Jones-Hamilton Co. v. Franchise Tax Bd.

• Citation: 268 Cal.App.2d 343,73 Cal.Rptr. 896
• Decision Date: 20 December 1968
• Docket Number: JONES-HAMILTON
• Court: California Court of Appeals
• Parties: CO., Plaintiff and Appellant, v. FRANCHISE TAX BOARD, Defendant and Respondent. Civ. 24672.

Page 896

73 Cal.Rptr. 896

268 Cal.App.2d 343

JONES-HAMILTON CO., Plaintiff and Appellant, v. FRANCHISE TAX BOARD, Defendant and Respondent.

Civ. 24672.

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

Dec. 20, 1968.

As Modified Jan. 20, 1969.

Pillsbury, Madison & Sutro, Sigvald Nielson, Noble K. Gregory, Donald G. McNeil, George C. Fisher, San Francisco, for appellant.

Thomas C. Lynch, Atty. Gen., of California, James C. Sabine, Charles A. Barrett, Ernest P. Goodman, Asst. Attys. Gen., San Francisco, for respondent.

MOLINARI, Presiding Justice.

This is an appeal by plaintiff from a summary judgment in favor of defendant. The question presented is whether the trial court was justified in granting the motion of defendant for the summary judgment; and the consideration of this question turns on whether or not sections were added to the Revenue and Taxation Code ¹ in violation of requirements of the Constitution of the State of California.

Statement of the Case

In 1963 the California Legislature passed Senate Bill No. 5 which added sections to the Revenue and Taxation Code calling for the calculation and payment of estimated corporation taxes. The sections went into effect beginning January 1, 1965. The bill passed the state Senate with the affirmative votes of 22 Senators, a majority of the 40 members of that body. According to article XIII, section 16, subsection 3 of the Constitution of the State of California, any tax on corporations 'must be under an act passed by not less than two-thirds vote of all the members elected to each of the two houses of the Legislature.'

Plaintiff in this case is a California corporation engaged in the business of manufacturing cleaning compounds. On May 21, 1965 plaintiff paid to defendant Franchise Tax Board the percentage of the estimated state corporation franchise tax required under the disputed statute and later made a claim for a refund. The amount of the payment involved is $882.20. When defendant failed to act on the refund claim, plaintiff brought this action to recover the amount paid plus legal interest. Plaintiff alleges that Senate Bill No. 5 is void and violative of article XIII, section 16 of the Constitution because it was passed by fewer than two-thirds of the members elected to the Senate. Both plaintiff and defendant filed motions for summary judgment. The trial court granted defendant's motion and judgment was entered for defendant.

Taxation of California Corporations

The California Constitution explicitly allows for the imposition of taxes on corporations and limits the power of the Legislature by requiring that any such tax be passed by a two-thirds vote of the members elected to each house of the Legislature. (Art. XIII, § 16.) Accordingly, corporations are taxed pursuant to section 23151 ² for the privilege of doing business in the state and the tax imposed is essentially a franchise tax computed on the basis of the corporation's net income earned in the next preceding income year. (See also §§ 23041, 23042, 25401, 25551.)

The legislation which is the subject of contention in this action added new sections calling for the computation of estimated income and estimated tax on such income and for the payment of a percentage of the estimated tax; i.e., instead of waiting until the end of the 'income year' to calculate and pay its tax for the next taxable year, the corporate taxpayer is now required to estimate and pay a portion of the tax during the 'income year' itself. (§§ 25441, 25563.) ³ In effect these sections call for a payment of a portion of the tax before the commencement of the taxable year. ⁴

The Motions

Each party filed a declaration in support of his motion and the declaration of defendant was also a declaration in opposition to plaintiff's motion. The record does not indicate that plaintiff filed a counteraffidavit in opposition to defendant's countermotion for summary judgment.

A careful review of the declarations or affidavits in support of the motions for summary judgment indicates that there is no true factual dispute between the parties. Neither party questions the sufficiency of the affidavit of the other. It seems apparent that plaintiff corporation seeks a determination that as a matter of law the disputed legislation imposed a tax in violation of the Constitution since two separate tax payments were made by plaintiff during 1965. Defendant's motion, on the other hand, seeks a determination that as a matter of law no tax was imposed by the statute since plaintiff's tax liability for the taxable year 1966 was not increased. It is obvious that the parties agree, as did the court, that there is no triable issue of fact and the issue is strictly one of law: that is, do sections 25441 and 25563 as enacted by Senate Bill No. 5 impose a tax in violation of article XIII, section 16, or do the disputed provisions simply accelerate the time of payment of a previously-imposed tax? It is well established that if no triable issues of fact are presented, and the sole question is one of law, that question may appropriately be determined on a motion for summary judgment. (Wilson v. Wilson, 54 Cal.2d 264, 269, 5 Cal.Rptr. 317, 352 P.2d 725; Nelson v. United States Fire Ins. Co., 259 A.C.A. 250, 253, 66 Cal.Rptr. 115; Magna Development Co. v. Reed, 228 Cal.App.2d 230, 234, 39 Cal.Rptr. 284; Goldstein v. Hoffman, 213 Cal.App.2d 803, 811, 29 Cal.Rptr. 334; Doyle v. Hibernia Bank, 156 Cal.App.2d 16, 20, 319 P.2d 412; Enos v. Foster, 155 Cal.App.2d 152, 157, 317 P.2d 670; Tibbs v. Smart & Final Iris Co., 152 Cal.App.2d 618, 623, 313 P.2d 636.)

