Universal Consol. Oil Co. v. City of Los Angeles

• Decision Date: 25 April 1962
• Citation: 21 Cal.Rptr. 61,202 Cal.App.2d 771
• Court: California Court of Appeals Court of Appeals
• Parties: UNIVERSAL CONSOLIDATED OIL COMPANY, a corporation, Plaintiff and Respondent, v. CITY OF LOS ANGELES, a municipal corporation, Defendant and Appellant. Civ. 25464.

Page 61

21 Cal.Rptr. 61

202 Cal.App.2d 771

UNIVERSAL CONSOLIDATED OIL COMPANY, a corporation, Plaintiff and Respondent, v. CITY OF LOS ANGELES, a municipal corporation, Defendant and Appellant.

Civ. 25464.

District Court of Appeal, Second District, Division 1, California.

April 25, 1962.

Roger Arnebergh, City Atty., Bourke Jones and James H. Doherty, Asst. City Attys., and Robert C. Summers, Deputy City Atty., for appellant.

Hackett & Hubbard and Wayne R. Hackett, Los Angeles, for respondent.

WOOD, Presiding Justice.

Plaintiff sought a declaration that it was not required to pay to the City of Los Angeles a business license tax as a wholesaler of oil, or as an independent contractor, in addition to the business license tax it was already paying as a producer of oil from wells located in the city. It also sought a refund of taxes which it had paid as a wholesaler of oil. Judgment was in favor of plaintiff. The judgment included an alternative judgment which was to be effective only in the event the judgment, first referred to, did not become final.

Defendant appeals from the judgment.

Appellant contends that the judgment and certain portions of the alternative judgment are based upon an erroneous interpretation of the license tax ordinance.

Plaintiff is now, and since 1937 has been engaged in the business of drilling for and producing oil in the City of Los Angeles and other areas in California. At the end of 1959, it operated 313 oil wells, 36 of which were in the city and 277 were in other areas. Since 1930 its only business office has been in the city, and it has conducted a portion of its selling operations there. All oil produced by it is delivered in its crude state to refining and marketing companies at the well sites. It has never refined oil or manufactured petroleum by-products, and it has never and storage facilities for oil, or had refineries or retail outlets. If it were to refine its crude oil, it would be required to invest an additional $20,000,000 for refining facilities. Several wells from which plaintiff produces oil are operated by it as lessee under oil lease agreements with the owners of the land. Several wells are operated by plaintiff in Kern County, California, under an oil lease in which Kern County Land Company is the lessor and plaintiff and State Exploration Company are the lessees. The lessees have an operating agreement between themselves.

Section 21.124 of the Los Angeles City License Tax Ordinance provides that every person producing oil from any well located in the city of Los Angeles is required to pay a business license tax based upon the number of wells producing oil.

Section 21.166, subdivision (a), of that ordinance provides that every person manufacturing and selling any goods, wares or merchandise at wholesale, or selling any goods, wares and merchandise at wholesale, and not otherwise specifically taxed by other provisions of the ordinance, is required to pay a tax based upon gross receipts.

Section 21.190, subdivision (a), of that ordinance provides that every person engaged in any trade, calling, occupation, profession or other means of livelihood, as an independent contractor and not as an employee of another, and not specifically licensed by other provisions of the ordinance is required to pay a license fee based upon gross receipts.

At all times since plaintiff commenced producing oil from wells in the city (1937) plaintiff has paid the taxes, specified in section 21.124, for engaging in the business of producing oil from wells located in the city. The taxes were measured, as provided in that section, by the number of barrels of oil produced by plaintiff from wells located in the city. (There is no controversy herein with respect to such taxes.) From 1951 through 1958, plaintiff paid to the city, under protest, license taxes, as specified under section 21.166, for engaging in the business of selling oil at wholesale in the city. The taxes were measured by plaintiff's gross receipts from the sale of oil produced by it from wells located outside the city. The amount of the refund which plaintiff sought in this action, as taxes paid under protest and allegedly as the amount of the taxes required by section 21.166, was $16,319.30.

