State Bd. of Equalization v. Superior Court

CourtUnited States State Supreme Court (California)
Citation217 Cal.Rptr. 238,39 Cal.3d 633,703 P.2d 1131
Decision Date22 August 1985
Parties, 703 P.2d 1131 STATE BOARD OF EQUALIZATION, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent, O'HARA & KENDALL AVIATION, INC.; Real Party in Interest. L.A. 31937.

John K. Van de Kamp, Atty. Gen., Arthur C. de Goede, Asst. Atty. Gen., Edmond B. Mamer, Richard E. Nielsen, Deputy Atty's Gen., Los Angeles, for petitioner.

Donald E. Oliver, Granada Hills, for real party in interest.

BIRD, Chief Justice.

When a taxing authority accepts partial payment of a tax that it claims is due, does ARTICLE XIII, SECTION 32 OF THE CALIFORNIA CONSTITUTION1 bar the taxpayer from commencing an action for a refund of that payment before the full amount of the disputed tax is paid?


Real party in interest, O'Hara & Kendall Aviation, Inc. (O'Hara), is a small aircraft dealer located in California. It holds a seller's permit as required by Revenue and Taxation Code section 6066. 2 Many of its customers are from out of state. Pursuant to sections 6366 and 6421, O'Hara requires that its customers either pay the California sales tax or execute a written declaration that the conditions for exemption from that tax are met. 3

On July 13, 1982, the Board of Equalization (Board) sent O'Hara a notice of determination that $187,576.92 was owed in sales taxes and interest for several quarterly reporting periods between October 1, 1978 and September 30, 1981. 4 This figure was based on the Board's determination that 31 sales made during these quarters, which O'Hara claimed were exempt under section 6366, were in fact taxable.

On July 23, 1982, O'Hara served a petition for redetermination on the Board. 5 O'Hara asserted that it had obtained sufficient documentation in each disputed sale to support the customer's declaration that the exemption requirements of section 6366 would be met. Thus, O'Hara claimed, it came within section 6421's provision that it was not liable for any sales tax since it received these declarations in good faith. Further, O'Hara asserted on information and belief that the Board had issued determinations against the various customers for the same taxes claimed due from O'Hara.

At the same time it filed the petition for redetermination, O'Hara sent the Board a check for $250. In a cover letter, O'Hara stated that the check was partial payment on the July 13th determination. O'Hara requested the Board to apply the $250 by apportioning it according to the amount of tax claimed to be due on each transaction.

By letter dated August 6, 1982, the Board's counsel informed O'Hara that staff had been advised to credit the $250 to O'Hara's account. The letter did not specifically grant O'Hara's request that the amount be applied proportionately to each transaction. It concluded, "If we are missing some purpose to be served here by a more detailed application, your contentions in that regard can be presented to the hearing officer who will eventually hear the petition for redetermination which you filed on July 23, 1982 on behalf of O'Hara & Kendall."

The purpose to be served by a more detailed application soon unfolded. On January 31, 1983, O'Hara filed a claim for a refund of the $250 payment. 6 O'Hara asserted that payment applied proportionately to each disputed transaction. It further contended that in fact it had no tax liability as to any of the sales. Thus, the $250 payment was an overpayment and was refundable on demand.

Having received no decision on its claim for refund after nearly eight months, O'Hara filed a complaint in the Los Angeles Superior Court on September 19, 1983. The complaint incorporated the allegations of the claim for refund and sought recovery of the amounts overpaid plus interest. The July 23, 1982 petition for redetermination was still pending when the complaint was filed.

The Board demurred and moved to strike the complaint, claiming that O'Hara had failed to exhaust its administrative remedies because it had not waited for a final decision on the 1982 petition for redetermination. Furthermore, the Board argued that under article XIII, section 32 of the state Constitution no action for refund could be maintained until the full amount of tax due was paid. In view of the anticipated res judicata effect of O'Hara's court action on the remainder of the disputed tax, the Board argued, O'Hara was in effect seeking prepayment declaratory relief as to the validity of the entire disputed amount. Such a remedy is barred by article XIII, section 32. 7

The trial court overruled the Board's demurrer and denied the motion to strike. The Board, by petition for writ of mandate, seeks review of those orders.


