A. Distributing Co. v. City and County of San Francisco

• Decision Date: 26 November 1975
• Docket Number: S.F. 23275
• Citation: 15 Cal.3d 566,542 P.2d 625,125 Cal.Rptr. 465
• Court: California Supreme Court
• Parties: , 542 P.2d 625 A.B.C. DISTRIBUTING COMPANY, INC., et al., Plaintiffs and Respondents, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant. SAN FRANCISCO DISTRIBUTING, INC., et al., Plaintiffs and Respondents, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

Page 465

125 Cal.Rptr. 465

15 Cal.3d 566, 542 P.2d 625

A.B.C. DISTRIBUTING COMPANY, INC., et al., Plaintiffs and Respondents, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

SAN FRANCISCO DISTRIBUTING, INC., et al., Plaintiffs and Respondents, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

S.F. 23275.

Supreme Court of California In Bank.

Nov. 26, 1975.

Rehearing Denied Dec. 24, 1975.

Thomas M. O'Connor, City Atty., John J. Doherty and Willliam M. Bennett, Jr., Deputy City Attys., for defendant and appellant.

Hutchinson & Quattrin, J. Albert Hutchinson and Albert G. Evans, San Francisco, for plaintiffs and respondents.

RICHARDSON, Justice.

In these two consolidated appeals we consider the validity of a San Francisco ordinance which imposes a 1 percent payroll expense tax upon persons engaging one or more employees to perform services in San Francisco. Plaintiffs, wholesale liquor and beer distributors doing business in San Francisco, contend that the payroll expense tax ordinance may not validly apply to them since (1) article XX, section 22, of the California Constitution has reserved to the Alcoholic Beverage Control the exclusive power to collect license or occupation taxes on account of the manufacture, importation or sale of alcoholic beverages in this state, (2) state law (Rev. & Tax.Code, § 32010) provides that the taxes imposed under the Alcoholic Beverage Tax Law (Id., § 32001 et seq.) are in lieu of all local taxes on the sale of alcoholic beverages, and (3) state law (Rev. & Tax. Code, § 17041.5) further provides that no municipal corporation may levy or collect any tax upon the income of any person. We have concluded that San Francisco's payroll expense tax is not a license, occupation or income tax precluded by the foregoing provisions, and that accordingly the ordinance in question may be sustained as a proper exercise of the constitutional power to levy taxes for general revenue purposes.

Plaintiffs filed two separate declaratory relief actions against defendant seeking a judgment declaring that defendant's payroll expense tax ordinance was invalid as applied to them and enjoining enforcement of the ordinance. These actions were consolidated for trial and were tried upon the written stipulation jointly prepared by the parties. According to the stipulated facts, plaintiffs do business within the City and County of San Francisco and, in connection therewith, hire and employ one or more individuals as employees to perform work or render services within the city and county. The Department of Alcoholic Beverage Control requires a license for certain of plaintiffs' activities, including the sale, at wholesale, of beer, wine or distilled spirits, and related services such as warehousing, truck delivery, etc., which are incidental to the wholesale sale of alcoholic beverages. In addition, some plaintiffs engage in substantial business activities in the city and county which do not require a license.

The trial court ruled that defendant's ordinance was void and unenforceable against plaintiffs as it relates to their business as wholesalers of alcoholic beverages and entered judgment accordingly. Defendant appeals.

The ordinance at issue purports to be a revenue collecting measure; it contains no regulatory provisions, and no criminal penalties are imposed for failure to pay the tax. As related to our present inquiry, the ordinance reads: 'A tax for general revenue purposes is hereby imposed upon every person who, in connection with his business, engages, hires, employs or contracts with one or more individuals as Commission Merchant or Employee, to perform work or render services in whole or in part within the City and County of San Francisco. ( ) The amount of such tax for persons . . . shall be one (1%) percent of the payroll expense of such person; provided, that such tax shall be levied only upon that portion of payroll expense which is attributable to the City and County of San Francisco . . .. ( ) This ordinance shall not be construed as requiring any license whatsoever, nor shall payment of this tax be a condition precedent to engaging in any business within the City and County of San Francisco. This tax is imposed for general revenue purposes and in order to require commerce and the business community to carry a fair share of the costs of local government in return for the benefits, opportunities and protections afforded by the City and County of San Francisco. (§ 3.) . . . ( ) Nothing in this ordinance shall be construed as requiring the payment of any tax hereunder by a person who is subject to tax under the provisions of Ordinance No. 245--65 (Business Tax Ordinance) (a gross receipts tax) if his tax liability as computed hereunder is less than his tax liability as computed under the provisions of Ordinance No. 245--68 . . ..' (§ 17.1.)

