U.S. v. California State Bd. of Equalization, No. 80-5073

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBefore KENNEDY and NELSON; RICHEY
Citation650 F.2d 1127
Parties29 Cont.Cas.Fed. (CCH) 81,679 UNITED STATES of America, Plaintiff-Appellee, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant-Appellant.
Docket NumberNo. 80-5073
Decision Date13 July 1981

Page 1127

650 F.2d 1127
29 Cont.Cas.Fed. (CCH) 81,679
UNITED STATES of America, Plaintiff-Appellee,
v.
CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant-Appellant.
No. 80-5073.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted April 10, 1981.
Decided July 13, 1981.

Page 1128

John J. McCarthy, San Diego, Cal., for defendant-appellant.

Richard Farber, Washington, D. C., argued for plaintiff-appellee; Gilbert E. Andrews, Dept. of Justice, Washington, D. C., on brief.

Appeal from the United States District Court for the Central District of California.

Before KENNEDY and NELSON, Circuit Judges, and RICHEY, * District Judge.

RICHEY, District Judge:

The California State Board of Equalization raises three issues in this appeal: (1) whether the district court erred in holding that the legal incidence of the California sales tax falls on the United States; (2) whether the district court incorrectly concluded that the imposition of the sales tax on United States' leases invidiously discriminates against the United States and its lessors; and (3) whether certain other portions of the district court's judgment are unsupported by the record. We affirm the district court's decision that the California sales tax is unconstitutional as to leases of tangible personal property to the United States because the legal incidence of the sales tax falls on the United States. In light of this holding, we find it unnecessary to reach the discrimination issue. Certain portions of the district court's judgment are unsupported by the record and are therefore vacated.

FACTS

Since August 1, 1965 the United States has leased data processing and other equipment from lessors in California. The State of California, through the State Board of Equalization (SBE), has imposed a sales tax 1 on these transactions based on the gross rentals paid by the United States to the lessors.

In September 1974, the district court held that imposing the sales tax on these transactions infringed on the United States' constitutional immunity from state taxation because the legal incidence of the tax fell on the United States. This court affirmed the judgment of the district court. United States v. State Board of Equalization Code, 536 F.2d 294 (9th Cir. 1976) (per curiam).

On September 26, 1978 California adopted chapter 1211 of the California Laws of 1978. This chapter repealed the sections of the California Revenue and Taxation Code which the district court found unconstitutional. It also added Section 1656.1 to the California Civil Code. This section purported to leave the decision of who would pay the tax to the agreement of the buyer and seller. 2

Pursuant to Chapter 1211, and beginning January 1, 1979 the SBE resumed imposing a sales tax on leases to the United States. The United States subsequently filed suit in the district court seeking a declaration that the imposition of the sales tax to the United States' leases was unconstitutional, an order enjoining the SBE from assessing or collecting the sales tax on theses leases, and a refund of all taxes paid by the United

Page 1129

States to its lessors. The district court granted the United States' cross-motion for summary judgment and the SBE appealed.

THE CALIFORNIA SALES TAX SCHEME

Section 1656.1 of the California Civil Code sets standards for determining who the seller or buyer is to pay the sales tax on a particular transaction. It provides that whether the seller or buyer is to pay the sales tax depends on the agreement of sale between the parties. See Cal. Civil Code § 1656.1(a) (West Supp.1980). 3 This section then sets forth three situations in which the tax is presumed to be paid by the buyer: (1) when the agreement of sale expressly so provides; (2) when the sales tax is separately stated on the sales receipt;

Page 1130

and (3) when the retailer posts a notice to that effect. Section 1656.1(b) states that the seller is presumed to have paid the tax if the seller posts a notice in his store that all prices include sales tax. Section 1656.1(d) states that these presumptions are rebuttable. Section 1656.1(c) sets forth several tables which compute the sales tax at various percentages for purchases of approximately $1.00.

Sections 6012 and 6051 of the California Revenue and Taxation Code set standards for determining how much tax is paid. The sales tax is levied on the seller's gross receipts. See Cal.Rev. & Tax.Code § 6051 (West Supp. 1980). 4 Gross receipts are defined as, inter alia, the total amount of the lease price. Id. § 6012(a). 5 The lease price is the amount of rentals payable. See California State Board of Equalization, Sales and Use Tax Regulation 1660 (Regulation 1660). Most importantly, the final paragraph of Section 6012 further provides that if the seller establishes that he collected the sales tax from the buyer the amount of the tax is deducted from the seller's gross receipts. See § 6012(c)(8). There is no similar deduction when the seller pays the tax himself.

LEGAL INCIDENCE OF CALIFORNIA SALES TAX SCHEME

The legal incidence of a tax falls on the party who the legislature intends

Page 1131

will pay the tax. See United States v. Tax Commission, 421 U.S. 599, 609, 95 S.Ct. 1872, 1878, 44 L.Ed.2d 404 (1975); First Agricultural National Bank v. State Tax Commission, 392 U.S. 339, 348, 88 S.Ct. 2173, 2178, 20 L.Ed.2d 1138 (1968). A determination of legal incidence is not, however, an inquiry into who is legally obligated to remit the collected tax to the state. That is, the legal incidence of a tax does not necessarily fall on the party who acts as conduit by forwarding collected taxes to the state. See United States v. Tax Commission, 421 U.S. at 607, 95 S.Ct. at 1877. The concept of legal incidence must also be distinguished from the notion of economic burden. The constitution only prohibits the state from levying a tax on the United States; it does not prohibit the state from enacting a taxing scheme whose effect is to increase prices paid by the United States. Therefore, there is no constitutional violation if the state levies a tax on a lessor to the United States and the lessor recoups this tax payment by raising the lease price increasing the economic burden to the United States. See Gurley v. Rhoden, 421 U.S. 200, 204, 95 S.Ct. 1605, 1608, 44 L.Ed.2d 110 (1975); United States v. City of Detroit, 355 U.S. 466, 469, 78 S.Ct. 474, 476, 2 L.Ed.2d 424 (1958); Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 118, 74 S.Ct. 403, 408, 98 L.Ed. 546 (1954).

