John Breuner Co. v. Perluss

Decision Date13 September 1963
CourtCalifornia Court of Appeals Court of Appeals
PartiesJOHN BREUNER COMPANY, a corporation, Plaintiff and Appellant, v. Irving H. PERLUSS, Director of the Department of Employment of the State of California, Defendant and Respondent. Civ. 20568.

Ernest J. Hill, Rex E. Shoop, San Francisco, for appellant.

Stanley Mosk, Atty. Gen., of California, Ernest P. Goodman, William L. Shaw, Deputies Atty. Gen., San Francisco, for respondent.

SALSMAN, Justice.

Appellant seeks a refund of unemployment insurance taxes for the years 1944 through 1950. The amount claimed is $54,546.49. The trial court found appellant entitled to a refund of $1,521.28 and ordered judgment for this amount, plus interest. This appeal followed.

In order to understand the contentions of the parties it is necessary to note some of the statutory background of the controversy.

The California Unemployment Insurance Act makes provision for differences in the tax rate applicable to individual employers based upon the employer's experience with the risk of unemployment. (Unemp. Ins. Code, part I, ch. 4.) The use of this system of variable rates stems from the Federal Social Security Act of 1935, as amended. The federal act was designed in part to induce the states to enact unemployment insurance legislation. The federal statute provides for a 3% tax on employers but permits an offset against this tax up to 90% for payments made to support an approved state system of unemployment insurance. The federal statute sets up standards and requirements to which state legislation must conform in order that an employer be eligible for the 90% credit against the federal tax. The California Unemployment Insurance Act is expressly declared to be a part of the national plan of unemployment reserves and social security (Stats.1935, ch. 352, § 2; Unemp. Ins. Code, § 101).

The reduction described in the federal statute is available only on the basis of the employer's experience with the risk of unemployment, or other factors having a direct relation to the risk of unemployment, during not less than three consecutive years immediately preceding the computation date. (26 U.S.C. § 3303(a)(1).) In compliance with federal law an experience rating formula is used in California. The forumla may be expressed thus:

Cumulated Cumulated Reserve

Contributions minus Charges = Ratio

Base Period Wages divided by 3

A separate account is maintained by respondent for each employer. As to each account the cumulated contributions represent payment of taxes by the employer; the cumulated charges represent benefit payments made to employees separated from employment with the employer; base period wages are taxable wages paid by the employer over a three-year period, divided by three. Thus the denominator is in fact the average of taxable wages over a three-year period.

The reserve ratio determined by the use of the formula is applied to a tax schedule in effect for the year for which the computation is made. Under the tax schedule, the higher the reserve ratio the lower the tax rate. The reason for this is simply that when an employer's reserve ratio is high it indicates his experience with unemployment has been good and his percentage of unemployment relatively low, and this results in a favorable rate of tax.

The difference between the parties to this appeal centers upon what amounts are to be included under the item 'cumulated contributions' in the formula used by the respondent in the computation of appellant's tax. In prior litigation between these parties relating to taxes for the years 1941, 1947 and 1943 it was established that respondent had improperly charged appellant's reserve account with the sum of $36.636, representing unemployment claims paid by respondent to former employees of appellant. In that litigation respondent was ordered to restore $36,636 to appellant reserve account (see John Breuner Company v. Bryant, 35 Cal.2d 897, 218 P.2d 4). A recomputation of appellant's taxes then determined that appellant was entitled to a refund in the amount of $35,462. This refund was paid to appellant in 1950. On this appeal it is appellant's contention that, for the years 1944 through 1950, appellant's reserve account must be credited with the sum of $36,636, the amount by which its reserve account had been improperly charged until the decision in John Breuner Co. v. Bryant, supra, in 1950. Appellant then contends that with this amount added to its account as of 1944 its taxes must be recomputed from 1944 to 1950, and it is by this method that appellant arrives at the amount of the claimed refund.

The respondent does not disagree that the item of $36,636 must be restored to appellant's reserve account. Respondent's basic contention is that, at the same time, effect must be given to the refund of $35,462. Here respondent says that although the refund was not paid until after the judgment in 1950, it must be considered as having been removed from appellant's reserve account as of the same date upon which the $36,636 item is added to appellant's account. In the formula previously explained the refund would be subtracted from the factor of cumulated contributions, since the refund represents an overpayment of tax. By use of respondent's method of correcting appellant's account and computing the correct tax for the period in question it appears that a refund of $1,521.28 is due appellant. The recomputation thus made eliminates all error, and requires appellant to pay only such amount of tax as it would have been required to pay if no error had ever been made in its account. Respondent's method was adopted by the trial court and used by it in its findings and judgment.

Thus, in summary, it appears that the real difference between the parties is as to the date upon which appellant's account shall be charged with the refund required by the judgment in John Breuner Co. v. Bryant, supra, the appellant contending that the refund is not to be considered until paid, that is, in 1950, and respondent asserting that the refund must be given effect as of the same time at which the improper charges were restored to appellant's account. In the reconstruction of appellant's account and a recomputation of the tax the $36,636 item was credited to appellant's account as of June 30, 1943 and thus affected the computation of appellant's tax for the period here involved.

Exhibit IX at trial shows that by use of respondent's method of adjusting appellant's account and computing its taxes, it was necessary to change the rate of tax for some of the years here in issue. Thus, in 1944 appellant's rate was too high, and in 1948 it was too low. Appellant first contends, therefore, that the trial court's judgment sanctioned a charge in his tax rate for past years, without notice and contrary to the statute and decided cases. We find no merit in this contention. Appellant's principal reliance is upon Northrop Aircraft v. California Emp., etc., Comm., 32 Cal.2d 872, 198 P.2d 898. In Northrop, it was held that once a tax rate had been established, the Department of Employment on its own initiative could not thereafter change the rate, except in a protest proceeding, without giving the employer notice and an opportunity to be heard before the close of the rating period to which the change applied. The ruling in that case is not applicable to the facts of the case we now have before us. Here respondent seeks to change appellant's tax rate, not on its own initiative, as in Northrop, but only as a result of a judicial proceeding instituted by appellant for the very purpose of adjusting appellant's account. In the Northrop case, however, the court did recognize that as a result of a protest proceeding a change in the tax rate applied to an employer's account might become necessary. Moreover, the briefs before us frankly state that the case we now consider is but one of a number...

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2 cases
  • Lorco Properties, Inc. v. Department of Benefit Payments
    • United States
    • California Court of Appeals Court of Appeals
    • April 29, 1976
    ...statutory unemployment insurance system, an adequate explanation of which is found in the case of John Breuner Co. Perluss (1963) 220 Cal.App.2d 163, 164--165, 33 Cal.Rptr. 580, 580--581: 'The California Unemployment Insurance Act makes provision for differences in the tax rate applicable t......
  • Ventura Office Suites v. Cal. Unemployment Ins. Appeals Bd.
    • United States
    • California Court of Appeals Court of Appeals
    • November 26, 2014
    ...base payroll and the net balance in its reserve account. (§ 977; Interstate Brands, supra, 26 Cal.3d at p. 781; John Breuner Co. v. Perluss (1963) 220 Cal.App.2d 163, 164-165.) A decision awarding UI benefits to a claimant, which are chargeable to the employer's reserve account, typically i......

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