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Daily Tax Report: State

California Law Targeting Trump’s Tax Returns Blocked by Judge

Sept. 19, 2019, 9:26 PM

President Donald Trump can keep his tax returns to himself and still appear on the California primary ballot under a tentative ruling from a federal trial court judge.

Trump, his campaign, the Republican National Committee, and other plaintiffs are likely to prevail in their arguments that California’s law requiring candidates to disclose five years of tax returns to appear on the primary ballot is unconstitutional, U.S. District Judge for the Eastern District of California Morrison C. England Jr. said from the bench Sept. 19.

England will issue a written ruling by Oct. 1 but he said Trump and the other plaintiffs showed they would suffer irreparable harm if the law is allowed to remain in effect.

“The elephant in the room is Trump’s tax returns,” England said.

Broad Implications

The judge said he recognizes the broad implications of California’s law and the interest California voters have in seeing Trump’s returns.

But during a two-hour hearing in federal court in Sacramento, England said the federal Ethics in Government Act may preempt the state law. The federal law governs financial disclosures for federal officeholders and employees.

Even if he hinges his written ruling on federal preemption, England said he is likely to examine other issues raised, such as whether the California law unconstitutionally adds a requirement for presidential candidates to a fixed list in the U.S. Constitution, as Trump argues.

“We are encouraged that the federal court tentatively concluded that a preliminary injunction should be granted,” Jay Sekulow, counsel to Trump, said in a Sept. 19 statement. “It remains our position that the law is unconstitutional because states are not permitted to add additional requirements for candidates for president, and that the law violates the Constitution.”

Trump and his campaign, the state and national Republican parties, another presidential candidate, and several voters asked in five separate lawsuits for an injunction to stop the state from enforcing it.

State Noncommittal on Appeal

Attorneys for the state said they would wait to see the written ruling before deciding whether to appeal.

If the court were to uphold the law, Trump would have to decide by Nov. 26 whether to release his tax returns to California Secretary of State Alex Padilla (D), who would post redacted versions on his office’s website.

The outcome of Trump’s challenge would also apply to all other presidential candidates, who would face the same Nov. 26 deadline. Gubernatorial candidates would be required to release their returns in the next election for that office in 2022.

The dispute is one of several legal battles over Trump’s tax returns. He has sued New York officials to block a law that would allow them to hand over his New York state tax returns to key congressional lawmakers. And House Ways and Means Committee Democrats sued the IRS and Treasury Department after the government rejected a request and a subpoena for six years of Trump’s federal returns.

Trump broke with decades of tradition when he refused to release his returns in the 2016 campaign.

California’s attorneys argue that because the law doesn’t violate the U.S. Constitution it doesn’t cause irreparable harm, which is necessary for issuance of an injunction to block the law. At the hearing, they emphasized that states have the authority to govern their own primaries, and if Trump is the Republican presidential nominee he would still appear on the general election ballot.

California lawmakers passed the law in response to Trump’s refusal to release his tax returns. The law requires presidential and gubernatorial candidates to release their tax returns for the most recent five years to be eligible for the statewide presidential primary ballot.

When Gov. Gavin Newsom (D) signed the law July 30 he broke from his predecessor, former Gov. Jerry Brown (D), who vetoed a similar bill in 2018 because he said it could be unconstitutional. He didn’t release his tax returns while running for governor.

The California Supreme Court is also weighing a challenge to the tax return disclosure law.

The case is Donald J. Trump for President Inc. v. Padilla, E.D. Cal., 2:19-cv-01501, motion hearing 9/19/19.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com