McClain v. Sav-On Drugs, 030419 CASC, S241471

Docket Nº:S241471
Opinion Judge:LIU, J.
Party Name:MICHAEL MCCLAIN et al., Plaintiffs and Appellants, v. SAV-ON DRUGS et al., Defendants and Respondents. AND CONSOLIDATED CASE.
Attorney:The Kick Law Firm, Taras P. Kick, G. James Strenio, Robert J. Dart; McKool Smith Hennigan, Bruce R. MacLeod and Shawna L. Ballard for Plaintiffs and Appellants. Chavez & Gertler and Mark A. Chavez for Public Citizen, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants. Jonathan M. Coupa...
Judge Panel:We Concur: CANTIL-SAKAUYE, C.J., CHIN, J., CORRIGAN, J., CUÉLLAR, J., KRUGER, J., O'LEARY, J. Justice Kruger
Case Date:March 04, 2019
Court:Supreme Court of California
 
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MICHAEL MCCLAIN et al., Plaintiffs and Appellants,

v.

SAV-ON DRUGS et al., Defendants and Respondents.

AND CONSOLIDATED CASE.

S241471

Supreme Court of California

March 4, 2019

Superior Court Los Angeles County Nos. BC325272, BC327216. John Shepard Wiley, Jr., and Emilie H. Elias Judge.

Second Appellate District, Division Eight B265011 and B265029

The Kick Law Firm, Taras P. Kick, G. James Strenio, Robert J. Dart; McKool Smith Hennigan, Bruce R. MacLeod and Shawna L. Ballard for Plaintiffs and Appellants.

Chavez & Gertler and Mark A. Chavez for Public Citizen, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Jonathan M. Coupal, Trevor A. Grimm, Timothy A. Bittle and Laura E. Murray for Howard Jarvis Taxpayers Foundation as Amicus Curiae on behalf of Plaintiffs and Appellants.

Law Office of Daniel Berko and Daniel Berko for Larry Littlejohn as Amicus Curiae on behalf of Plaintiffs and Appellants.

Law Office of Tony J. Tanke, Tony Jerome Tanke; Hattis Law and Daniel M. Hattis for A. Bekkerman, B. Griffith, J. Lee and C. Lisser as Amici Curiae on behalf of Plaintiffs and Appellants.

Reed Smith, Douglas C. Rawles, James C. Martin, Kasey J. Curtis; Morgan Lewis & Bockius, Joseph Duffy and Joseph Bias for Defendants and Respondents Walgreen Co. and Rite Aid Corporation.

Berry & Silberberg, Berry Silberberg Stokes, Robert P. Berry and Carol M. Silberberg for Defendant and Respondent Wal-Mart Stores, Inc.

Morrison & Foerster, David F. McDowell and Miriam A. Vogel for Defendant and Respondent Target Corporation.

Holland & Knight, Richard T. Williams, Alan Watson and Shelley Hurwitz for Defendants and Respondents CVS Caremark Corporation, Longs Drug Stores Corporation and Longs Drug Stores California, Inc.

Theodore Keith Bell for Defendants and Respondents The Vons Companies, Inc., and Vons Food Services, Inc.

Hunton & Williams, Hunton Andrews Kurth, Phillip J. Eskenazi and Kirk A. Hornbeck for Defendants and Respondents Albertson's, Inc., and Sav-On Drugs.

Kamala D. Harris and Xavier Becerra, Attorneys General, Edward C. DuMont, State Solicitor General, Janill L. Richards, Principal Deputy State Solicitor General, Diane S. Shaw, Assistant Attorney General, Max Carter-Oberstone, Associate Deputy State Solicitor General, Lisa W. Chao, Stephen Lew and Nhan T. Vu, Deputy Attorneys General, for Defendant and Respondent State Board of Equalization.

Colantuono, Highsmith & Whatley, Michael G. Colantuono and Andrew C. Rawcliffe for League of California Cities and California State Association of Counties as Amici Curiae.

