City of Berkeley v. Cukierman, A055203

• Decision Date: 29 March 1993
• Docket Number: No. A055203,A055203
• Citation: 18 Cal.Rptr.2d 478,14 Cal.App.4th 1331
• Court: California Court of Appeals
• Parties: CITY OF BERKELEY, Plaintiff and Respondent, v. Moshe E. CUKIERMAN, Defendant and Appellant.

Page 478

18 Cal.Rptr.2d 478

14 Cal.App.4th 1331

CITY OF BERKELEY, Plaintiff and Respondent, v. Moshe E. CUKIERMAN, Defendant and Appellant.

No. A055203.

Court of Appeal, First District, Division 4, California.

March 29, 1993.

David A. Self and Andrew S. Cohn, Oakland, for defendant and appellant.

Manuela Albuquerque, City Atty., Thomas B. Brown, Deputy City Atty., Berkeley, for plaintiff and respondent.

ANDERSON, Presiding Judge.

Defendant and cross-complainant Moshe E. Cukierman (appellant) appeals from the trial court's judgment awarding relief to plaintiff and cross-defendant City of Berkeley (City or respondent) in an action brought to collect unpaid taxes under the Berkeley Business License Tax Ordinance.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Regulatory Scheme

In 1977 the City enacted a Business License Tax Ordinance (Ordinance) which requires that certain businesses (including hotels) pay annual business license taxes. The Ordinance, periodically amended since 1977 to reflect increases in the tax rates, is contained in the Berkeley Municipal Code, ¹ section 9.04.005 et seq. Under the Ordinance, the business license tax is computed based upon the gross receipts of the business, multiplied by a tax factor which varies depending on the type, nature and projected profitability of the targeted business activity. A failure to pay the business license tax in a timely fashion gives rise to imposition of penalties and interest in addition to the tax itself. (§§ 9.04.110, 9.04.120.)

In addition to taxing numerous other business activities, the Ordinance imposes an annual license tax on rental of real estate. While section 9.04.195, subdivision (a), levies a business license tax on landlords (i.e., lessors of buildings or other real property), ² section 9.04.195, subdivision (b), explicitly extends this tax burden to providers of lodgings for five or more persons. (See discussion, infra.)

When the Ordinance was enacted in 1977, under section 9.04.195 the taxpayers were taxed at a rate of $1.05 per $1,000 in gross receipts. (§ 9.04.240.) However, following the adoption of Proposition 13 which substantially reduced receipts from property taxes, the City was compelled to obtain the lost revenues from other sources. Several revenue enhancing proposals were submitted to the City for consideration. The Council Revenue Committee (Revenue Committee) suggested a ninefold increase of tax rates applicable to rental business in general, focussing on the need to raise revenues to offset the loss resulting from the adoption of Proposition 13. Council member Denton, in turn, recommended a tenfold increase in the tax rates limited only to the landlords with the objective to recoup the "windfall" bestowed upon the landlords by Proposition 13. The City Council rejected the proposal of both the Revenue Committee and Denton and adopted, instead, a sixfold increase for all rental businesses taxed under section 9.04.195. In so doing, the City emphasized that the revenue increase was necessary to overcome the detrimental effect of Proposition 13 on the city's finances.

The business license tax rates specified in section 9.04.240 have been periodically amended since 1977. The current rate on rental businesses under section 9.04.195 is $10.81/$1,000 in gross receipts.

B. Operative Facts

Appellant operates the Shattuck Hotel at 2086 Allston Way in downtown Berkeley. He was (and is) the operator of the hotel. For the tax year of 1989 appellant had gross receipts in the sum of $2,097,253 whereas the total sum of gross receipts for the tax year of 1990 was $2,762,062.20. In both these years the gross receipts derived from the following activities: providing sleeping rooms to guests on a short-term basis; providing sleeping rooms to guests under special contractual arrangements; receipts from room rental for meetings, seminars, training, conferences, etc.; receipts from operation of the Sedona Restaurant within the hotel; receipts from providing food and beverage for meetings, seminars conferences and hotel guests (i.e., continental breakfast, etc.); receipts from telephone charges to the hotel guests; and receipts from miscellaneous services such as laundry, crib rentals, dry cleaning, fax, shoeshine, etc., provided to overnight hotel guests. At the applicable rate of $10.81 per $1,000 in gross receipts, appellant's tax liability for the tax years of 1989-1990 (including penalties, interest and the amounts already paid) totalled $84,501.63.

