Franchise Tax Bd. v. Superior Court

• Decision Date: 09 August 1989
• Docket Number: No. B,B
• Citation: 212 Cal.App.3d 1343,261 Cal.Rptr. 236
• Court: California Court of Appeals Court of Appeals
• Parties: FRANCHISE TAX BOARD, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Bobby L. BONDS and Patricia L. Bonds, Real Parties in Interest. 042653.

Page 236

261 Cal.Rptr. 236

212 Cal.App.3d 1343

FRANCHISE TAX BOARD, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent Bobby L. BONDS and Patricia L. Bonds, Real Parties in Interest.

No. B 042653.

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

Aug. 9, 1989.

Review Denied Oct. 26, 1989.

John K. Van de Kamp, Atty. Gen., Edmond B. Mamer and Richard E. Nielsen, Deputy Attys. Gen., for petitioner.

No appearance for respondent.

Roderic M. Wright for real parties in interest.

FUKUTO, Associate Justice.

I.

The Franchise Tax Board petitions for a writ of prohibition commanding the trial court to sustain its demurrer to a taxpayer's Complaint for Determination of Nonresidency. The filing of such a complaint is expressly authorized by Revenue and Taxation Code section 19081 and Code of Civil Procedure section 1060.5. The Franchise Tax Board contends these provisions violate article XIII, section 32 of the California Constitution, which prohibits the issuance of legal process to prevent or enjoin collection of any tax. The text of these enactments is set out in the margin. ¹ Whether these statutes authorize judicial action that violates the constitutional ban on enjoining collection of taxes is a question of first impression. Two decisions of the Courts of Appeal in 1985 and 1986, reaching conflicting results, were both ordered depublished by the Supreme Court. Two reported appellate cases considered the taxpayer's residency suit on the merits, without mention of the constitutional prohibition. (Klemp v. Franchise Tax Bd. (1975) 45 Cal.App.3d 870, 119 Cal.Rptr. 821; Whittell v. Franchise Tax Bd. (1964) 231 Cal.App.2d 278, 41 Cal.Rptr. 673.)

Despite the unusual posture of a constitutional case in which the Attorney General attacks a state statute, relegating its defense to two individuals who claim not to be residents, the proceeding is not collusive, and the taxpayers have defended the statute with vigor and skill.

II.

According to the complaint, in 1981 the Franchise Tax Board issued the taxpayers notices of additional tax it proposed to assess for tax years 1978 and 1979. The taxpayers filed a written protest, claiming to have been residents of Texas or Illinois in those years. In November 1981, after the Franchise Tax Board rejected their protest, the taxpayers appealed to the State Board of Equalization, which, seven years later, affirmed the determination of the Franchise Tax Board.

The taxpayers then filed a superior court complaint for a determination that they were not residents of California in 1978 and 1979. The Franchise Tax Board demurred on the ground the action is barred by the anti-injunction provision of article XIII, section 32 of the Constitution. The demurrer was overruled, and this petition followed.

III.

Code of Civil Procedure section 1060.5 and Revenue and Taxation Code section 19081 authorize a taxpayer who claims to be a nonresident to litigate that one fact, and the latter statute postpones collection of the disputed tax until completion of the litigation. The Franchise Tax Board contends these statutes violate the anti-injunction provision of the Constitution.

Every statute is clothed with a presumption of constitutionality (County of Sonoma v. State Energy Resources Conservation etc. Com. (1985) 40 Cal.3d 361, 368, 220 Cal.Rptr. 114, 708 P.2d 693), and must be upheld unless it is "clearly, positively and unmistakably" unconstitutional. (Lockheed Aircraft Corp. v. Superior Court (1946) 28 Cal.2d 481, 484, 171 P.2d 21.) The power of the Legislature in the area of taxation is paramount, and any constitutional restriction on that power must be strictly construed against the limitation. (E.g., Hibernia Bank v. State Bd. of Equalization (1985) 166 Cal.App.3d 393, 401, 212 Cal.Rptr. 556.) Constitutional provisions must be construed with reference to their underlying purpose. (E.g., Massachusetts Mutual Life Ins. Co. v. City and County of San Francisco (1982) 129 Cal.App.3d 876, 880-881, 181 Cal.Rptr. 370.) We examine the constitutional anti-injunction provision with these principles in mind.

