Ball v. County of Los Angeles

• Decision Date: 29 June 1978
• Citation: 82 Cal.App.3d 312,147 Cal.Rptr. 252
• Court: California Court of Appeals Court of Appeals
• Parties: Helen BALL, etc., Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, Defendant and Respondent. Civ. 52206.

Page 252

147 Cal.Rptr. 252

82 Cal.App.3d 312

Helen BALL, etc., Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, Defendant and Respondent.

Civ. 52206.

Court of Appeal, Second District, Division 3, California.

June 29, 1978.

Volney F. Morin and Volney F. Morin, Jr., Los Angeles, for plaintiff and appellant

John H. Larson, County Counsel, and Charles J. Moore, Deputy County Counsel, Los Angeles, for defendant and respondent.

COBEY, Acting Presiding Justice.

Helen Ball, suing individually and on behalf of all others similarly situated, appeals from a summary judgment entered in favor of the County of Los Angeles (hereafter "County") on her complaint alleging that she is entitled to recover interest on property taxes voluntarily refunded to her by the County. The refund was paid by the County upon receipt and verification of information that certain property owned by Ball and upon which she had paid tax was exempt from taxation. The appeal lies. (Code Civ.Proc., §§ 437c, 904.1, subd. (a).)

The question presented by this appeal is whether a taxpayer is entitled to recover interest on tax payments erroneously collected by the County on exempt property when the County promptly refunds the erroneous payments upon being put on notice of its error. ¹ We will answer this question in the negative. A taxpayer has no

right to recover interest from the County unless interest is provided for by statute and such is not the case here.

FACTS ²

During the three year period between 1971 and 1974 Ball owned real property which she leased to the City of Los Angeles as a library materials depository. Due to the nature of the property's use, Ball was entitled to exemption of it from property taxation. (Former Rev. & Tax.Code, § 202, subd. (b).) ³ Nevertheless, no application for exemption from property taxes was filed with the County until April 10, 1974, and taxes were collected on the property in each of the three years. ⁴

The County processed and verified Ball's exemption claim between April and July of 1974. The County did not dispute Ball's right to a refund and on August 12, 1974, a warrant was issued to Ball refunding to her taxes paid on the exempt property between 1971 and 1974. No interest was included in the refund payment.

DISCUSSION

1. County is Liable for Interest Only Where Such Liability is Created by Statute

It is well established that there is no right to interest as payment for the use of money unless the right has been created by statute or by an express or implied contract. (45 Am.Jur.2d, Interest and Usury, §§ 34-35, pp. 39-40; cf. Civ.Code, § 1428.) There is a split of authority, however, on the question of governmental liability for interest on tax refunds. In some jurisdictions it is held that there is an implied contract between the state and the taxpayer that the state will be liable for interest for the period of time it has the use of the taxpayer's money. Therefore these jurisdictions have adopted the rule that a state or municipal corporation which must refund all or part of a tax which has been paid is liable for interest on the refund even in the absence of a statute which specifically authorizes payment of interest. (Annot., Right to Interest on Tax Refund or Credit in Absence of Specific Controlling Statute (1963) 88 A.L.R.2d 823, 825-827, § 2, and cases cited.) Other jurisdictions have rejected the implied contract theory and follow the rule that there is no liability for interest on a refund in the absence of a statute that specifically creates a liability for such interest. (Idem., 88 A.L.R.2d 823, 835-840, § 5, and cases cited.)

Several rationales have been advanced for the rule requiring specific statutory creation of governmental liability for interest on tax refunds. The rule has been said to be based upon the doctrine that requires the state's consent before the state becomes liable. (Columbia Steel Co. v. State (1949) 34 Wash.2d 700, 209 P.2d 482, 489; cf. Sovereign Immunity Study (Feb. 1963) 5 Cal.Law Rev.Com.Rep., pp. 17-21.) It is suggested that the rule is supported by the theory that a contract for interest is implied only when there is either delay or default on the part of the debtor and such delay or default will not be attributed to the government since it is presumed that the government always stands ready to pay what it owes promptly. (Monarch Mills v. South Carolina Tax Commission (1929) 149 S.C. 219, 146 S.E. 870, 872; cf. Evid.Code, § 664; Tripp v. Swoap (1976) 17 Cal.3d 671, 683, 131 Cal.Rptr. 789, 552 P.2d 749.) The rule has been said to rest upon the practical consideration that the tax collector has no money to pay interest in the absence of statutory authority to establish a fund for that purpose. (Lakefront Realty Corporation v. Lorenz (1960) 19 Ill.2d 415, 167 N.E.2d 236, 240-241.) Finally, several jurisdictions found the rule to be required by state constitutional provisions prohibiting payments from the state treasury in the absence of a legislative act or resolution. (New England Mut. Life Ins. Co. v. Reece (1935) 169 Tenn. 84, 83 S.W.2d 238, 242; Kaemmerling v. State (1924) 81 N.H. 405, 128 A. 6, 7; see Cal.Const., art. XVI, § 7; Richter v. Board of Supervisors (1968) 259 Cal.App.2d 99, 105, 66 Cal.Rptr. 52.)

