Flying Dutchman v. San Francisco, A092504.

CourtCalifornia Court of Appeals
Citation93 Cal.App.4th 1129,113 Cal.Rptr.2d 690
Decision Date20 November 2001
Docket NumberNo. A092504.,A092504.
PartiesFLYING DUTCHMAN PARK, INC., Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.
113 Cal.Rptr.2d 690
93 Cal.App.4th 1129
FLYING DUTCHMAN PARK, INC., Plaintiff and Appellant,
CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.
No. A092504.
Court of Appeal, First District, Division 2.
November 20, 2001.
As Modified December 25, 2001.
Review Denied February 13, 2002.

[113 Cal.Rptr.2d 692]

[93 Cal.App.4th 1131]

Law Offices of J. Brian McCauley, J. Brian McCauley, for Appellant.

Louise H. Renne, City Attorney, Ellen Forman, Chief Appellate Attorney, Joseph M. Quinn, Deputy City Attorney, Andrew Y.S. Cheng, Deputy City Attorney, James K. Hahn, City Attorney, Pedro B. Echeverria, Chief Assistant City Attorney, Ronald Tuller, Assistant City Attorney, Judith E. Reel, Deputy

[93 Cal.App.4th 1132]

City Attorney, as Amici Curiae for the City of Los Angeles and 52 other California Cities, and the California State Association of Counties, in support of Defendant and Respondent City and County of San Francisco, for Respondent.



The taxpayer, Flying Dutchman Park, Inc. (Flying Dutchman), brought an action for injunctive, mandatory, and declaratory relief against the City and County of San Francisco (San Francisco) and local tax officials challenging the imposition of a parking tax on constitutional as well as other grounds. The trial court dismissed Flying Dutchman's lawsuit after sustaining a demurrer without leave to amend, because Flying Dutchman failed to pay the disputed tax before filing its action. We affirm, holding that Flying Dutchman's challenge to San Francisco's tax is subject to the "pay first, litigate later" rule. This well-recognized principle of tax law requires Flying Dutchman to pay the disputed tax first, and then sue for a refund, rather than being permitted to

113 Cal.Rptr.2d 693

delay payment while the validity of the tax assessment is litigated.


In reciting the facts, we are guided by well-settled principles governing appellate review after the sustaining of a demurrer without leave to amend. "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.]." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58; see also Tensor Group v. City of Glendale (1993) 14 Cal.App.4th 154, 159, 17 Cal. Rptr.2d 639.)

Flying Dutchman conducts parking operations, both valet services and parking at fixed locations, within San Francisco. In September 1998, the San Francisco Tax Collector (Tax Collector) advised Flying Dutchman that a $652,039.10 parking tax deficiency was assessed against it for the period beginning January 1, 1994, and ending March 31, 1997. The parking tax is

93 Cal.App.4th 1133

defined as a tax on "the rent of every occupancy of parking space in a parking station in the City and County." (S.F. Mun.Code § 602.)1 In practical application, the parking tax imposes a tax on a person who either occupies or has a right or license to occupy certain real property—a parking space. This is a possessory interest, which is taxable as real property under Revenue and Taxation Code section 107.

Pursuant to sections 6.13-1 through 6.13-2 and former section 612, Flying Dutchman timely petitioned the Tax Collector for redetermination of the parking tax allegedly owed. During early March 1999, Flying Dutchman participated in an informal hearing before the Tax Collector to challenge the taxes allegedly owed.

On July 26, 1999, the Tax Collector advised Flying Dutchman that its petition for redetermination was denied, and that the tax deficiency was now in the amount of $697,223.88, which included interest and penalties accrued through July 31, 1999. Flying Dutchman then appealed the Tax Collector's determination of taxes to the Business Tax Board of Review (Board of Review). (§§ 6.14-1 through 6.14-2, former 612, subd. (d).) By filing this appeal, Flying Dutchman preserved its right to seek judicial relief. Section 6.14-2 states in relevant part: "Persons claiming they are aggrieved under [these taxing provisions] must exhaust their administrative remedies by completing an appeal to the Board of Review prior to seeking judicial relief...." The Board of Review issued its findings on or about February 1, 2000, denying Flying Dutchman's request that it reduce or eliminate the parking tax deficiency. The Tax Board's ruling became final 15 days after the ruling was issued, and pursuant to section 6.14-2, at that point in time, the assessed tax "shall thereupon become due and payable, subject to interest and penalties, and enforceable by the Tax Collector in like manner as an order or decision of the Tax Collector...." (Italics added.)

