General Motors Corp. v. City & County of San Francisco

• Decision Date: 14 January 1999
• Docket Number: A081246,A081253,Nos. A081239,s. A081239
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 479, 99 Daily Journal D.A.R. 533 GENERAL MOTORS CORPORATION, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.

Page 544

81 Cal.Rptr.2d 544

69 Cal.App.4th 448, 99 Cal. Daily Op. Serv. 479,

99 Daily Journal D.A.R. 533

GENERAL MOTORS CORPORATION, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.

Nos. A081239, A081246, A081253.

Court of Appeal, First District, Division 1, California.

Jan. 14, 1999.

Review Denied April 14, 1999.

Ajalat, Polley & Ayoob, Charles R. Ajalat, Terry L. Polley, Richard J. Ayoob, Los Angeles, for Plaintiff and Appellant.

Louise H. Renne, City Attorney, Dennis Aftergut, Chief Assistant City Attorney, Claude F. Kolm, Deputy City Attorney, for Defendant and Respondent.

STRANKMAN, Presiding Justice.

A municipality imposed a business tax upon a corporation's local selling activity. (S.F. Mun.Code, §§ 1002.2, 1004.08, 1004.13.) ¹ The corporation claimed the tax interfered with commerce by discriminating in favor of local manufacturers and sued for both a refund under state law and damages under federal civil rights law. (Gov.Code, §§ 935, subd. (a), 940.4, 945; S.F. Mun.Code, § 1017; 42 U.S.C. § 1983.) On cross-motions for summary judgment, the trial court entered judgment for the municipality. (Code Civ. Proc., § 437c.) We reverse. We follow the Second District in holding that a business tax that differentiates between in-city manufacturers and out-of-city manufacturers violates state and federal commerce protections. (General Motors Corp. v. City of Los Angeles (1995) 35 Cal.App.4th 1736, 1741-1742, 1752, 42 Cal.Rptr.2d 430 (General Motors Corp.).) The corporation is entitled to a full refund of the contested business taxes. The tax refund provides an adequate remedy and thus precludes any relief or attorney fees under federal civil rights law.

FACTS

The City and County of San Francisco (City or San Francisco) imposes a tax upon persons who manufacture and sell, or sell, goods through business activities within the City. (S.F. Mun.Code, §§ 1002.2, 1004.08, 1004.13.) General Motors Corporation (General Motors) sells vehicles and vehicle parts in the City that it manufactures outside the City, both within the state and outside the state. General Motors paid business tax to the City as a seller of goods.

The City Tax Collector distinguished between manufacturer-sellers (those who sell goods it manufactured within the City) and non-manufacturing sellers (those who sell goods it manufactured outside the City). (S.F. Tax Collector Ruling Nos. 6A & 6B.) An in-city manufacturer is taxed on the gross receipts from California sales. (S.F. Tax Collector Ruling No. 6A.) An out-of-city manufacturer is taxed on an apportionment of gross receipts of California sales based on the amount of selling activity within the City. ² (S.F. Tax Collector Ruling No. 6B.)

General Motors claims that the business tax discriminates against out-of-city manufacturers like itself, and impedes the flow of commerce. General Motors alleges that in-city manufacturers are subject to only one tax upon the gross receipts from the sale of goods, whereas out-of-city manufacturers are subject to two taxes--a tax upon the portion of gross receipts attributable to selling activity within the City, and any tax upon gross receipts imposed by another municipality where the seller manufactures its goods. General Motors asserts that it paid the City of Los Angeles (Los Angeles) business tax on the gross receipts of vehicles manufactured there, while also paying San Francisco a gross receipts tax for those same vehicles sold in San Francisco.

General Motors requested a tax refund but the City refused the request. General Motors then sued the City in five separate actions for a refund of approximately $200,000 in business taxes paid from 1982 to 1984, and 1987 to 1996. In addition to seeking a refund under state law, General Motors also alleged violations of rights secured by the state and federal constitutions.

General Motors and the City each moved for summary judgment. The trial court granted the City's summary judgment motion and entered separate judgments in the City's favor on all five actions in October 1997. We consolidated General Motor's appeals from the several judgments.

DISCUSSION

San Francisco's business tax is unlawful.

We do not write on a clean slate. In addition to challenging San Francisco's business tax, General Motors also challenged Los Angeles' parallel business tax--and won. In General Motors Corp., the Second District held that a business tax that differentiates between in-city manufacturers and out-of-city manufacturers violates state and federal commerce protections. (General Motors Corp., supra, 35 Cal.App.4th at pp. 1741-1742, 1752, 42 Cal.Rptr.2d 430.) Los Angeles effectively created a manufacturing tax and a selling tax, with the local in-city manufacturer exempt from the selling tax. (Id. at p. 1748, 42 Cal.Rptr.2d 430.) The tax law discriminated against out-of-city manufacturers who were subject to taxation by both the city where they manufactured their goods, and the city where they sold the goods. (Id. at pp. 1748-1749, 1752, 42 Cal.Rptr.2d 430.)

