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Business Taxes Law Guide – Revision 2021
 

Uniform Local Sales and Use Tax Court Decisions

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Century Plaza Hotel Company v. City of Los Angeles … (1970)

City of Culver City v. State Board of Equalization … (1972)

City of Fillmore v. Board of Equalization … (2011)

City of Fillmore, et al.; City of Industry, et al. v. … (2011)

City of Fontana v. California Department of Tax and Fee Administration (2017)

City of Industry, et al. v. City of Fillmore, et al. … (2011)

City of Los Angeles; Century Plaza Hotel Company v. … (1970)

City of Palmdale, et al. v. State Board of Equalization … (2012)

City of Pomona v. State Board of Equalization … (1959)

City of San Joaquin v. State Board of Equalization … (1970)

City of South San Francisco v. Board of Equalization … (2014)


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Huntington Park Redevelopment Agency v. Martin … (1985)


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Martin; Huntington Park Redevelopment Agency v. … (1985)




Uniform Local Sales and Use Tax Court Decisions


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Localities Banned From Imposing Excise Tax on Alcoholic Beverages

Plaintiff hotel company brought an action to enjoin the City of Los Angeles from enforcing a municipal ordinance, a so-called "tipplers' tax," which imposed an excise tax of five percent upon the purchase price of alcoholic beverages sold by a retailer for consumption on the premises where sold. Plaintiff argued that because there was no limit upon the amount of tax which could be imposed, the tax infringed upon the state’s constitutional right to regulate alcoholic beverage sales.

The court found that the ordinance violated Revenue and Taxation Code section 32010, which provides that the taxes imposed by the Alcoholic Beverage Tax Law are in lieu of all county, municipal, or district taxes on the sale of beer, wine, or distilled spirits. In doing so, the court rejected the City’s argument that the ordinance only taxed the "purchase" of alcoholic beverages, rather than the "sale." The court concluded that the statute and ordinance were in irreconcilable conflict, and that section 32010 clearly indicated the Legislature's intention to preempt the field of taxation on transactions in alcoholic beverages. The court acknowledged that taxation for municipal purposes was ordinarily a "municipal affair"; however, given the historical context of the regulation of alcohol, the court found that there was no purely municipal affair to consider, but a matter of statewide significance. Century Plaza Hotel Company v. City of Los Angeles (1970) 7 Cal.App.3d 616.


Local Tax Revenues May Not BE Withheld for Failure to Turn Over a Dissolved Redevelopment Agency’s Funds

Culver City petitioned for a writ of mandate ordering the Board to redistribute to it all local sales tax revenue remitted to the Board from 1956 to 1969 by a business located in Culver City, which was erroneously distributed to the City of Los Angeles. Upon notification by Culver City that the business was actually located in Culver City, the Board redistributed to Culver City only the revenue allowed by Revenue and Taxation Code section 7209 (present quarter plus two previous quarters).

The court of appeal ruled that mandamus was not a proper remedy for alleged breach of the contract by which the Board administered both cities’ local sales tax ordinances. Culver City had also initiated a separate action against Los Angeles for breach of contract for recovery of all monies erroneously distributed, which the court ruled was the proper action to enforce the parties’ contractual obligations. City of Culver City v. State Bd. of Equalization (1972) 29 Cal.App.3d 404.


Decision Reallocating Local Sales Tax Revenue Became Final in Absence of Timely Administrative Appeal

The cities of Industry and Livermore sought the reallocation of local sales tax revenues in administrative proceedings before the Board. The Board's Allocation Group issued a decision in favor of the two cities and against the City of Fillmore, and later issued a supplemental decision requiring reallocation. After the time to appeal had passed and no appeal being filed, the City of Fillmore sought to appeal the supplemental decision. The Allocation Group decided to refer the matter to the SBE's Appeals Division to consider Fillmore's appeal.