On April 7, 2000, Flying Dutchman filed a petition for mandamus, injunctive and declaratory relief in San Francisco Superior Court. As in the administrative proceedings, Flying Dutchman's superior court action included both constitutional claims as well as claims that the parking tax had been improperly calculated. Primarily, the complaint alleged that the parking tax, as interpreted and imposed, amounted to an impermissible double real property tax. Flying Dutchman also contended

113 Cal.Rptr.2d 694

that the parking tax, as applied and interpreted by the Tax Collector, violated the equal protection clauses of the state and federal constitutions.

93 Cal.App.4th 1134

However, it is undisputed that Flying Dutchman failed to precede its lawsuit by prepaying the tax that had "become due and payable" 15 days after the Tax Board's final ruling. (§ 6.14-2.) San Francisco demurred to Flying Dutchman's complaint on the ground that well-established law provided that Flying Dutchman's sole and exclusive remedy for contesting the parking tax assessment was to pay the tax, file a claim for refund, and upon denial, then commence a suit for refund.

On August 4, 2000, the trial court sustained San Francisco's demurrer without leave to amend. The court's written order states: "[T]he Court finds that each and every one of the purported causes of action pleaded in the Petition/Complaint fails to state a valid cause of action ... because Petitioner/Complainant's sole means of contesting the disputed taxes is to pay the tax, file an administrative claim for refund, and, if denied, sue for refund of the taxes paid. Petitioner/Complainant has not paid the taxes in dispute, and may not, therefore, maintain the causes of action asserted in the Petition/Complaint.... The payment followed by suit for refund procedure has been held to be a `plain, speedy and adequate remedy in the ordinary course of law' that precludes resort to mandamus, injunctive and declaratory relief in tax matters." After Flying Dutchman's petition was dismissed with prejudice and judgment was entered for San Francisco, this appeal followed.


A. Standard of Review—Demurrer.

"A demurrer tests the legal sufficiency of the complaint...." (Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497, 57 Cal.Rptr.2d 406; Sargoy v. Resolution Trust Corp. (1992) 8 Cal. App.4th 1039, 1041, 10 Cal.Rptr.2d 889.) On appeal from a dismissal after an order sustaining a demurrer, we review the order de novo, exercising our independent judgment about whether the complaint states a cause of action as a matter of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal. Rptr. 146, 793 P.2d 479; Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115, 55 Cal.Rptr.2d 276.) When the trial court sustains a demurrer without leave to amend, we must also consider whether the complaint might state a cause of action if a defect could reasonably be cured by amendment. If the defect can be cured, then the judgment of dismissal must be reversed to allow the plaintiff an opportunity to do so. The plaintiff bears the burden of demonstrating a reasonable

93 Cal.App.4th 1135

possibility to cure any defect by amendment. (Hendy v. Losse (1991) 54 Cal.3d 723, 742, 1 Cal.Rptr.2d 543, 819 P.2d 1; Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58; Baughman v. State of California (1995) 38 Cal.App.4th 182, 187, 45 Cal.Rptr.2d 82.)

B. Is Flying Dutchman Entitled to a Prepayment Determination of the Parking Tax's Validity?

It is undisputed that Flying Dutchman has not paid any of the taxes at issue, and through this proceeding seeks to avoid the collection of the tax deficiency determined to be due and owing while the validity of the tax is being litigated. San Francisco claims that Flying Dutchman, like all other taxpayers, should be required to abide by the "pay first, litigate later" rule. (See

113 Cal.Rptr.2d 695

Allen v. Regents (1938) 304 U.S. 439, 456, 58 S.Ct. 980, 82 L.Ed. 1448.) Simply put, San Francisco claims that as a condition precedent to challenging the tax assessment in court, Flying Dutchman must first pay the tax.2

California courts have repeatedly denied mandamus, injunctive and declaratory relief where a taxpayer has failed to pay an assessed tax before filing a refund action. (Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1113-1114, 4 Cal.Rptr.2d 857, 824 P.2d 663; State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 217 Cal.Rptr. 238, 703 P.2d 1131 (State Bd. of Equalization).) It has recently been acknowledged that "`[t]he power of a state to provide the remedy of suit to recover alleged overpayments as the exclusive means of judicial review of tax proceedings has long been unquestioned. [Citations.]' ..." (Writers Guild of America, West, Inc. v. City of Los Angeles (2000) 77 Cal.App.4th 475, 481, 91 Cal.Rptr.2d 603 (Writers Guild), quoting Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 725-726, 192 P.2d 916; see also Aronoff v. Franchise Tax Board (1963) 60 Cal.2d 177, 179, 32 Cal.Rptr. 1, 383 P.2d 409.) Our Supreme Court has explicitly held that "the sole...

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