San Francisco v. Flying Dutchman Park

• Decision Date: 09 September 2004
• Docket Number: No. A102026.,A102026.
• Citation: 122 Cal.App.4th 74,18 Cal.Rptr.3d 532
• Court: California Court of Appeals
• Parties: CITY AND COUNTY OF SAN FRANCISCO, Plaintiff and Appellant, v. FLYING DUTCHMAN PARK, INC. et al., Defendants and Appellants.

18 Cal.Rptr.3d 532

122 Cal.App.4th 74

CITY AND COUNTY OF SAN FRANCISCO, Plaintiff and Appellant, v. FLYING DUTCHMAN PARK, INC. et al., Defendants and Appellants.

No. A102026.

Court of Appeal, First District, Division Two.

September 9, 2004.

Rehearing Denied September 30, 2004.

Review Denied December 15, 2004.

Dennis J. Herrera, City Attorney, Julie Van Nostern, Chief Tax Attorney, and Ellen Forman, Chief Appellate Attorney, for Plaintiff and Appellant.

Law Offices of J. Brian McCauley and J. Brian McCauley, San Francisco, for Defendants and Appellants.

RUVOLO, J.

I. INTRODUCTION

Respondent and cross-appellant Flying Dutchman Park, Inc. (Flying Dutchman) provides commercial parking and valet parking services alleged by appellant and cross-respondent City and County of San Francisco (CCSF) to be subject to its parking tax (S.F.Mun.Code, §§ 601-615).¹ The parking tax imposes a tax of 25 percent (§§ 602, 602.5) on "rent" paid for "occupancy" of a space for parking a motor vehicle in a "parking station" (§§ 601; 602A.).

CCSF's appeal arises out of a successful defense by Flying Dutchman to an enforcement action brought by CCSF to collect in excess of $800,000 in parking tax arrearages. The trial court agreed with Flying Dutchman's contention that the parking tax was unconstitutional as violating the state's guarantee of equal protection (Cal. Const., art. I, § 7, subd. (a)) because CCSF had no rational basis for subjecting Flying Dutchman to the parking tax requirements, while exempting certain other groups. We conclude that there exists rational bases for the exemptions allowed in the parking tax ordinance, and, therefore, its enforcement against Flying Dutchman does not violate equal protection. Accordingly, the trial court erred in ruling to the contrary.

Nevertheless, we agree with the trial court that, under the express provisions of the parking tax ordinance, Flying Dutchman is not liable for any tax unless, with respect to each transaction sought to be taxed, CCSF proves that rent was paid.

Consequently, the trial court properly reduced Flying Dutchman's parking tax arrearages to eliminate amounts derived from Flying Dutchman's valet parking activities where no fee was paid by Flying Dutchman for space used to park vehicles.

As to Flying Dutchman's cross-appeal, we conclude that the parking tax does not: (1) violate the state Constitution's privileges and immunities clause (Cal. Const., art. I, § 7, subd. (b)), or (2) amount to an improper double tax on real estate in violation of the state Constitution (Cal. Const., art. XIII, § 1). Moreover, we agree with the trial court that the portion of the parking tax earmarked for senior citizens' activities is void as a "special tax," which did not receive the requisite two-thirds approval by the voters as required by relevant provisions of the California Constitution (art. XIII A, § 4). However, that illegal allocation does not require invalidation of the entire parking tax ordinance or reduction of Flying Dutchman's parking tax arrearages, because the offending clause is severable under the ordinance's savings clause, thereby allowing parking tax revenue to pass exclusively into CCSF's general fund.

II. PROCEDURAL BACKGROUND

This is the second action concerning whether CCSF's municipal parking tax is constitutionally valid. The first was filed by Flying Dutchman and sought declaratory and injunctive relief preventing CCSF from enforcing the parking tax law. In Flying Dutchman Park, Inc. v. City and County of San Francisco (2001) 93 Cal. App.4th 1129, 113 Cal.Rptr.2d 690 (Flying Dutchman I), we affirmed the judgment entered in favor of CCSF after the trial court sustained its demurrer to Flying Dutchman's complaint. However, we affirmed only on the procedural ground that governing law required Flying Dutchman first to pay the disputed tax before becoming legally eligible to file an action contesting that tax. Because Flying Dutchman had not done so, judgment was properly entered in favor of CCSF.

