Honeywell, Inc. v. State Bd. of Equalization

• Decision Date: 05 June 1975
• Court: California Court of Appeals Court of Appeals
• Parties: HONEYWELL, INC., et al., Plaintiffs and Respondents, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant. Civ. 43732.

Page 243

122 Cal.Rptr. 243

48 Cal.App.3d 907

HONEYWELL, INC., et al., Plaintiffs and Respondents, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Appellant.

Civ. 43732.

Court of Appeal, Second District, Division 5, California.

June 5, 1975.

Hearing Denied July 30, 1975.

Clyde R. Maxwell, Newport Beach, and Karl F. Geiser, Beverly Hills, for plaintiffs and respondents

Evelle J. Younger, Atty. Gen., Ernest P. Goodman, Asst. Atty. Gen. and Neal J. Gobar, Deputy Atty. Gen., for defendant and appellant.

LORING, Associate Justice. ^*

On January 5, 1970, ¹ Honeywell, Inc., a Delaware corporation (Honeywell), Johnson Service Company, a Wisconsin Corporation (Johnson), Barber-Colman Company, an Illinois corporation (Barber-Colman), a Montgomery Elevator Company, a Delaware corporation (Montgomery), Superior Elevator Inc., a California corporation (Superior), United Elevator Corp., Ltd., a California corporation (United), and Coast Elevator Corporation, a California corporation (Coast) (collectively Taxpayers) filed an amended complaint against State Board of Equalization of the State of California (Board) seeking a Declaratory Judgment under the provisions of Code of Civil Procedure section 1060 and Government Code section 11440 that Board's Ruling 11 (now known as Rule 1521) ² particularly as applied to such taxpayers was illegal and void. Board filed a general and special demurrer which was overruled. After answer and non-jury trial the trial court filed its Memorandum of Intended Decision which it declared would also constitute findings of fact, declaring that Rule 11 is 'invalid as being unreasonable, arbitrary, ambiguous, discriminatory and being in excess of the statutory rule making powers of the Board.' Board's objection to findings and request for additional findings were overruled except that the court did file a supplement to its Intended Decision. The court rendered judgment in favor of Taxpayers and against Board declaring Rule 11 (now Rule 1521) 'invalid.' Board appeals from the judgment.

CONTENTIONS

Appellant contends:

I The sole issue which may properly be raised in a Declaratory Relief action such II The Court of Appeal should refuse to issue any declaration in this case because:

as this is the validity of a regulation (Ruling 11) as a matter of law.

(A) It would amount to an injunction against the collection of taxes;

(B) There is an adequate remedy by action for refund;

(C) Taxpayers have not exhausted their administrative remedies.

III Ruling 11 is valid as a matter of law.

FACTS

All of the taxpayer plaintiffs are engaged either in the manufacture and installation of elevators (Coast, Montgomery, ³ United) or the manufacture and installation of temperature control systems (Honeywell, Johnson and Barber-Colman). Each contends that Board's Rule 11 is illegal as applied to it because Rule 11 is unreasonable, arbitrary, ambiguous, discriminatory and is in excess of Board's statutory rule making powers. Board demurred to the amended complaint on the ground that the superior court was without jurisdiction and the amended complaint did not state a cause of action for declaratory relief because each taxpayer had engaged in business for several years, its tax liability, if any, had already been fixed by its own conduct, it had adequate administrative remedies by way of claims for refund, that claims for refund had been made and were in process of consideration, that in some instances, actions for refund had been filed and were pending in the superior court ⁴ and that declaratory relief therefor was improper, unnecessary and was not authorized by Government Code section 11440. The trial court overruled such demurrer and the case was tried on its merits.

DISCUSSION

Appellant earnestly contends that this is not a proper cause for declaratory relief, and that declaratory relief herein is not authorized by Government Code section 11440 ⁵ because each taxpayer was seeking a declaratory judgment after the fact--after it had acted--that the normal existing processes of the law offered an adequate remedy and that Government Code section 11440 was only intended to be applied to test the validity of a tax regulation before the taxpayer acted so that he could govern his conduct accordingly. Board contends that Government Code section 11440 was not intended to authorize a declaratory relief action after the taxpayer had completed the taxable transaction because the normal administrative and legal proceedings provide an adequate remedy and afford all of the relief that could be afforded in an action for declaratory relief. Board argues that to allow the use of the declaratory relief process after the taxable transaction has been completed and before administrative remedies have been exhausted is tantamount to the use of the injunctive process to restrain collection of taxes, which the judicial department of government should never do.