C. Procedural History

The present action was initiated by the City by filing a complaint to collect unpaid business license taxes. Appellant filed a cross-complaint for declaratory relief alleging, inter alia, that the Shattuck Hotel was incorrectly classified under the Ordinance or, in the alternative, that the Ordinance violated the equal protection clause of the Constitution. The parties filed cross-pleadings. Appellant sought judgment on the pleadings on the City's complaint, while the City demurred to appellant's first amended cross-complaint. After taking judicial notice of the Ordinance and the legislative history thereof, the trial court sustained the City's demurrer and denied appellant's motion for judgment on the pleadings.

The case proceeded to trial on the remaining issue of whether all the receipts derived from the hotel's activity should be taxed at the same rate in view of section 9.04.195, subdivision (d), which provides that the lessor may not combine income derived from real property rental with receipts coming from other business activities. Based upon the stipulated facts, the trial court concluded that all receipts of the Shattuck Hotel should be taxed at the rate set out in section 9.04.240 because the ancillary activities relied on by appellant (i.e., providing food and beverage service, telephone, meeting rooms, etc.) constituted an integral part of the hotel's business. In accordance therewith, the trial court entered judgment for the City in the sum of $84,501.63, plus costs.

II. DISCUSSION

On appeal appellant contends that the decision of the trial court is erroneous and should be reversed for three fundamental reasons: (1) the legislative history of the Ordinance suggests that the City intended to raise business license taxes only as to owners who rent real property, not as to mere lessees, such as appellant; (2) if the Ordinance is to be interpreted so as to sustain the higher taxation of nonowner tenants of hotels, it violates the equal protection clause of the Constitution because no rational basis exists to justify the discriminatory tax burden imposed on appellant; and (3) even if the Ordinance meets the constitutional standards, the judgment below still should be modified because certain income items received by appellant derived from activities other than hotel rental and, hence, should have been separated and taxed at a lower rate in accordance with section 9.04.195, subdivision (d). We disagree with appellant on all three issues and affirm the judgment.

A. The Ordinance Is Applicable to Operators of Hotels Providing Lodging for Guests

Section 9.04.195, subdivision (b), provides that "Every person engaged in the business of providing lodging for five or more persons, for direct or indirect compensation, shall pay an annual license fee as provided in Section 9.04.240 of this chapter for each thousand dollars of gross receipts." (Emphasis added.)

Despite the plain language of the Ordinance and the undisputed facts showing that appellant as hotel operator is in the business of providing lodging for guests for compensation, appellant argues that he does not fall within section 9.04.195, subdivision (b). Appellant's argument rests on the following logic: (1) the Ordinance is ambiguous in several respects; (2) under settled law these ambiguities must be resolved so as to give effect to the intent of the Legislature (i.e., City) (Friends of Mammoth v. Board of Supervisors (1972) 8 Cal.3d 247, 104 Cal.Rptr. 761, 502 P.2d 1049; Leslie Salt Co. v. San Francisco Bay Conservation etc. Com. (1984) 153 Cal.App.3d 605, 200 Cal.Rptr. 575); and (3) the legislative intent gathered from extrinsic evidence (especially the history of adoption of the Ordinance) demonstrates that the City intended to tax only the rental of real property by owners who profited from Proposition 13, not the lessees of such property. Appellant's argument is supported by neither the law nor the facts.

The rules of statutory construction are well established. In interpreting a statute, the court should ascertain the intent of the Legislature so as to effect the purpose of the law. (Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal.3d 222, 230, 110 Cal.Rptr. 144, 514 P.2d 1224.) In determining the legislative intent the court first turns to the language of the enactment. (Burnsed v. State Bd. of Control (1987) 189 Cal.App.3d 213, 217, 234 Cal.Rptr. 316.) Words in the statute must be given their ordinary meaning. (Johnston v. Department of Personnel Administration (1987) 191 Cal.App.3d 1218, 1223, 236 Cal.Rptr. 853.) If the statutory language is clear and unambiguous, there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature (i.e., extrinsic evidence). (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735, 248 Cal.Rptr. 115, 755 P.2d 299; City of Los Angeles v. Wilshire Crest Medical Group (1980) 113 Cal.App.3d 887, 891, 170 Cal.Rptr. 325.) This is so because the statutory language expresses the intention of the Legislature and where it is free from doubt and ambiguity, it must be followed even if it may appear from other sources that the Legislature had a different object in mind. (Guelfi v. Marin County Employees' Retirement Assn. (1983) 145 Cal.App.3d 297, 307, 193 Cal.Rptr. 343.)

The case herein falls squarely within the above stated principles. The disputed language of the Ordinance sets out clearly and without equivocation that every...