LIU, J.

California retailers are generally required to pay the state a sales tax on the retail sale of any “tangible personal property.” (Rev. & Tax. Code, § 6051.) Retailers submit payment to the California Department of Tax and Fee Administration (CDTFA or Department) as a percentage of their gross receipts under a rebuttable presumption that all gross receipts are subject to the sales tax. (Id., §§ 6051, 6091.) Retailers may charge customers a “sales tax reimbursement to the sales price” for sales subject to the tax, or they may absorb the tax and opt to build it into the price charged to consumers. (Civ. Code, § 1656.1; see Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1103, 1117 (Loeffler).)

If a retailer believes it has paid sales tax in excess of the amount legally due, it can file an administrative claim with the Department for a refund of any amount not required to be paid. (Rev. & Tax. Code, § 6901.) If it “has been ascertained” that a customer has paid a retailer more sales tax reimbursement than the amount of sales tax the retailer owes, the retailer upon notice by the Department or the customer “shall... return[]” the excess sales tax reimbursement to the customer; if the retailer “fail[s] or refuse[s] to do so, ” the retailer “shall... remit[]” the funds to the state. (Id., § 6901.5.) A customer who has paid excess sales tax reimbursement has no statutory remedy to obtain a refund from the Department directly. (See Javor v. State Bd. of Equalization (1974) 12 Cal.3d 790, 800 (Javor).) (The Legislature created the CDTFA in 2017 and transferred to it most of the tax-related duties and powers previously vested in the Board of Equalization (Board). (Assem. Bill. No. 102 (2017-2018 Reg. Sess.) § 1.) In this opinion, the terms “Department” and “Board” refer to the same administrative entity.)

The question here is whether customers who have paid sales tax reimbursement on purchases they believe to be exempt from sales tax may file suit to compel the retailers to seek a tax refund from the Department when there has been no determination by the Department or a court that the purchases are exempt. In Javor, we authorized a customer suit where the Board, upon determining that certain retailers had collected excess sales tax reimbursement, had promulgated rules to provide refunds to overpaying customers. The trial court declined to extend Javor to authorize a similar judicial remedy in this case, and the Court of Appeal affirmed. (McClain v. Sav-On Drugs (2017) 9 Cal.App.5th 684, 700-702 (McClain).) We agree with the courts below in refusing to extend Javor and affirm the judgment sustaining defendants' demurrer.

I.

Section 6369, subdivision (e) of the Revenue and Taxation Code exempts “[i]nsulin and insulin syringes” from sales tax if “furnished by a registered pharmacist to a person for treatment of diabetes as directed by a physician.” (All undesignated statutory references are to the Revenue and Taxation Code.) In 2000, the Board issued a regulation interpreting the exemption in section 6369, subdivision (e) to cover “[g]lucose test strips and skin puncture lancets furnished by a registered pharmacist” for use by a diabetic patient “in accordance with a physician's instructions.” (Cal. Code Regs., tit. 18, § 1591.1, subd. (b)(5) (hereafter regulation 1591.1(b)(5)); see § 7051 [“The board... may prescribe, adopt, and enforce rules and regulations relating to the administration and enforcement” of the sales tax].) The Board's Final Statement of Reasons explained that the test strips and lancets are “so integrated with the operation of insulin and insulin syringes (the syringes cannot be used until the patient has first tested his blood sugar using the lancets and test strips) that the Legislature intended that their sales be exempt from tax as part and parcel of the exemption for sales of insulin syringes under section 6369(e).” (State Bd. of Equalization, Final Statement of Reasons/Plain English: Regulations 1591, 1591.1, 1591.2, 1591.3 & 1591.4 (Dec. 28, 1999) p. 4.)

In 2003, in response to “inconsistencies” in how regulation 1591.1(b)(5) was being applied, the Board's Program Planning Manager sent a letter to California retail pharmacies setting forth the conditions for when the sale of...

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