those with permits and licenses for water, including the United States. Cal. Water Code § 1525(a). The statute provides that if the United States “will not pay the fee . . . based on the fact that the fee payer has sovereign immunity[,]” the tax may be imposed on “entities who have contracts for the delivery of water from the [United States].” Id. §§ 1540, 1560(a). The State Water Board passed through 100 percent of the tax imposed on the United States’ CVP water rights to those who contract with the United States for water service (CVP Water Contractors), even though, of the 116 million acrefeet under permit or license for all CVP purposes, the CVP Water Contractors have contracts for only 6.6 million acre-feet, or 5 percent of the total. The California courts found that this funding process was constitutional under the Supremacy Clause. Thus, the question presented is: Is a California statute imposing a direct tax on the United States’ property interest in water constitutional if it is applied in a manner that passes through 100 percent of that tax to the United States’ contractors when those contractors’ beneficial interest in the taxed water is, at most, 5 percent of the total water being taxed?