City of San Jose v. Donohue

• Decision Date: 28 August 1975
• Citation: 51 Cal.App.3d 40,123 Cal.Rptr. 804
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF SAN JOSE, a Municipal Corporation, Plaintiff and Respondent, v. Joseph H. DONOHUE, Defendant and Appellant. Civ. 35330.

Page 804

123 Cal.Rptr. 804

51 Cal.App.3d 40

CITY OF SAN JOSE, a Municipal Corporation, Plaintiff and Respondent, v. Joseph H. DONOHUE, Defendant and Appellant.

Civ. 35330.

Court of Appeal, First District, Division 2, California.

Aug. 28, 1975.

Rehearing Denied Sept. 26, 1975.

Hearing Denied Oct. 23, 1975.

William Prather, Mountain View, for defendant and appellant.

Peter G. Stone, City Atty., City of San Jose, Clarence J. Shuh, Deputy City Atty., City of San Jose, San Jose, for plaintiff and respondent.

Richard L. Knickerbocker, City Atty., City of Santa Monica, Rondrew A. Outlaw, Deputy City Atty., City of Santa Monica, Santa Monica, for amicus curiae.

ROUSE, Associate Justice.

Plaintiff City of San Jose brought an action in small claims court against defendant Joseph Donohue, seeking to recover the sum of $90.85 which was allegedly due under a city ordinance imposing a tax upon utility users. Defendant challenged the constitutionality of the ordinance, and the case was transferred to the superior court. (Code Civ.Proc., §§ 89 subd. (a)(1); 117.) The superior court upheld the validity of the ordinance and entered judgment for plaintiff city in the amount of $90.85, plus interest and costs. Defendant Donohue has appealed from that judgment.

The San Jose ordinance here under review (Ordinance No. 15285, as amended by Ordinance No. 15639) provides that every person ¹ within the city shall pay a tax in the amount of five percent of the charges made for such person's use of telephones, gas, water and electricity. The ordinance provides that the tax shall be collected by the utilities, along with their regular monthly bills, and forwarded to the city. If a utility user refuses to pay the tax for four consecutive months, he receives a 15-day demand notice from the city. Upon his failure to remit the tax due within the required 15-day period, he then becomes subject to a penalty equal to 10 percent of the tax due or $10, whichever amount is greater.

The ordinance contains a provision ² which exempts from the application of the utility tax '(1) the City, or (2) any person when imposition of such tax upon that person would be in violation of the Constitution of the United States or that of the State of California, or (3) the State, any county, municipal corporation, city and county, district or any political subdivision of the State of California.'

At the trial in the superior court, defendant attacked the utility tax ordinance upon two grounds: (1) the ordinance, as written and applied, violated the equal protection and due process clauses of the United States Constitution because certain utility users were either exempt from taxation or paid a lesser amount of taxes than others; and (2) the penalty provision of the ordinance violated the due process clause of the United States Constitution because the amount of the penalty was arbitrary and excessive and bore no reasonable relationship to the amount of the tax owed by a particular utility user.

Defendant demonstrated at the trial that, in accordance with the exemption provision of the ordinance no utility tax was assessed against any public entity. Likewise, the tax was not assessed against insurance companies or banks, which are exempt from such taxation under article XIII, sections 14 4/5 and 16, OF THE CONSTITUTION OF THE STATE OF CALIFORNIA³. Defendant also established that some individuals who leased premises from a public entity, insurance company or bank were not taxed on utility service furnished to the leased premises. In addition, it was shown that employees of public utilities received utility service at a reduced rate or, in some instances, free of charge, and that the utility tax was assessed only against the actual amounts billed to these individuals.

At the conclusion of the trial, the court rendered findings of fact and conclusions of law wherein it determined that the utility tax ordinance was constitutional and valid. A money judgment for the amount of the tax and penalty found to be due was entered in favor of plaintiff city. Defendant Donohue filed notice of appeal from that judgment.

On appeal, defendant takes the position that the constitutional arguments raised in the trial court were all sound and that that court erred in upholding the validity of the utility tax ordinance. We do not agree.

Defendant's first ground of attack upon the ordinance, as noted above, is that it is not applied equally to all utility users, and hence violates the equal protection and due process clauses of the federal constitution.

The merits of this contention must be weighed in the light of certain well-established principles: Absolute uniformity or equality in the application of tax measures can never be obtained. (Willingham Bus Lines, Inc. v. Municipal Court (1967) 66 Cal.2d 893, 897--898, 59 Cal.Rptr. 618, 428 P.2d 602; Los Angeles etc. Corp. v. Los Angeles (1912) 163 Cal. 621, 626--627, 126 P. 594.) A tax statute or ordinance which distinguishes between parties does not violate the equal protection or due process clause if the distinction rests upon a rational basis, and it must be presumed to rest on that basis if there is any conceivable state of facts which would support it. (Ladd v. State Bd. of Equalization (1973) 31 Cal.App.3d 35, 38, 106 Cal.Rptr. 885.) A legislature is not bound to tax every member of a particular class or none (Stevens v. Watson (1971) 16 Cal.App.3d 629, 633, 94 Cal.Rptr. 190), and it is constitutionally permissible to subdivide the class on the basis of the tax collectibility problem. (Henry's Restaurants of Pomona, Inc. v. State Bd. of Equalization (1973) 30 Cal.App.3d 1009, 1019, 106 Cal.Rptr. 867.) Administrative convenience and expense in the collection or measurement of a tax are alone a sufficient justification for treating some taxpayers differently than others. (Carmichael v. Southern Coal Co. (1937) 301 U.S. 495, 511, 57 S.Ct. 868, 81 L.Ed. 1245.)

The question before us, therefore, is whether there is a rational basis for the nonapplicability of the utility tax in those instances of which defendant complains. We have no difficulty in concluding that there is.

We consider first the fact that the utility tax is not assessed against the city itself nor against any other public entity. The exemption of other public entities from payment of the tax is clearly reasonable. In Carmichael v. Southern Coal Co., supra, at p. 513, 57 S.Ct. at p. 874, where the validity of a state tax upon employers was at issue, the court pointed out that 'The state may reasonably waive the formality of taxing itself or its political subdivisions. Fear of constitutional restrictions, and a wholesome respect for the proper policy of another sovereign, would explain exemption of the United States, and of the interstate railways . . ..' In this case, the trial court made the following findings concerning the exemption in favor of public entities: 'Federal Government agencies paid no utility taxes as Federal law preempts such taxation. . . . Exemption for City property is a reasonable classification as it is merely transferring payments from one pocket of the City to another. . . . Counties and other public agencies were exempt from utility taxation and said exemption is a reasonable classification as such agencies are public-supported and would merely add to the tax burden of the same taxpayers as pay the utility tax.' In all respects the trial court's reasoning is sound.

Insofar as defendant questions the existence of a rational basis for exempting insurance companies and banks from the application of the utility tax ordinance, it suffices to point out that article XIII, section 14 4/5 and former section 16, of the California Constitution, expressly prohibit the imposition of any such tax upon insurance companies and banks. A constitutional mandate provides a rational basis for tax exemption.

Defendant's final ground for claiming a lack of uniformity and equality in the application of the utility tax ordinance is based upon the fact that employees of utility companies, who receive utility service at a reduced rate or free of charge, pay a utility tax only on the amount billed to them by the utility companies and that certain persons who lease premises from public entities, insurance companies or banks pay no utility tax. These exemptions find their rational basis in the administrative convenience and expense involved in...