Article XIII, section 32 provides that an action to recover an allegedly excessive tax bill may be brought "[a]fter payment of [that] tax...." Additionally, the section bars a court from issuing any "legal or equitable process ... against this State or any officer thereof to prevent or enjoin the collection of any tax." Read together, these two portions of section 32 establish that the sole legal avenue for resolving tax disputes is a postpayment refund action. A taxpayer may not go into court and obtain adjudication of the validity of a tax which is due but not yet paid.

The important public policy behind this constitutional provision "is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted." (Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283, 165 Cal.Rptr. 122, 611 P.2d 463.) "The fear that persistent interference with the collection of public revenues, for whatever reason, will destroy the effectiveness of government has been expressed in many judicial opinions. [Citation.] As was said by Mr. Justice Field in Dows v. City of Chicago, 11 Wall. (78 U.S.) 108, 110 , 'Any delay in the proceedings of the officer, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public.' " (Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 731-732, 192 P.2d 916.)

" 'The prompt payment of taxes is always important to the public welfare. It may be vital to the existence of a government. The idea that every taxpayer is entitled to the delays of litigation is unreason.' (Springer v. United States [1880] 102 U.S. 586, 594 ; cited with approval in People v. Skinner [1941] 18 Cal.2d 349, 355 .)" (Sherman v. Quinn (1948) 31 Cal.2d 661, 665, 192 P.2d 17.)

The constitutional provision has been construed broadly to bar not only injunctions but also a variety of prepayment judicial declarations or findings which would impede the prompt collection of a tax. In Modern Barber Col. v. Cal. Emp. Stab. Com., supra, 31 Cal.2d 720, 192 P.2d 916, the taxpayer sought mandamus to compel the commission to vacate its finding that he was an employer of several persons within the meaning of the Unemployment Insurance Act and to cancel the charges made against him pursuant to this finding. He admitted that he had paid none of the contributions which the commission claimed were due. Prepayment judicial review was prohibited by section 45.11, subdivision (d) of the Unemployment Insurance Act (see present Unemp.Ins.Code, § 1851) in language virtually identical to that of article XIII, section 32 and section 6931.

In holding for the commission, this court stated: "We may at the outset dispose of the suggestion by petitioner that this proceeding is not one to 'prevent or enjoin' the collection of a contribution because the only relief prayed for is the vacation of the findings of the existence of the employer-employee relationship made by the commission. It is obvious that a judgment directing the commission to vacate its findings would in effect amount to a declaration by the court that the relationship did not exist; the commission after such a judgment could not 'properly undertake to enforce a tax against plaintiff corporation as an employer in defiance of an adjudication that the latter [asserted employer] did not maintain that relationship with the other parties.' (Louis Eckert B. Co. v. Unemployment R. Com. [1941] 47 Cal.App.2d 844, 846 .) The Eckert case held that because of the statute above quoted an action for declaratory relief cannot be maintained to determine the existence of the employer-employee relationship prior to the payment of the tax. 8 Since the net result of the relief prayed for herein would be to restrain the collection of the tax allegedly due, the action must be treated as one having that purpose. [Citation.]" (Modern Barber Col. v. Cal. Emp. Stab. Com., supra, 31 Cal.2d at p. 723, 192 P.2d 916; see also Aronoff v. Franchise Tax Board (1963) 60 Cal.2d 177, 178-180, 32 Cal.Rptr. 1, 383 P.2d 409.)

More recently, this court held that a public utility could not maintain an action in mandamus to compel the Board of Equalization to adjust the assessment of its real property prior to payment of the property tax. (Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d at p. 280, 165 Cal.Rptr. 122, 611 P.2d 463.) Although the utility did not literally seek to enjoin the collection of property taxes, the court found that "[o]n its face [article XIII, section 32] appears to bar actions of the type before us. It is certainly true that the assessment of real property is an integral part of the taxing process, and a court order invalidating an assessment will in effect 'prevent or enjoin the collection' of the tax. [Citations.] It is also the rule that a taxpayer may not circumvent restraints on prepayment tax litigation by seeking only declaratory relief. [Citations.]" (Ibid.; see also Honeywell, Inc. v. State Bd. of Equalization (1975) 48 Cal.App.3d 907, 912, 122 Cal.Rptr. 243; Casey v. Bonelli (1949) 93 Cal.App.2d 253, 208 P.2d 723; cf. Pacific Motor...

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