The law is well established in California that a litigant may not initiate a judicial action before he has exhausted administrative remedies (Abelleira v. District Court of Appeal, 17 Cal.2d 280, 109 P.2d 942; United States v. Superior Court, 19 Cal.2d 189, 120 P.2d 26; Alexander v. State Personnel Board, 22 Cal.2d 198, 137 P.2d 433; Miller v. Municipal Court, 22 Cal.2d 818, 142 P.2d 297; Scripps Memorial Hospital, Inc. v. Cal. Emp. Com., 24 Cal.2d 669, 151 P.2d 109; Triangle Ranch, Inc. v. Union Oil Co., 135 Cal.App.2d 428, 434, 287 P.2d 537), including tax proceedings (People v. Sonleitner, 185 Cal.App.2d 350, 361, 8 Cal.Rptr. 528; People v. West Publishing Co., 35 Cal.2d 80, 216 P.2d 441). Where a statute prohibits the granting of an injunction or writ of mandamus to prevent collection of a tax (Rev. & Tax.Code, § 6931) an action for a declaration that the tax is not legally collectible would circumvent the law and, accordingly, declaratory relief will be refused. Casey v. Bonelli, 93 Cal.App.2d 253, 208 P.2d 723; Louis Eckert Brewing Co. v. Unemploy. Reserves Com., 47 Cal.App.2d 844, 846, 119 P.2d 227; Valley Fair Fashions, Inc. v. Valley Fair, 245 Cal.App.2d 614, 616, 54 Cal.Rptr. 306; see also Estate of Schneider, 62 Cal.App.2d 463, 145 P.2d 90; Helms Bakeries v. St. Bd. Equalization, 53 Cal.App.2d 417, 128 P.2d 167, cert. denied 318 U.S. 756, 63 S.Ct. 530, 87 L.Ed. 1129; however, see Lord v. Garland, 27 Cal.2d 840, 168 P.2d 5.

This brings us to a consideration of Government Code section 11440. Prior to the adoption of that section in 1947 the normal process of declaratory relief authorized by Code of Civil Procedure section 1060 was not broad enough to authorize a test of the validity or interpretative effect of a regulation adopted by any one of a myriad of state governmental agencies, Section 11440 intended to extend the scope of declaratory relief beyond deeds, wills, written instruments, contracts, or with respect to duties to persons or property, to include regulations of state governmental agencies. County of L.A. v. State Dept. Pub. Health, 158 Cal.App.2d 425, 322 P.2d 968. 'The Legislature, by enactment of section 11440, must have intended to permit persons affected by an administrative regulation to test its validity Without having to enter into contracts with third persons in violation of its terms or to subject themselves to prosecution or disciplinary proceedings.' (Emphasis ours.) Chas. L. Harney, Inc. v. v. Contractors' Bd., 39 Cal.2d 561, 564--5, 247 P.2d 913, 915. But that reason no longer exists after a taxpayer has entered into a transaction which the taxing authorities claim is taxable. When the taxpayer has completed a transaction, resort to declaratory relief is no longer necessary or appropriate since the tax liability, if any, has accrued and therefore normal administrative processes, subject to judicial review, are adequate and accomplish the same result. Walker v. Munro, 178 Cal.App.2d 67, 2 Cal.Rptr. 737.

In Casey v. Bonelli, 93 Cal.App.2d 253, 208 P.2d 723, plaintiff filed what in effect was an action for declaratory relief alleging that he was president and member of the board of directors of a corporation which elected to dissolve, that defendant issued notice of tax deficiency under the Sales and Use Tax law, and plaintiff requested a declaration that he was under no duty to resist the levy of tax deficiency and that any judgment for tax deficiency which defendant obtained against the corporation would be void. The trial court sustained defendant's demurrer without leave to amend and the Court of Appeal affirmed stating at 254, 208 P.2d at 724:

'Under section 6931 Revenue and Taxation Code no injunction, writ of mandate or other legal or equitable process shall issue to prevent or enjoin the collection of any sales or use tax. The decisions are explicit that this and similar provisions prevent the resort to a declaratory judgment to determine that such tax should not be collected. Louis Eckert Brew Co. v. Unemployment Reserves Com., 47 Cal.App.2d 844, 119 P.2d 227; In re Estate of Schneider, 62 Cal.App.2d 463, 145 P.2d 90; cf. Modern Barber Col. Inc. v. California Emp. Stab. Com., 31 Cal.2d 720, 192 P.2d 916.

'The allegation of the complaint quoted above makes it clear that plaintiff is seeking a judicial determination that he is under no fiduciary duty to take the steps provided for in secs. 6561 and 6562, Rev. & Tax.Code based on a further adjudiciation that 'any judgment obtained by the defendants against said dissolved corporation would be void.'

'Appellant argues that the question is not one of tax law but of corporate law and that the adjudication is necessary for his protection. However rationalized the fact cannot be disguised that appellant seeks a binding adjudication against the Board of Equalization and its members that he need take no steps because the tax cannot be legally collected from the dissolved corporation. Faced by such an adjudication respondents would be effectively barred...