Institute In Basic Youth Conflicts, Inc. v. State Bd. of Equalization

• Decision Date: 16 April 1985
• Citation: 213 Cal.Rptr. 98,166 Cal.App.3d 1093
• Court: California Court of Appeals Court of Appeals
• Parties: INSTITUTE IN BASIC YOUTH CONFLICTS, INC., an Illinois Not-For-Profit Corporation, Plaintiff and Respondent, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant and Appellant. B005675.

Page 98

213 Cal.Rptr. 98

166 Cal.App.3d 1093

INSTITUTE IN BASIC YOUTH CONFLICTS, INC., an Illinois Not-For-Profit Corporation, Plaintiff and Respondent, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant and Appellant.

B005675.

Court of Appeal, Second District, Division 7, California.

April 16, 1985.

As Modified on Denial of Rehearing May 15, 1985.

Review Denied July 25, 1985.

Buchalter, Nemer, Fields, Chrystie & Younger, Bernard E. LeSage, Los Angeles, for plaintiff and respondent.

John K. Van de Kamp, Atty. Gen., Edmond B. Mamer and David S. Chaney, Deputy Attys. Gen., for defendant and appellant.

HARRIS, Associate Justice. ^*

Defendant California State Board of Equalization appeals from a judgment after trial by court refunding sales and use taxes paid by plaintiff under protest. The judgment was for the refund, plus interest, of taxes assessed for the period 1975 through 1978, and 1979 through September 30, 1981.

After trial but prior to entry of judgment plaintiff moved to amend its complaint to include additional taxes allegedly self-assessed and paid, but as to which no claim had ever been filed with the Board, and for attorneys' fees. The court denied both motions after hearing and plaintiff cross-appeals from these rulings.

Plaintiff is a non-profit religious corporation exempt from federal and state income taxation. Plaintiff's religious mission is to introduce youth and parents to God through Jesus Christ and to give instruction through seminars and publications on how to apply God's basic principles of life as revealed in the Scriptures. Plaintiff conducts seminars throughout the United States which are attended by both laypersons and religious leaders. These seminars consist of four evening sessions, Monday through Thursday, and two all-day sessions on Friday and Saturday, for a total of approximately 32 hours.

The registration fee for a person attending a seminar for the first time is $45. If an attendee is indigent or has attended a prior seminar the program and materials are free. Before January 1980, the registration form provided for a separate $15 charge for the syllabus. After January 1980, there was no separate charge stated.

The syllabus is used to help follow the seminar. Until 1981 it consisted of a ring binder notebook and loose-leaf pages containing an outline of the lectures. After 1981 the syllabus contained a bound outline and textbook. When the syllabus was in loose-leaf form, the printed material was furnished daily for inclusion in the three-ringed notebook. Numerous blank pages were included in both formats to encourage note taking and the entry of personal reflections. The notebooks were published by the plaintiff at a cost of about $3.00 each.

The syllabus is not available to persons who have not attended a seminar. However, the plaintiff publishes other religious books and pamphlets. These are available at the seminars or through the mail. Some of the pamphlets are distributed free of charge and others are sold. This religious literature is not directly related to the seminars but is aimed at the general religious mission of the plaintiff.

After audit for the period January 1, 1975 to December 31, 1978 the Board assessed sales tax liability against the plaintiff computed on the sale of syllabus notebooks distributed to seminar participants for a separate charge, in the amount of $51,959.40; for the sale of religious literature other than the syllabus notebooks at seminars, in the amount of $5,423.72; and for unreported sales of mail order religious literature, in the amount of $3,507.85. The plaintiff paid the taxes and applied for a refund on the ground that the distribution of the syllabus notebooks to seminar participants was incidental to the rendition of seminar services, notwithstanding a separately stated charge, ¹ and on the further ground that the imposition of sales and use taxes upon the sale of religious literature was a violation of the Free Exercise Clause of the United States Constitution. The claim was denied and, after exhausting its administrative remedies, the plaintiff filed its complaint for refund in the superior court.