In addition, it is equally well established that on appeal where there is presented a question of interpreting a statute all of the facts being agreed upon, the court has before it a question of law only. Pac. Pipeline Const. Co. v. State Bd. Equal., 49 Cal.2d 729, 736, 321 P.2d 729; Aguirre v. Southern Pac. Co., 232 Cal.App.2d 636, 642--643, 43 Cal.Rptr. 73; Gibbons & Reed Co. v. Dept. of Motor Vehicles, 220 Cal.App.2d 277, 285, 33 Cal.Rptr. 688, 927.)

Here a certified copy of the statute which is the subject of contention is attached to and incorporated by reference into the complaint; and in addition to including the sections on the declaration and payment of the estimated tax, it also shows the 22 'aye' votes of the Senators. It would seem, therefore, that the proper remedy for defendant was to move for a judgment on the pleadings establishing whether or not as a matter of law a tax had been imposed contrary to the Constitution. (See Magna Development Co. v. Reed, supra, 228 Cal.App.2d 230, 234--235, 39 Cal.Rptr. 284; see also Maxon v. Security Ins. Co., 214 Cal.App.2d 603, 609--610, 29 Cal.Rptr. 586.) Accordingly, none of the basic principles controlling judicial actions on motions for summary judgment need to be restated here since we are not concerned with the sufficiency of the affidavits. Rather, out determination is confined to whether the trial court was correct in granting what is actually a judgment on the pleadings.

Validity of Senate Bill No. 5

No California cases have been found which discuss whether the prepayment of estimated taxes constitutes the imposition of a tax within the meaning of section 16 of article XIII of the Constitution. ⁵ Defendant does cite Beacham v. Commissioner of Internal Revenue, 28 T.C. 598, affirmed per curiam 255 F.2d 103 (5th Cir. 1958), a case which seems to be the only authority extant on the definition or explanation of estimated taxes. In that case, the tax court stated that no new taxes were imposed by an amendment which required the payment of estimated income taxes before the income was actually earned. The court interpreted the statute as merely providing for the collection of income tax as the income was earned. (28 T.C. at p. 600.)

Plaintiff argues that the requirements for declaration and payment of estimated corporation taxes violate the policy of the constitutional restriction. Citing cases which generally define a 'tax' as a charge or burden upon persons or property imposed by or under the authority of the Legislature for public purposes (see In re Farmers Frozen Food Company (N.D.Cal.1963) 221 F.Supp. 385, 387; City of Madera v. Black, 181 Cal. 306, 310, 184 P. 397), plaintiff contends that the legislation levies a tax since it involves an additional payment during a given annual period. Plaintiff also notes that the statute calls for interest on underpayments of the estimated tax. Plaintiff does not, however, disagree with defendant's conclusion that the $882.20 paid in 1965 was due for the 'taxable year' 1966 and was credited against 1966 taxes. We here note that although plaintiff seeks in its complaint to recover a refund of the $882.20 paid, plaintiff asserts in its closing brief that it is only entitled to interest for the prepayment period, that is, interest at the rate of 6 percent on $882.20 from the time said sum was paid in May 1965 until the total tax for the year 1965 became due on March 15, 1966. (See §§ 26080 and 26081.)

Adverting to the question persented, we first note that section 23151, which actually levies the tax on California corporations, was in no way altered by nor is it a part of Senate Bill No. 5. We also note that section 25441, which was added by the bill, calls for a declaration of estimated tax bases on the 'tax imposed by this part'; that is, a declaration of an estimate of a tax Already imposed by the Revenue and Taxation Code. Further, the bill itself shows that it was not the intent of the Legislature to impose any new tax on corporations. Section 30 of the bill reads in part: 'In enacting this act the Legislature does not intend to impose any new tax on banks or corporations or to change the rate or measure of the taxes on banks or corporations.' ⁶

Considering the obvious intent of the Legislature and the fact that the Senate bill does not establish any new tax rates or call for the...