We consider plaintiffs' respective constitutional and statutory challenges to the ordinance.

1. Article XX, section 22 of the California Constitution

Plaintiffs' primary contention is that the payroll expense tax is a license or occupation tax and that only the Department of Alcoholic Beverage Control has the power to collect such taxes from a person engaged in the manufacture, importation or sale of alcoholic beverages in this state. Plaintiffs rely upon article XX, section 22, of the state Constitution, which provides in pertinent part: 'The Department of Alcoholic Beverage Control shall have the exclusive power . . . to license the manufacture, importation and sale of alcoholic beverages in this State, and to collect license fees or occupation taxes on account thereof. ( ) . . . The Legislature shall provide for apportioning the amounts collected for license fees or occupation taxes under the provisions hereof between the State and the cities, counties and cities and counties of the State, in such manner as the Legislature may deem proper.'

We have had occasion to consider a similar constitutional attack in Ainsworth v. Bryant (1949) 34 Cal.2d 465, 211 P.2d 564, involving the validity of a San Francisco ordinance which levied an excise tax, collected by the retailer, on the retail purchase, use or consumption of tangible personal property. It was argued in Ainsworth that the ordinance could not constitutionally be applied to the retail purchase of intoxicating liquors under former article XX, section 22, which had vested in the State Board of Equalization the exclusive power to license, and to collect license fees or occupation taxes on account of, the manufacture, importation and sale of intoxicating liquors in this state. We rejected the contention and determined that the excise tax in question was solely a revenue measure, rather than a regulatory one and was 'applicable to all purchase transactions in all lines of retail business within the city and county . . ..' (P. 469, 211 P.2d p. 566.)

We explained in Ainsworth that the power of municipal corporations operating under a freeholder's charter to impose taxes for revenue purposes is strictly a municipal activity authorized by the state Constitution and subject only to those limitations appearing in the Constitution or the charter itself. (Ibid.) We noted that section 22 of article XX, being special in nature and adopted at a later date than the original constitutional grant of taxing power to local government, 'must be held to control in the express field that it covers (citation) but its effect upon the plenary power of taxation possessed by a chartered municipality . . . should not be extended beyond the express terms of the constitutional reservation on the subject of 'intoxicating liquors.' (Citation.)' (P. 472, 211 P.2d p. 568; see also Hospital Service of California v. City of Oakland (1972) 25 Cal.App.3d 402, 405--407, 101 Cal.Rptr. 800 (doubts regarding tax exemptions are resolved against the taxpayer).) Thus, in Ainsworth we concluded that 'no further exclusive power of taxation was intended' by article XX, section 22, other than the power to collect license fees or occupation taxes on account of the manufacture, importation and sale of intoxicating liquors. (P. 473, 211 P.2d 564.)

Next, we turned in Ainsworth to the challenged ordinance which imposed a tax upon the Consumer of tangible personal property. We determined that such a tax could not be considered a license tax for the privilege of doing business, since such taxes are imposed upon the retailer, not the consumer, of goods. (P. 473, 211 P.2d 564.) With reference to the claim that the ordinance imposed an occupation tax, we said: 'The San Francisco tax is not upon anyone's occupation; therefore it is not an occupation tax. Rather the subject of tax under the ordinance is the transaction of sale; the purchaser or consumer is made the taxpayer, and the retailer acts only as the tax collector . . .. The buyer's occupation is not taxed, for it is not a pursuit or occupation to buy at retail for use or consumption. (Citations.). . . . Levied upon the freedom or privilege of purchase, it is properly denominated in the ordinance as an 'excise tax' as distinguished from a personal property tax. (Citations.) Adopted purely for revenue purposes, it covers all lines of retail business within the city, and retailers of intoxicating liquors become subject to it, not because they sell that particular commodity but because they sell tangible personal property. Under well settled legal principles, immunity from such a general taxing measure must be clearly established (citations) . . ..' (Pp. 474--475, 211 P.2d pp. 569--570, italics added.)

Finally, we pointed out that under the San Francisco ordinance liquor retailers were treated no differently than any other retailer in the city and county; no attempt was made to single out liquor retailers for special regulatory treatment. (Pp. 475--477, 211 P.2d 564.)

The Ainsworth principles are controlling here. Although the payroll expense tax is not a...