Mission Pak Co. v. State Bd. of Equalization

• Decision Date: 26 January 1972
• Citation: 100 Cal.Rptr. 69,23 Cal.App.3d 120
• Court: California Court of Appeals Court of Appeals
• Parties: MISSION PAK COMPANY, a Delaware corporation, and Mission Pak, Inc., a California corporation, Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Respondent. Civ. 37971, 37706.

Page 69

100 Cal.Rptr. 69

23 Cal.App.3d 120

MISSION PAK COMPANY, a Delaware corporation, and Mission Pak, Inc., a California corporation, Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION of the State of California, Defendant and Respondent.

Civ. 37971, 37706.

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

Jan. 26, 1972.

Hindin & Hindin by Maurice J. Hindin, Beverly Hills, for plaintiffs and appellants.

Evelle J. Younger, Atty. Gen., and Philip C. Griffin and Mark W. Jordan, Deputy Attys. Gen., for defendant and respondent.

STEPHENS, Associate Justice.

For a number of years prior to August 12, 1963, Mission Pak, Inc. was in the business of processing and manufacturing certain furit products, the retail selling of processed fruit products, and the retail selling of fresh fruits. During this time Mission Pak, Inc. paid certain sales and use taxes which were assessed against it as a consequence of a law which required such taxes to be paid on 'candy or confectionery' (Rev. & Tax.Code § 6359) and State Board of Equalization Ruling 52 (Tit. 18, Calif.Admin.Code § 2002) ¹ which determined that 'candy or confectionery . . . includes . . . candied fruits, crystallized fruits and glace fruits (and) preparations of fruits . . . with . . . sugar.'

On August 12, 1963, by virtue of certain transfers, Mission Pak Company became the successor in interest to Mission Pak, Inc., and continued to operate the same type of business previously conducted by Mission Pak, Inc. As a consequence of this change in interest, the State Board of Equalization conducted an audit and determined the transfer in interest to have been a retail sale subject to the aforementioned sales and use taxes in the amount of $19,720.97. Plaintiff ² paid the tax under protest, exhausted its administrative appeals, and filed an action for refund in Superior Court of Los Angeles County (No. 909295). In plaintiff's words, the 'gravamen of the dispute turned on the determination by the defendant that plaintiff's products were a candy or confection and thus were not exempt from sales taxes.'

In addition, during April 1967 the State Board of Equalization conducted a field audit of plaintiff's business and determined, among other things, that plaintiff owed certain sales and use taxes on plaintiff's sales of its processed fruits, and on plaintiff's use of certain catalogs purchased by plaintiff from sellers in another state. Plaintiff paid the assessed taxes under protest, exhausted its administrative appeals, and filed an action for refund in the Superior Court of Los Angeles County (No. 942286).

On May 14, 1970, judgments were entered against plaintiff in both of its Superior Court actions. On June 9, 1970, plaintiff was adjudicated bankrupt, and Irving Sulmeyer, as trustee in bankruptcy, succeeded to plaintiff's rights of appeal. It was through this chronology of events that the two Superior Court judgments came to be consolidated for appeal.

Plaintiff has at all times contended that the product in question, its glaceed fruit, was a fruit or fruit product, or alternately, a sugar or sugar product, but not a 'candy or confectionery,' and was therefore exempt from tax. Conversely, defendant Board of Equalization has contended that this product was a 'candy or confectionery,' and therefore taxable. Plaintiff bases its contention on the following language in Revenue and Taxation Code section 6359, which provides an exemption from the sales tax liability assessable under Revenue and Taxation section 6203:

'There are exempted from the taxes imposed by this part the gross receipts from the sale of and the storage, use, or other consumption in this state of food products for human consumption.

"Food products' include . . . fruit and fruit products . . . sugar and sugar products . . . other than candy or confectionery.'

The terms 'fruit and fruit products,' 'sugar and sugar products' and 'candy or confectionery' as used in the Revenue and Taxation Code are not defined by statute. The Board of Equalization adopted administrative rules relative to what constitutes 'candy and confectionery' in Ruling 52 (Tit. 2002(b), Calif.Admin.Code), ³ which states in pertinent part:

'Tax applies to sales of candy and confectionery, which includes chocolate-coated nuts, candied fruit, crystallized fruit and glace fruits. Preparations of fruits . . . in combination with chocolate, sugar, honey, candy, or other confectionery, unless sold for cooking purposes, are not food products within the meaning of section 6359. The method used in packaging and distributing these preparations, including the kind and size of container used, will be considered in determining the primary use for which these preparations are sold.'

Plaintiff poses two questions on appeal: (1) 'Is Board of Equalization administrative Rule 52 invalid as being without authority of or repugnant to provisions of Revenue & Taxation Code Section 6359?'; (2) 'Is the finding of the trial court that the product of the Plaintiff heretofore determined administratively for sales tax purposes to be a 'candy or confection' (and not exempt from sales taxes) supported as a matter of law by competent evidence, or is it a 'fruit or fruit product,' or alternatively, a 'sugar or sugar product' (and thus exempt from sales taxes)?'

In regard to the first contention, we recognize that the 'final responsibility for the interpretation of the law (Rev. & Tax.Code § 6359) rests with the courts' (Whitcomb Hotel v. California Emp. Com., 24 Cal.2d 753, 757, 151 P.2d 233, 235), and that the validity of Ruling 52 depends wholly upon whether it is 'consistent and not in conflict with the statute (§ 6359) and reasonably necessary to effectuate the purpose of the statute' (Gov.Code § 11374). However, in making this determination, 'the construction of a statute by officials charged with its administration . . . is entitled to great weight' (Morris v. Williams, 67 Cal.2d 733, 748, 63 Cal.Rptr. 689, 699, 433 P.2d 697, 707), and 'if there appears to be some reasonable basis for the classification, a court will not substitute its judgment for that of the administrative body' (Rible v. Hughes, 24 Cal.2d 437, 445, 150 P.2d 455, 459). '(T)he court should not substitute its judgment for that of an administrative agency which acts in a quasi-legislative capacity. . . . (A court) will not, therefore, superimpose its own policy judgment upon the agency in the absence of an arbitrary and capricious decision.' (Pitts v. Perluss, 58 Cal.2d 824, 832, 27 Cal.Rptr. 19, 24, 377 P.2d 83, 88; see also, Ralphs Grocery Co. v. Reimel, 69 Cal.2d 172, 179, 70 Cal.Rptr. 407.) 'If reasonable minds may well be divided as to the wisdom of an administrative board's action, its action is conclusive.' (Rible v. Hughes, Supra, 24 Cal.2d at p. 445, 150 P.2d at p. 459.) In addition, Ruling 52 'comes before the court with a presumption of correctness and regularity, which places the burden of demonstrating invalidity upon the assailant (Fn. omitted).' (California Assn. of Nursing Homes, Inc. v. Williams, 4 Cal.App.3d 800, 810, 84 Cal.Rptr. 590, 596, 85 Cal.Rptr. 735, 741.)

One test for determining the reasonableness of an administrative ruling is set out...