The cities of Industry and Livermore petitioned the trial court to compel the SBE to implement the supplemental decision, alleging that the supplemental decision was final and that the SBE had no jurisdiction to consider an untimely appeal. The court of appeal concluded that the supplemental decision was final because Fillmore did not file a timely appeal and that Industry and Livermore were entitled to a writ of mandate compelling the SBE to implement the supplemental decision. City of Fillmore v. Board of Equalization (2011) 194 Cal.App.4th 716.


Trial Courts and Appellate Courts Apply the Substantial Evidence Standard to Review the Administrative Record

The cities of Fontana and Lathrop petitioned for a writ of mandate to challenge the State Board of Equalization’s decision to reallocate to a third city the local sales tax remitted to the two cities following a reorganization by the retailer. The court of appeal concluded that the decision of the Board to reallocate the local sales tax revenue was required to be supported by substantial evidence, and that substantial evidence supported the Board’s decision that title to the tangible personal property at issue (retail health care products) passed to consumers by the new subsidiary company, rather than the parent corporation, and so local sales tax was properly allocated to the third city, the California location of the subsidiary. City of Fontana v. California Dept. of Tax & Fee Administration (2017) 17 Cal.App.5th 899.


The Doctrine of Exhaustion of Administrative Remedies Is Inapplicable Where the Issues Raised Do Not Implicate the Regulatory Authority and Expertise of the State Board of Equalization

The Cities of Industry and Livermore brought action against the City of Fillmore arising from the alleged diversion of local sales tax revenues to Fillmore and away from Industry and Livermore due to an alleged scheme whereby various retailers set up sham offices in Fillmore and then allocated all of their sales and purchases to that location.

The court of appeal held that the petitioner cities’ claims were timely; petitioners had standing to pursue their causes of action even if they were not taxpayers; cities were not required to exhaust administrative remedies with the Board to pursue actions against each other; cities stated a cause of action for fraud against all defendants as coconspirators; cities' fraud and conspiracy causes of action did not arise from protected activity under anti-SLAPP statute; and prelitigation attorney fees and costs were not recoverable on city's partially successful anti-SLAPP motion. City of Industry, et al. v. City of Fillmore, et al. (2011) 198 Cal.App.4th 191.


Where the Trial Court Concluded that the Decision-making Process was Deficient, Such Finding Can Preclude the Court of Appeal from Vacating the Trial Court’s Judgment Pursuant to a Stipulation

The court of appeal denied the cities', redevelopment agencies', and State Board of Equalization's (SBE) stipulated motion to vacate trial court judgment partially granting cities' and agencies' administrative mandamus petition to invalidate SBE's reallocation of local sales tax revenues because the interests of the public would be adversely affected if the judgment was vacated, where the trial court concluded that SBE's reallocation violated the doctrine of laches and might also have violated due process and the Administrative Procedure Act (APA), and the trial court concluded that SBE's decision improperly failed to set forth express findings and a discussion of the evidence; to vacate the judgment would undermine its effectiveness in exposing SBE's deficiencies. City of Palmdale, et al. v. State Board of Equalization, et al. (2012) 206 Cal.App.4th 329.


Application of Local Sales Tax When a Retailer Is Located on the Border Between Two Cities

The city of Pomona brought a mandamus proceeding to compel the Board to award the entire amount of sales tax collected from a retailer located on the boundary between it and the city of Montclair. The trial court entered judgment that apportioned the sales tax between Montclair and Pomona based on the sales by each department of the establishment located within the respective city (the so-called "cashbox rule"). On appeal, the court of appeal held that the local tax statutes did not expressly provide for a situation where a unitary place of business was located on the boundary dividing different taxing localities. Because no express provision existed, the court held that the trial court's apportionment was fair and reasonable as Revenue and Taxation Code section 7202(h)(1) provided that sales tax should be determined by the receipts from goods which were sold "in the city." The court noted that the trial court properly apportioned the receipts of a department located partially within each city on the basis of the proportion of the principal sales area of the department which was located within each of the two cities. City of Pomona v. State Bd. of Equalization (1959) 53 Cal.2d 305.


