Hibernia Bank v. State Bd. of Equalization

• Decision Date: 29 March 1985
• Docket Number: A019006,Nos. A019005,s. A019005
• Citation: 212 Cal.Rptr. 556,166 Cal.App.3d 393
• Court: California Court of Appeals Court of Appeals
• Parties: HIBERNIA BANK, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. ZABLOCKI CORPORATION, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

Page 556

212 Cal.Rptr. 556

166 Cal.App.3d 393

HIBERNIA BANK, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

ZABLOCKI CORPORATION, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

Nos. A019005, A019006.

Court of Appeal, First District, Division 3, California.

March 29, 1985.

Rehearing Denied April 25, 1985.

Review Denied June 19, 1985.

Franklin C. Latcham, Prentiss Willson, Jr., Charles J. Moll, III, Morrison & Foerster, San Francisco, for plaintiff and appellant.

John K. Van de Kamp, Atty. Gen., Timothy G. Laddish, Deputy Atty. Gen., San Francisco, for defendant and respondent.

SCOTT, Associate Justice.

Appellants Zablocki Corporation (Zablocki) and Hibernia Bank (Hibernia), appeal from judgments entered in favor of respondent State Board of Equalization in appellants' consolidated actions for the refund of taxes paid on gross receipts from sales of personal property by Zablocki and other sellers to Hibernia. We affirm the judgments.

I

Hibernia was and is a banking corporation chartered under state law, and Zablocki is a California corporation engaged in the printing business. Between October 1, 1968, and December 31, 1973, Zablocki sold printed forms and other personal property to Hibernia.

It is the general practice of retailers selling tangible personal property in this state to state separately "sales tax reimbursement" in setting forth the total amounts charged their customers; it is also the general practice of customers to pay "sales tax reimbursement" as part of the total amount paid for goods. The invoices sent by Zablocki to Hibernia were consistent with this general practice: an amount computed according to the "sales tax reimbursement" schedules prepared by respondent was stated separately from the stated sales price of items.

Zablocki timely filed state and local sales and use tax returns during this period, and included therein its gross receipts from its sales to Hibernia, exclusive of any "sales tax reimbursement"; Zablocki paid the total amount of sales taxes due. Zablocki then filed claims with respondent for a refund of those sales taxes, on the ground that its receipts from sales to certain banks were exempt from California sales taxes. Hibernia also filed documents designated as claims for a refund for that period, requesting the refund of "sales tax reimbursements" it had paid to specified retail sellers. No part of the sums claimed by either Zablocki or Hibernia were refunded.

In 1975 and 1979, Zablocki filed actions seeking a refund of those sales taxes; its complaints in those actions stated that it had agreed to remit any refund received to Hibernia. Hibernia also commenced similar actions. The several actions were consolidated for trial, and were submitted to the trial court on stipulated facts. Separate judgments were entered against Zablocki and Hibernia, who both appealed. The two appeals were consolidated by this court for briefing, argument, and decision.

Although at trial appellants sought a refund of taxes paid through December 31, 1973, in this appeal they seek only a refund of taxes paid between October 1, 1968, and December 24, 1969. ¹ Their primary contention is that according to former article XIII, section 16 of the California Constitution and sections 23181 and 23182 of the Revenue and Taxation Code, state and national banks must be treated equally for tax purposes, and that because national banks were exempt from California sales taxes during the period at issue, state banks must also be exempt.

Some background information is essential to an understanding of this controversy and of appellants' contentions. Long ago, in McCulloch v. Maryland (1819) 17 U.S. (4 Wheat) 316, 4 L.Ed. 579, the United States Supreme Court declared national banks constitutionally immune from state taxation. Since 1864, however, Congress has waived that immunity by statute and has permitted specific types of state taxation, and the Supreme Court has affirmed the principle that states may tax national banks only as permitted by Congress. (See United States v. State Bd. of Equalization (9th Cir.1980) 639 F.2d 458, 459.) Prior to December 24, 1969, Congress permitted state taxation of national banks only by one of four specified methods. (Id., at p. 460.) In 1928, California adopted one of those methods, a franchise tax based on net income. (Security-First Nat. Bk. v. Franchise Tax Bd. (1961) 55 Cal.2d 407, 413-414, 11 Cal.Rptr. 289, 359 P.2d 625.) The tax, which was in lieu of all other taxes except those upon real property, was made applicable to all banks located in the state. (Cal.Const., art. XIII, former § 16 ²; Stats. 1929, ch. 13, §§ 1-3, p. 19 (now Rev. & Tax.Code, §§ 23181, 23182.) "The end result was that competing state and national institutions received the same benefits and paid taxes at the same rate." (Western States Bankcard Assn. v. City and County of San Francisco (1977) 19 Cal.3d 208, 216, 137 Cal.Rptr. 183, 561 P.2d 273.)