Article XIII, section 32 prohibits only issuance of "legal or equitable process ... in any proceeding in any court" to prevent or enjoin collection of a tax. Here, however, collection of the tax is postponed by the statute, not the court. ("No tax under this part based solely upon the residence of such an individual shall be collected from such individual until 60 days after the action of the State Board of Equalization becomes final and, if he commences an action pursuant to this section, during the pendency of such action...." Rev. & Tax.Code, § 19081.) The statutes do not authorize the superior court to prevent or enjoin collection of the tax, but permit it only "to determine the fact of [the taxpayer's] residence in this State during the year or years set forth in the notice or notices of deficiency assessment." (Id.) Enactment of a tax statute that postpones collection of a tax until a specified time simply does not implicate the constitutional anti-injunction principle.

We recognize, of course, that a taxpayer may not circumvent constitutional or statutory restraints on prepayment tax litigation by asking only for declaratory relief. (See, e.g., Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 280, 165 Cal.Rptr. 122, 611 P.2d 463.) And, unless the Franchise Tax Board also contends the taxpayer owes tax on income from sources within California (see Rev. & Tax.Code, § 17951), a nonresidency determination in the taxpayer's favor may amount to the end of the deficiency assessment. This seems, however, to present no constitutional problem. During the litigation, it is only the tax statute, not the court, that prevents the collection of the disputed tax. When the litigation concludes, the Board can scarcely complain if the court enters a declaratory judgment of nonresidency which as a practical matter prevents it from thereafter requiring the taxpayer to pay and sue for refund. At that point any further assertion that tax must be paid would be frivolous, and judicial relief therefore not barred by article XIII, section 32. (Western Oil & Gas Assn. v. State Bd. of Equalization (1987) 44 Cal.3d 208, 213-214, 242 Cal.Rptr. 334, 745 P.2d 1360; see Union Pacific Railroad Co. v. State Bd. of Equalization (1989) 49 Cal.3d 138, 155-157, 260 Cal.Rptr. 565, 776 P.2d 267.

Thus we must distinguish the cases on which the Franchise Tax Board relies; none involved a tax statute which authorizes prepayment litigation and postpones collection while it is pending. (See State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 217 Cal.Rptr. 238, 703 P.2d 1131 (sales and use taxes); Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 165 Cal.Rptr. 122, 611 P.2d 463 (assessment of real property values); Aronoff v. Franchise Tax Bd. (1963) 60 Cal.2d 177, 32 Cal.Rptr. 1, 383 P.2d 409 (dispute over disallowed itemized deductions from gross income); Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 192 P.2d 916 (unemployment insurance contributions); Hunter-Reay v. Franchise Tax Bd. (1983) 140 Cal.App.3d 875, 189 Cal.Rptr. 810 (collection of taxes under jeopardy assessment); Helms Bakeries v. State Bd. of Equalization (1942) 53 Cal.App.2d 417, 128 P.2d 167 (sales and use taxes); cf. People ex rel. Franchise Tax Bd. v. Superior Court (1985) 164 Cal.App.3d 526, 543, 210 Cal.Rptr. 695 (enforcement of administrative subpoenas).)

We find no controlling significance in the second sentence of the constitutional provision, which states, "After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature." This provision, which dates from 1910, contains no words connoting exclusivity, and appears to authorize legislation ameliorating certain stringent rules that impeded tax refund litigation. (See Brumagim v. Tillinghast (1861) 18 Cal. 265, 270-275; Warren v. City and County (1907) 150 Cal. 167, 170, 88 P. 712; Westinghouse Electric Co. v. Chambers (1915) 169 Cal. 131, 145 P. 1025; Third & Broadway B. Co. v. Los Angeles Co. (1934) 220 Cal. 660, 665-666, 32 P.2d 377.)

Our conclusion is not inconsistent with the underlying purpose of the anti-injunction provision. Article XIII, section 32 embodies and restates the public policy that revenue collection continue unimpeded by tax litigation. (See, e.g., State Bd. of Equalization v. Superior Court, supra, 39 Cal.3d 633, 638, 217 Cal.Rptr. 238, 703 P.2d 1131.) This policy is not thwarted by residency litigation where the State has, by legislation, itself authorized, directed, and consented to the postponement of collection pending the litigation. The statute accommodates the state's need for immediate collection of jeopardy assessments. The Franchise Tax Board admits that the question of prepayment residency litigation has arisen rarely in recent years, and the statutes it seeks to condemn here have lived in peaceful coexistence with the Constitution throughout the 34...