The City acknowledges that there is no difference between the tax ordinance and rulings here, and those found unconstitutional in General Motors Corp. ³ The now superseded Los Angeles ordinance and the challenged San Francisco ordinance are identical: each ordinance taxes a percentage of the gross receipts of persons "manufacturing and selling any goods, wares or merchandise at wholesale, or selling any goods, wares or merchandise at wholesale" in the respective cities. (S.F. Mun.Code, § 1004.13, subd. (a)(1); General Motors Corp., supra, 35 Cal.App.4th at p. 1741, 42 Cal.Rptr.2d 430 [discussing L.A. Mun.Code, § 21.166, subd. (a) ].) Both Los Angeles and San Francisco delegate to municipal tax administrators the task of adopting rules apportioning gross receipts to avoid constitutional objections to extraterritorial tax. (S.F. Mun.Code, § 1006; General Motors Corp., supra, at p. 1741, 42 Cal.Rptr.2d 430 [discussing L.A. Mun.Code, § 21.15, subd. (h) ].) The cities' tax administrators both adopted rulings differentiating between in-city manufacturers and out-of-city manufacturers, so that "[m]anufacturers within the city are taxed on the gross receipts of sales within and without the city throughout California. Sellers that do not manufacture within the city are taxed on an apportionment of gross receipts of sales based on the amount of their selling activity within the city." (S.F. Tax Collector Ruling Nos. 6A & 6B; General Motors Corp., supra, at p. 1742, 42 Cal.Rptr.2d 430 [discussing L.A. Rule 14].)

The City acknowledges the obvious applicability of General Motors Corp., but urges us to reject it. The City is especially critical of the Second District's conclusion that the tax ordinance is facially discriminatory in the law's disparate treatment of in-city manufacturers and out-of-city manufacturers. (General Motors Corp., supra, 35 Cal.App.4th at pp. 1749, 1752, 42 Cal.Rptr.2d 430.) The City argues that the Los Angeles and San Francisco tax ordinances do not themselves differentiate between in-city and out-of-city manufacturers; the differentiation lies within administrative tax rulings. Like a fox chewing off its trapped foot, the City discards its decades-old tax rulings as "mere interpretations" of the ordinance and tries to support itself on the ordinance alone. But the ordinance expressly distinguishes between "manufacturing and selling" and "selling," and the tax rulings can only be understood as an implementation of the ordinance's intent. (S.F. Mun.Code, § 1004.13, subd. (a)(1).) The Second District's opinion in General Motors Corp. is well-reasoned. We reject the City's criticism of the opinion, and decline the City's invitation to depart from it.

General Motors is entitled to a refund of its entire business tax payments.

General Motors' remedy for the City's imposition of an unconstitutional tax is a refund of all taxes "illegally collected." (S.F. Mun.Code, § 1017.) General Motors claims that its entire tax payment to the City was illegally collected and must be refunded in full. The City disputes this point. The City claims it need not refund the full amount of taxes paid to it, but may instead refund only an amount equal to any taxes General Motors paid to other cities on the same goods San Francisco taxed. (S.F. Tax Collector Ruling No. 6, subd. (f)(1).) General Motors would thus have to document double taxation extending back more than 15 years. (S.F. Tax Collector Ruling No. 6, subd. (f)(1)(B).) The City maintains that this more limited relief is the appropriate remedy because it refunds the illegal or excess taxes General Motors paid, and no more.

Where, as here, a taxing authority "places a taxpayer under duress promptly to pay a tax when due and relegates him to a postpayment refund action in which he can challenge the tax's legality, the Due Process Clause of the Fourteenth Amendment [of the United States Constitution] obligates the [taxing authority] to provide meaningful backward-looking relief to rectify any unconstitutional deprivation." (McKesson Corp. v. Florida Alcohol & Tobacco Div. (1990) 496 U.S. 18, 31, 110 S.Ct. 2238, 110 L.Ed.2d 17.) The taxpayer is entitled to a " 'clear and certain remedy.' " (Id. at p. 32, 110 S.Ct. 2238.) A taxing authority that has imposed a discriminatory tax "retains flexibility" in rectifying the unlawful deprivation. (Id. at p 39, 110 S.Ct. 2238.) The remedy chosen, however, must eliminate the discrimination suffered by the disfavored taxpayer. (Id. at p. 41, 110 S.Ct. 2238.)

The City argues that elimination of discrimination in its tax scheme does not demand a full refund of all selling taxes General Motors paid, but is achieved by refunding the selling taxes paid on goods that had also been assessed a manufacturing tax in another city. Thus, General Motors pays no more than one tax, like the favored in-city manufacturers. The argument is...