In 1938, in Western L. Co. v. State Bd. of Equalization (1938) 11 Cal.2d 156, 78 P.2d 731, the California Supreme Court considered and rejected a contention that taxes imposed pursuant to the State Retail Sales Tax Act on the gross receipts of sales made by a retailer to a national bank were an impermissible tax on that bank. The court held that the tax was validly imposed, as it was a tax on the retailer, not on the consumer bank. The court relied on a consistent line of California authority holding that the state's sales tax is an excise tax for the privilege of conducting a retail business measured by the gross receipts from sales, and not a tax on the purchaser of goods. (Id., at pp. 162-164, 167, 78 P.2d 731.)

Subsequently, however, in a one paragraph per curiam opinion, the United States Supreme Court held that the incidence of California's state and local sales taxes fell upon a national bank as purchaser and not upon the vendors, notwithstanding a California court's contrary conclusion, and that the national bank was therefore exempt from those sales taxes under the federal statutes then in effect. (Diamond National v. State Equalization Bd. (1976) 425 U.S. 268, 96 S.Ct. 1530, 47 L.Ed.2d 780.)

Effective December 24, 1969, Congress amended federal law to lessen the restrictions on state taxation of national banks, and the effect of those amendments is not at issue in this case. (See United States v. State Bd. of Equalization, supra, 639 F.2d at pp. 461-466.) It is undisputed, however, that in light of Diamond National, California's sales tax could not be imposed on sales of tangible personal property to national banks prior to December 24, 1969. (See Diamond Nat. Corp. v. State Bd. of Equalization (1976) 60 Cal.App.3d 283, 284-285, fn. 1, 131 Cal.Rptr. 528.)

II

With that background in mind, we turn to appellants' contentions. First, appellants contend that article XIII, former section 16 of the California Constitution required that state and national banks be taxed equally, and that if national banks were exempt from the state's sales tax during the period at issue, state banks must be exempt as well. Respondent contends that during the period in issue, the California Legislature intended the California sales tax to apply to retail sales to state banks, that the Legislature accomplished that purpose by having the incidence of the sales tax apply to retailers who made the sales to banks, and that the California Constitution does not prohibit such application.

When the Legislature enacted the California Retail Sales Tax Act, it intended that the incidence of the tax be on the retailer, not upon the consumer. (Western L. Co. v. State Bd. of Equalization, supra, 11 Cal.2d at p. 162, 78 P.2d 731 and cases cited therein.) Although in Diamond National v. State Equalization Bd., supra, 425 U.S. 268, 96 S.Ct. 1530, 47 L.Ed.2d 780, the United States Supreme Court declared that the incidence of the California sales tax fell on a national bank as purchaser, rather than on the vendor, California cases decided after Diamond National have consistently held that for state purposes, the legal incidence of the California sales tax continues to be on the retailer. (Xerox Corp. v. County of Orange (1977) 66 Cal.App.3d 746, 757, 136 Cal.Rptr. 583; Occidental Life Ins. Co. v. State Bd. of Equalization (1982) 135 Cal.App.3d 845, 847-851, 185 Cal.Rptr. 779; see also Western States Bankcard Assn. v. City and County of San Francisco, supra, 19 Cal.3d at pp. 217-219, 137 Cal.Rptr. 183, 561 P.2d 273; United States v. State Bd. of Equalization, supra, 639 F.2d at p. 465, fn. 4.)

The Legislature reiterated its intent that the incidence of the California sales tax is on the retailer when it amended provisions of the sales tax act in 1978. Section 19 of that legislation provides: "The Legislature in adopting the Sales Tax Act in 1933 intended that the incidence of the sales tax be on the retailer.... Notwithstanding such legislative intent and decisions of California courts holding that the incidence of the California sales tax is upon the retailer and not upon the purchaser, the United States Supreme Court in Diamond National Corp. v. State Board of Equalization, 425 U.S. 268, 96 S.Ct. 1530, 47 L.Ed.2d 780 ... held that for federal purposes the incidence of the California sales tax is on the purchaser. This act provides for changes in the California Sales and Use Tax Law to make it clear that for both federal and state tax purposes the incidence of the California sales tax is upon the retailer for the privilege of selling tangible personal property at retail and is not upon the purchaser...." (Stats.1978, ch. 1211, § 19, pp. 3925-3926.)

Appellants dismiss the state's sales tax act as irrelevant. However, the Legislature's power in the field of taxation is limited only by constitutional restrictions. "In other words, the Legislature's authority to impose taxes and regulate the...