On May 16, 2001, while Flying Dutchman I was pending, CCSF filed its own action in San Francisco Superior Court seeking to recover unpaid parking taxes from Flying Dutchman, and certain individuals under claims of alter ego. The amounts allegedly owed were the subject of a first amended complaint (FAC), which sought to recover a total of $451,848 in tax, $90,370 in tax penalties, and $344,783 in interest.² Flying Dutchman asserted 24 affirmative defenses, including the four involved in this appeal and cross-appeal: (1) violation of equal protection (Third and Fourth Affirmative Defenses), (2) violations of the privileges and immunities clause of the state constitution (Eighth and Ninth Affirmative Defenses), (3) invalid double taxation of real property (Second Affirmative Defense), and (4) violation of Proposition 13 (Fifteenth Affirmative Defense).

Evidence was thereafter presented to the court sitting without a jury in June 2002. After submission of the evidence, the parties presented briefs, including supplemental briefs, on the disputed legal issues. The trial court issued its 18-page statement of decision on December 19, 2002, and judgment was entered on February 18, 2003. As noted, both sides have appealed.

III. DISCUSSION

A. Equal Protection Claim

CCSF's parking tax was enacted in the early 1970's, and remains codified in sections 601-615 of article 9, part III of the San Francisco Municipal Code. Quite succinctly, section 602 provides: "Subject to the provisions of this Article, there is hereby imposed a tax of 15 percent for the rent of every occupancy of parking space in a parking station in the City and County. . . ."³

As noted, Flying Dutchman claims the parking ordinance violates the equal protection clause of the California Constitution (art. I, § 7, subd. (a)), both facially (Third Affirmative Defense), and as applied (Fourth Affirmative Defense), because there exists no rational basis for exempting certain parking activities while making Flying Dutchman potentially liable for the parking tax on its activities.⁴

The parking tax exempts revenues derived from: (1) parking by registered hotel guests or apartment residents in parking stations or facilities that are part of the hotel or apartment premises; (2) parking by registered hotel guests in parking stations or facilities that are separate from the hotel premises so long as any parking charge to the guest is included as part of the hotel room rent; and (3) long-term parking by members of the United States military services while on active duty. (§ 606.) Under the ordinance, parking "operators" are required to collect the tax from the "occupant" and thereafter remit them to CCSF. (§§ 603, 604, & 608, subd. (e).) It is undisputed that none of these exemptions apply to Flying Dutchman's parking operations.

The trial court agreed with Flying Dutchman and held that the parking tax was unenforceable because it violated the equal protection clause in several respects. First, the court concluded there was no rational basis for the exemption favoring hotel and apartment guests who have "on premises" parking available to them, over guests and residents who must pay for "off premises" hotel and apartment parking.

As to apartment residents, the court then noted: "Residents who are unable to secure parking space on the same premises in which they reside must pay the tax on any parking space they hire. This tax liability is imposed not just in particularly congested areas of San Francisco, nor in particular areas in which there is a shortage of parking for residents, nor is it imposed only on those who utilize large parking garages operated in the city's core. Rather, the liability for parking tax is imposed on any resident of San Francisco who does not or cannot pay to park in a parking station which is part of that person's residential premises and therefore pays rent to park elsewhere, whether it is in her neighbor's vacant one-car garage, or a large parking lot. . . . No rational basis appears in the evidence nor in any argument advanced by CCSF to discriminate against the resident who is compelled to park off premises because no parking is available in the premises in which she resides."

The trial court had two concerns for the exemption favoring hotel guests who use hotel provided on-premises parking.⁵ First, while no parking tax is imposed on charges for on-premises hotel parking, guests are subjected to the parking tax if they must pay the hotel to park "off premises." The court found that "[n]o rational basis is suggested either by evidence or argument for that discrimination."

Additionally, the ordinance further offers a safe haven for some of those registered hotel guests who must park "off premises" (and thus are nominally subject to the parking tax). If the hotel includes "rent" for off-premises parking as part of the overall room charge, no parking tax is imposed. Therefore, only registered hotel guests who are charged a separate parking charge for off-premises parking are subject to the tax. The trial court speculated that this latter distinction might derive from the fact that room rental charges are subject to a separate tax on "Transient Occupancy of Hotel Rooms" (art. 7, §§ 501-515.2). If both an occupancy tax and a parking tax were applicable to a unitary, undifferentiated room charge, it would subject the parking "rent" to a double tax (an occupancy tax and a parking tax). Excluding such charges from the parking tax eliminates this double tax dilemma. Nevertheless, because CCSF's transient occupancy tax was at a "much lower rate" than the parking tax, the trial court concluded that "[n]o reason which could justify such discrimination in the rate charged appears from either the evidence or argument."

Lastly, the court addressed the parking tax exemption afforded to active duty members of the United States military who pay to store vehicles owned by them for a time period of...