California has adopted the rule which requires a specific statutory provision to create governmental liability for interest. "(W)hatever the law may be elsewhere it has always been the rule in California that there is no implied contract of any kind that the state will pay interest on its indebtedness for it is liable only when made so by statute." (Gregory v. State of California (1948) 32 Cal.2d 700, 703, 197 P.2d 728, 729; People v. Union Oil Co. (1957) 48 Cal.2d 476, 480, 310 P.2d 409; Jones-Hamilton Co. v. Franchise Tax Bd. (1968) 268 Cal.App.2d 343, 350, 73 Cal.Rptr. 896.) Therefore the County ⁵ is liable to Ball for interest for the use of her money only if there is a specific statute authorizing the payment of interest on her refund.

2. The Statutory Scheme Denies Interest on Ball's Refund

Ball contends that accrued interest on her tax refund is authorized by Revenue and Taxation Code section 5107 and former section 5143. ⁶ We disagree. We do not believe that these sections authorize the payment of interest by the County for the use of a taxpayer's money. For reasons set forth below, we believe that these sections are merely general definitional sections which make clear that interest collected from the taxpayer in connection with tax payments (i. e. upon delinquent payment of taxes) will be included in any refund of those taxes. Specific sections of the Revenue and Taxation Code govern the payment of interest on tax refunds and indicate a comprehensive plan that denies interest on erroneously collected taxes during the period within which the taxpayer has failed to put the County on notice of the erroneous levy.

A cardinal rule of statutory interpretation is that code sections are not to be read in isolation but construed in context. (Tripp v. Swoap, supra, 17 Cal.3d at p. 679, 131 Cal.Rptr. 789, 552 P.2d 749; Stanley v. Justice Court (1976) 55 Cal.App.3d 244, 249, 127 Cal.Rptr. 532.) Section 5107 and former section 5143 were once both part of the chapter of the Revenue and Taxation Code regarding refunds. Section 5107 remains a part of an article related to refunds generally. Section 5143 was part of the article regarding recovery of taxes paid under protest. These two sections have identical language. They both state that "as used in this article, 'tax' or 'taxes' include penalties, interest, and costs."

Although both these sections define "tax" as including interest, when read in context, it becomes clear that they refer only to the return of funds collected from the taxpayer. Whenever the word "tax" is used throughout the articles it is modified by the words "paid," "collected," "recovery," or "refund." Each of these modifiers implies that the "tax," defined to include penalties, interest, and costs, has already been collected from the taxpayer by the County. Thus, these sections define only the scope of tax refunds.

Such definition is necessary since tax refunds under section 5096 include both delinquent and nondelinquent taxes. The former may have interest, costs, and penalties added to the tax assessment itself. (See § 6591.)

Likewise, an examination of the articles of which these two sections were a part reveals the existence of various sections expressly providing for the payment of interest on tax refunds. (Former §§ 5105, 5108, 5141; ⁷ Ehrman and Flavin, Taxing California Property, §§ 494, 495, 497, [82 Cal.App.3d 319] pp. 474, 477, 479; (1976 Supp.) § 496b, pp. 308-309; Marshall, State and Local Taxation, § 128, subd. (c), p. 166; (1977 pocket part) § 128, subd. (i), pp. 113-114.) While these last mentioned sections do not apply to the cases at bench, ⁸ the existence of these specific sections negates the conclusion that a taxpayer's entitlement to interest is provided for generally. Under the doctrine of "the expression of one excludes the other" the failure of the Legislature to provide expressly for the payment of interest on certain refunds while expressly providing for such payment on other refunds indicates an intention to exclude from the omitted refunds the obligation of interest. (Hill v. City of Eureka (1939) 35 Cal.App.2d 154, 158, 94 P.2d 1025; County of Madera v. Superior Court (1974) 39 Cal.App.3d 665, 670, 114 Cal.Rptr. 283.)

These sections also reveal a comprehensive legislative plan which authorizes recovery of interest on a tax refund only where the county, with notice of an improper assessment, has failed to grant a tax refund. ⁹ Under these sections interest is denied on tax refunds unless and until the county receives notice of its error notice given by refund claim, application for equalization, or payment under protest. Interest does not begin to accrue under former section 5105 until ...