While the action was pending a second audit was conducted for the period January 1, 1979 to September 30, 1981 and the Board assessed additional tax liability against the plaintiff in the amount of $11,952.12 for the sale of syllabus notebooks from January 1, 1979 to January 31, 1980. After January 1980 the plaintiff discontinued its practice of stating a separate charge for its syllabus notebooks at its seminars and, accordingly, the Board did not compute sales tax on the distribution of the notebooks after January 1980. However, since the materials in the notebooks were purchased outside the state and there was no indication that sales tax was paid or due at the time of purchase, the Board assessed a use tax on the cost of syllabus notebooks used between February 1, 1980 and September 30, 1981, in the amount of $818.18. The Board also assessed a sales tax on the sale at seminars of religious literature other than the syllabus notebooks, in the amount of $6,517.52, and on the sale of religious literature by mail order, in the amount of $2,031.

Plaintiff paid the second assessment and filed a claim for refund on the identical grounds used in its first claim for refund. The claim was denied by the Board and the plaintiff amended its complaint in the superior court to include a prayer for the taxes paid in connection with the second audit.

The Sales and Use Tax Law imposes upon all retailers a sales tax "[f]or the privilege of selling tangible personal property at retail...." (Rev. & Tax.Code, § 6051.) A "sale" includes any transfer of title of tangible personal property in any manner (Rev. & Tax.Code, § 6006) and the fact that the billing rendered the customer does not show the sales price separately is immaterial. (Kamp v. Johnson (1940) 15 Cal.2d 187, 190, 99 P.2d 274.) To be a "retailer" the particular individual need not be otherwise engaged in any commercial activity and the primary activity may be the rendering of services. (Hotel del Coronado Corp. v. State Board of Equalization (1971) 15 Cal.App.3d 612, 618-620, 92 Cal.Rptr. 456.)

The use tax is complementary to the sales tax. Revenue and Taxation Code section 6201 provides that "[a]n excise tax is hereby imposed on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer ... for storage, use, or other consumption," at the same rate as the sales tax. Although the incidence of the use tax is on the purchaser (Rev. & Tax.Code, § 6202), as a general proposition the law requires the "retailer" to collect the use tax for the state at the time of the sale (Rev. & Tax.Code, §§ 6202-6206).

The California Constitution contains no specific exemptions from the payment of sales or use tax. Although the law itself contains a number of exemptions (Rev. & Tax.Code, §§ 6351-6376; 6381-6396; 6401-6422.1), none of these specific exemptions would exempt the plaintiff herein from sales or use tax liability. ² However, under Revenue and Taxation Code section 6352 there is a general exemption from both the sales tax and the use tax where "this State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this State."

Whether the Free Exercise Clause prohibits California from imposing its sales and use tax in its present form upon the activities of plaintiff is a question of first impression. There is a dearth of authority and what few cases there are tend to involve the interpretation of specific exemption statutes of other states and are not helpful. ³

In Jones v. Opelika, Bowden v. Fort Smith and Jobin v. Arizona (1942) 316 U.S. 584, 62 S.Ct. 1231, 86 L.Ed. 1691, each of the petitioners was convicted of selling books and pamphlets of a religious nature without first having procured a license, in violation of the city ordinances involved. The sole constitutional question considered by the Supreme Court was "... whether a non-discriminatory license fee, presumably appropriate in amount, may be imposed upon these activities." With four justices dissenting, the United States Supreme Court upheld the ordinances, stating at page 597 that "[w]hen proponents of religious or social theories use the ordinary commercial methods of sales of articles to raise propaganda funds, it is a natural and proper exercise of the power of the State to charge reasonable fees for the privilege of canvassing."

The judgments in those cases were vacated by the Supreme Court the following year in Jones v. Opelika (1943) 319 U.S. 103, 63 S.Ct. 890, 87 L.Ed. 1290, for the reasons stated in the opinion of the court in Murdock v. Pennsylvania (1943) 319 U.S. 105, 63 S.Ct. 870, 87 L.Ed. 1292.

In Murdock the City of Jeannette, Pennsylvania had an ordinance requiring all persons canvassing within the city to procure a license and pay a fee. Petitioners were Jehovah's Witnesses who went from door-to-door in the city distributing literature and soliciting people to purchase religious books and pamphlets published by the Watchtower Bible & Tract Society. None of the petitioners obtained a license under the ordinance and they were convicted and fined for violation of the ordinance. The United States Supreme Court stated that it was concerned "... with one narrow issue ...--the constitutionality of an ordinance which as construed and applied requires religious colporteurs to pay a license tax as a condition to the pursuit of their activities." In holding the ordinance unconstitutional the Court pointed out at page 112 that the tax before it was "... something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher. It...