In determining who the legislature intends will pay the tax, the entire state taxation scheme and the context in which it operates as well as the express words of the taxing statute must be considered. See United States v. Tax Commission, 421 U.S. at 609-10 & n.8, 95 S.Ct. at 1878-79 & n.8 (finding that the tax scheme unavoidably required the suppliers to pass the tax on to the purchasers); United States v. City of Detroit, 355 U.S. at 469, 78, S.Ct. at 476 ("(I)n determining whether a tax is actually laid on the United States or its property the Court goes beyond the bare face of the taxing statute to consider all relevant circumstances.").

The California sales tax scheme in this case is unlike statutes struck down in previous cases because it is facially neutral as to who is to pay the sales tax. Compare Cal...

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54 practice notes
  • Mother Goose Nursery Schools, Inc. v. Sendak, Civ. No. H 78-449.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • June 29, 1984
    ...Turner v. Japan Lines, Ltd., 702 F.2d 752 (9th Cir.1983); American Timber; United States v. California State Board of Equalization, 650 F.2d 1127 (9th Cir.1981), aff'd. mem., 456 U.S. 985, 102 S.Ct. 2261, 72 L.Ed.2d 864 V Plaintiff seeks an award of attorney's fees if successful. Section 19......
  • Coeur D'Alene Tribe of Idaho v. Hammond, No. 02-35965.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • August 19, 2004
    ...tax collector. Chickasaw Nation, 515 U.S. at 461-62, 115 S.Ct. 2214; see also United States v. Cal. Page 682 State Bd. of Equalization, 650 F.2d 1127, 1131 (9th Cir.1981) ("[T]he legal incidence of a tax does not necessarily fall on the party who acts as conduit by forwarding collected taxe......
  • Smith v. Stoner, Civ. No. F 82-364.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • September 26, 1984
    ...Bricklayers' Pension Trust Fund v. Taiariol, 671 F.2d 988 (6th Cir. 1982); United States v. California State Board of Equalization, 650 F.2d 1127 (9th Cir.1981), aff'd mem. 456 U.S. 901, 102 S.Ct. 2261, 72 L.Ed.2d 157 (1982). See generally Rodgers v. United States, 332 U.S. 371, 68 S.Ct. 5,......
  • Golden State Transit v. City of Los Angeles, No. CV 81-1519 AAH (Tx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • August 23, 1991
    ...L.Ed.2d 496 (1990). And the Ninth Circuit has awarded prejudgment interest in a tax case. U.S. v. California State Bd. of Equalization, 650 F.2d 1127, 1132 (9th Cir.1981), aff'd, 456 U.S. 901, 102 S.Ct. 1744, 72 L.Ed.2d 157 (1982).15 This Court also notes that the Northern District of Calif......
  • Request a trial to view additional results
54 cases
  • Mother Goose Nursery Schools, Inc. v. Sendak, Civ. No. H 78-449.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • June 29, 1984
    ...Turner v. Japan Lines, Ltd., 702 F.2d 752 (9th Cir.1983); American Timber; United States v. California State Board of Equalization, 650 F.2d 1127 (9th Cir.1981), aff'd. mem., 456 U.S. 985, 102 S.Ct. 2261, 72 L.Ed.2d 864 V Plaintiff seeks an award of attorney's fees if successful. Section 19......
  • Coeur D'Alene Tribe of Idaho v. Hammond, No. 02-35965.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • August 19, 2004
    ...tax collector. Chickasaw Nation, 515 U.S. at 461-62, 115 S.Ct. 2214; see also United States v. Cal. Page 682 State Bd. of Equalization, 650 F.2d 1127, 1131 (9th Cir.1981) ("[T]he legal incidence of a tax does not necessarily fall on the party who acts as conduit by forwarding collected taxe......
  • Smith v. Stoner, Civ. No. F 82-364.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • September 26, 1984
    ...Bricklayers' Pension Trust Fund v. Taiariol, 671 F.2d 988 (6th Cir. 1982); United States v. California State Board of Equalization, 650 F.2d 1127 (9th Cir.1981), aff'd mem. 456 U.S. 901, 102 S.Ct. 2261, 72 L.Ed.2d 157 (1982). See generally Rodgers v. United States, 332 U.S. 371, 68 S.Ct. 5,......
  • Golden State Transit v. City of Los Angeles, No. CV 81-1519 AAH (Tx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • August 23, 1991
    ...L.Ed.2d 496 (1990). And the Ninth Circuit has awarded prejudgment interest in a tax case. U.S. v. California State Bd. of Equalization, 650 F.2d 1127, 1132 (9th Cir.1981), aff'd, 456 U.S. 901, 102 S.Ct. 1744, 72 L.Ed.2d 157 (1982).15 This Court also notes that the Northern District of Calif......
  • Request a trial to view additional results

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