California Restaurant Association Files New California EPR Lawsuit Built on an Untested State Constitutional Tax Theory

Key Takeaways

• California restaurants open a state-court fight against California’s extended producer responsibility (EPR) law with a theory no EPR challenge has tried.
• On Friday, October 23, 2026, the California Restaurant Association (CRA) asked a Sacramento court to stop Circular Action Alliance California, LLC (CAA) from imposing or collecting any charge under California’s EPR law, SB 54.
• The CRA argues that SB 54’s charges are taxes, and that the California Constitution flatly bars the Legislature from handing the power to tax to a private party. No earlier EPR challenge has raised that tax-specific argument.
• SB 54 remains in effect while the case proceeds, and according to the petition, CAA’s 2027 billing is expected to reach about 4,000 producers and exceed $1.1 billion.

Producers covered by California’s SB 54 have spent months watching a 17-state coalition fight the law in federal court on federal theories. Now a new challenger has opened a second front, in state court, with an argument no one has tried yet: the California Constitution’s ban on private taxation. The CRA represents more than 18,000 restaurants, from family-owned neighborhood spots to regional chains, including members who have already received CAA invoices. Its petition sues CAA and the Department of Resources Recycling and Recovery (CalRecycle), among others.

The Novel Theory

The petition’s lead argument rests on article XI, section 11 of the California Constitution, and the text is direct: “The Legislature may not delegate to a private person or body power to . . . levy taxes or assessments, or perform municipal functions.” The CRA says SB 54 does exactly that. By its account, CAA decides who pays, sets the amounts, collects the money, and spends it. The CRA alleges that CAA’s board includes no public officials and that its fee assessment decisions cannot be appealed.

Of course, the argument works only if CAA’s charges are taxes. Here, the CRA has an unusual piece of evidence: the Legislature’s own words. The Legislative Counsel’s Digest, the official summary prepared for lawmakers and printed on the face of the enacted bill, labels three separate SB 54 charges as taxes:

1. The participant charge. The bill “would require a PRO to establish a charge for its participant producers sufficient to ensure the requirements of the act are met by the PRO, and would therefore impose a tax.”
2. The environmental mitigation surcharge. The bill “would require the PRO to establish and impose on its participant producers an environmental mitigation surcharge in an amount sufficient to raise that sum and to remit those moneys, and would authorize a PRO to collect up to $150,000,000 from plastic resin manufacturers who sell plastic covered material to producers who are participants of the PRO,” and “would therefore impose a tax.”
3. The needs assessment reimbursement. The bill “would require the PRO to reimburse the department for the cost of developing the needs assessments, thereby imposing a tax.”

The Digest goes further: It concludes that SB 54 would result in a taxpayer paying a higher tax under article XIII A, section 3, which is why passage required approval by two-thirds of each house. In other words, the State itself treated these charges as taxes. The petition adds that under Proposition 26, the State bears the burden of proving that a charge falls outside the constitutional definition of a tax, and it contends that no exception applies here. And relabeling will not help: The petition argues that the constitutional bar covers fees and taxes alike.[1]

Why This Challenge Is Different

Nondelegation arguments are not new in EPR litigation. Challengers in Oregon, Colorado, and the federal California case have argued that giving program design and fee-setting to a private PRO violates separation-of-powers principles under the U.S. Constitution, the relevant state constitutions, or both. Those claims draw on a general limit on how far a legislature may hand off its lawmaking authority, and so far they have not fared well. In August, the Oregon court rejected the private nondelegation challenge after trial.

The CRA’s theory is narrower, and potentially sharper. It does not ask how much authority is too much to delegate. It relies on a clause that singles out the taxing power and puts it out of reach of any private party. The petition calls that bar “absolute and freestanding.” If the CRA is right, there is no balancing to do. The case turns on two questions: Is CAA a private body? And are its invoices taxes or assessments? The broader separation-of-powers argument under article III, section 3 becomes a backup claim. Notably, the petition says it has no quarrel with SB 54’s environmental goals. Its objection is to who holds the power to tax.

The Dollars Are Real

According to the petition, CAA’s first invoices went to roughly 3,400 producers and were due October 15, 2026, with late penalties that the petition says the Act never authorized. The petition alleges that a producer that refuses to pay risks losing the right to sell covered materials in California, and that there is no statutory refund remedy against CAA.

To address those risks, the CRA seeks a writ of mandate, declaratory relief, and injunctive relief requiring CAA to rescind its invoices, refund payments, and stop spending the money it has collected.

What Should Producers Do Now?

For now, SB 54 remains fully in force. Producers’ obligations under the Act remain live while this case and the pending federal injunction motion move forward. The invoices will keep coming. Still, the tax theory offers a narrower path than the federal challenge: a court could agree that a private body cannot levy these charges without passing judgment on SB 54’s environmental goals. Producers should watch this case closely.

Reach out to Betsy Stone or Nick Johnson with questions about EPR laws and how they affect your business.

[1] Of the six other states with packaging EPR laws, Colorado has a nearly identical constitutional provision. Colo. Const. art. V, § 35 (“The general assembly shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property or effects, whether held in trust or otherwise, or to levy taxes or perform any municipal function whatever.”). Minnesota and Washington have related provisions that bar giving up the taxing power without referring to private entities. Minn. Const. art. X, § 1 (“The power of taxation shall never be surrendered, suspended or contracted away. . . .”); Wash. Const. art. VII, § 1 (“The power of taxation shall never be suspended, surrendered or contracted away. . . .”). How any of these provisions would apply to an EPR program will depend on each state’s case law.