The action was commenced in March 1959. In June 1959, the city paid to plaintiff $7,536, representing a refund of a portion of the $16,319.30. In August 1959, the city allowed plaintiff 'a credit (against any taxes due under the ordinance) of $1,401.00, which the City stated constituted a partial credit of the sums claimed by Universal [plaintiff] as refund of such taxes heretofore paid under the terms of said Section 21.166 for the year 1955.' The refund and credit were allowed after the Supreme Court decided the cases of City of Los Angeles v. Belridge Oil Co., 42 Cal.2d 823, 271 P.2d 5, and City of Los Angeles v. Belridge Oil Co., 48 Cal.2d 320, 309 P.2d 417. Such allowances were made pursuant to the city clerk's ruling which stated that the ruling was made by reason of the opinions in said cases, and that whenever a person is engaged within the city in a business subject to a tax under section 21.166, only those gross receipts which are directly attributable to the business engaged in within the city shall be included in the measure of the tax. The ruling also referred to various 'elements' which were to be considered in determining the percentage of gross receipts which should be considered as directly attributable to the business engaged in within the city. With reference to this plaintiff, the city clerk determined that 25 per cent of the gross receipts from sales of oil produced from wells outside the city was directly attributable to the business (of selling) engaged in by plaintiff within the city in connection with such sales, and that the amount of the tax which plaintiff should have paid, under section 21.166, with respect to sales outside the city, should have been measured by 25 per cent of the gross receipts from such sales (and not by 100 per cent thereof). At the trial, it was stipulated that, if plaintiff was subject to any tax under section 21.166, the amount of the tax should be based upon 15 per cent of the gross receipts from sales of oil produced from wells outside the city (instead of 25 per cent), and that plaintiff was entitled to an additional refund representing the difference in taxes computed on the basis of 15 per cent instead of 25 per cent.

It was stipulated that if witnesses were called by the city, they would testify as follows: 'The City for more than twenty years last past has had in effect provisions of its License Tax Ordinance substantially as set forth in Sections 21.124 and 21.166 of the Los Angeles Municipal Code. Prior to the year 1952 the question of whether or not persons engaged within the City of Los Angeles in the business described in Section 21.124 might also be subject to tax under Section 21.166, if they sold at wholesale the oil produced by them from wells within the City had never been presented to the City Attorney or the City Clerk for official consideration and determination. Records of the City Clerk's Office show that, generally speaking, the so-called 'major oil companies' doing business in Los Angeles had paid taxes under Section 21.166 with respect to sales at wholesale of oil produced from wells operated by them within the City; but that, generally speaking, oil companies which sold production at the well in a crude state and who were subject to Section 21.124 did not pay tax under Section 21.166 with respect to selling oil from wells located in the City. Within the limits of available staff and within the limits imposed by the Statute of Limitations, the City Clerk has since the year 1955 adopted the policy of collecting and attempting to collect taxes under both Sections where the facts disclosed that oil produced from wells in the City by persons subject to tax under Section 21.124 were sold at wholesale by those persons under circumstances indicating that the persons were engaged in the kind of business subject to tax under Section 21.166. The City Clerk, following this policy, has required affected tax payers to pay in the manner described in this paragraph for tax years 1952 and following. For many years prior to 1952 the City Clerk has required persons selling refined or processed oil and petroleum products in the City, whether at wholesale or at retail, to pay the tax required by Section 21.166 or 21.167 regardless of whether the oil sold was produced by the persons from wells located within the City under circumstances which subjected those persons to tax under Section 21.124. Wherever facts known to the City Clerk indicated that a person was engaged in one or more other businesses subject to tax, in addition to the kinds of business described in Sections 21.124, 21.166 or 21.167, the City Clerk has attempted to collect the tax and has collected the tax due under those sections wherever possible.'

The judgment was, in substance, as follows: (1) Plaintiff is not subject to the license taxes imposed by section 21.166 or by section 21.190 of the ordinance, and plaintiff is not now, and never has been, required to be licensed or to pay the license taxes imposed by those sections. (2) Plaintiff is entitled to a refund or credit in the amount of $8,783.30 representing the amount of license taxes which it paid to the city under section 21.166, and the city is ordered to refund the same to plaintiff or to allow the same as a credit against any license taxes which plaintiff may now or hereafter owe to the city.

As above stated, appellant (city) contends that the judgment was based upon an erroneous interpretation of the license ordinance.

Section 21.166, subdivision (a), of the ordinance provides, in part: '[E]very person manufacturing and selling any goods, wares or merchandise at wholesale, or selling any goods, wares or merchandise at...