Application of Local Sales Tax When a Retailer Is Located on the Border Between Two Cities

The City of San Joaquin brought an action against the Board for a declaration as to whether a seller and installer of deep well agricultural pumps, which had its principal place of business in the city, was a construction contractor for purpose of allocating sales tax revenue to counties and cities in which pumps were installed (versus the City of San Joaquin, where the seller was located), and for a declaration of the legality of the Board’s administrative pooling procedure in allocating local revenues from construction contracts (which the city argued was an invalid underground regulation). Under the new administrative ruling, the Board began classifying the seller as a contractor and the pumps sold by the seller as fixtures, which resulted in a decrease in the amount received by the city on the pump sales. Consequently, the city challenged the Board's power to classify the pumps as fixtures as well as the legality of the "pooling procedure" used by the Board in allocating revenues from construction contracts.

The court of appeal found that the seller was engaged only in the business of installing machinery and equipment that did not improve real property, and thus it was taxable by the city. The court also found that the pooling procedure used by the Board was not a regulation, but an accounting system that did not unconstitutionally deprive plaintiff of its tax revenues. City of San Joaquin v. State Board of Equalization (1970) 9 Cal.App.3d 365.


The Uniform Local Sales Tax Law and the State Sales and Use Tax Law Are Identical When Determining Whether to Apply a Sales or Use Tax

Cities of Alameda, Brisbane, and South San Francisco petitioned for writ of mandate challenging the Board's determination that under Bradley–Burns Uniform Local Sales and Use Tax Law, state use tax rather than local sales tax applied to transactions where purchased items were shipped from out-of-state warehouses to California consumers after transactions were consummated at retail stores in California. The court of appeal concluded that where state use tax applied, so did local use tax under local tax statutes and regulations. The court also concluded that it was within the Board’s discretion to use the provisions of the Uniform Commercial Code to determine where sales take place in order to determine whether sales tax or use tax applies to given transactions. City of South San Francisco v. State Bd. of Equalization (2014) 232 Cal.App.4th 707.


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Redevelopment Agency May Constitutionally Impose Sales and Use Taxes

Under 1981 legislation (SB 152, Chapter 951, Statutes 1981), which authorized redevelopment agencies to impose local sales and use taxes in redevelopment areas if the city credits those taxes against its own sales and use taxes, a redevelopment agency sought a writ of mandate to compel its secretary to publish the ordinance imposing the taxes.

The California Supreme Court issued the writ of mandate. The court held that the ordinance did not violate Article XIIIA of the California Constitution, which requires "special taxes" to be approved by two-thirds vote of electors, because the agency was not empowered to levy real property taxes and was therefore not a "special district" within the meaning of Article XIIIA. The court also held the ordinance did not violate Article XIIIB of the California Constitution, which limits local government appropriations to the past year's level, because there was a transfer of the responsibility of providing services from the city to the redevelopment agency. The city and the agency could adjust their appropriations limit accordingly. Huntington Park Redevelopment Agency v. Martin (1985) 38 Cal.3d 100.


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Redevelopment Agency May Constitutionally Impose Sales and Use Taxes

Under 1981 legislation (SB 152, Chapter 951, Statutes 1981), which authorized redevelopment agencies to impose local sales and use taxes in redevelopment areas if the city credits those taxes against its own sales and use taxes, a redevelopment agency sought a writ of mandate to compel its secretary to publish the ordinance imposing the taxes.

The California Supreme Court issued the writ of mandate. The court held that the ordinance did not violate Article XIIIA of the California Constitution, which requires "special taxes" to be approved by two-thirds vote of electors, because the agency was not empowered to levy real property taxes and was therefore not a "special district" within the meaning of Article XIIIA. The court also held the ordinance did not violate Article XIIIB of the California Constitution, which limits local government appropriations to the past year's level, because there was a transfer of the responsibility of providing services from the city to the redevelopment agency. The city and the agency could adjust their appropriations limit accordingly. Huntington Park Redevelopment Agency v. Martin (1985) 38 Cal.3d 100.