Westfield-Palos Verdes Co. v. City of Rancho Palos Verdes, WESTFIELD-PALOS

Citation73 Cal.App.3d 486,141 Cal.Rptr. 36
Decision Date20 September 1977
CourtCalifornia Court of Appeals
PartiesVERDES COMPANY, etc., Palos Verdes Penthouse, Ltd., etc., Dayton Realty Co., etc., Empire Savings & Loan Association, Plaintiffs and Appellants, v. CITY OF RANCHO PALOS VERDES, a Municipal Corporation, et al., Defendants and Respondents. Civ. 49838.

Latham & Watkins, Alan N. Halkett, and Lance B. Wickman, Los Angeles, for plaintiffs and appellants.

Richards, Watson, Dreyfuss & Gershon, Glenn R. Watson and Mitchell E. Abbott, Los Angeles, for defendants and respondents.

STEPHENS, Associate Justice.

Appellant land developers seek to avoid payment of Rancho Palos Verdes municipal taxes affecting their housing projects on the Palos Verdes peninsula. In the court below appellants sought to enjoin enforcement of these taxes and to obtain refunds of taxes already paid. 1 Respondent City moved for summary judgment. The court, concluding that there were no triable issues of fact, granted the City's motion, then entered judgment dismissing appellants' action. Appeal is taken from that dismissal.

On September 7, 1973, the City of Rancho Palos Verdes was incorporated. Prior to the City's birth, however, appellants Dayton Realty Company (Dayton), Westfield Development Company (Westfield), and Palos Verdes Penthouse, Limited (Penthouse) had acquired property, obtained the necessary governmental permits and approvals, and had commenced construction on their separate projects. The housing units in each of these projects were in varying stages of development when the City enacted its Environmental Excise Tax Ordinance (Ord. No. 14 U, § 6700 et seq.) on January 22, 1974, subsequently part of the Business License Tax Ordinance (Ord. No. 27, § 6400, enacted April 16, 1974). Dayton's Ridgegate-Mira Verde project covered 69 acres and involved the construction of 627 condominium units. Only 93 of those units had been sold by January 1974. Other units were nearing completion, but a good portion were still just bare foundations. The units sold were not included in Dayton's assessed taxes. Westfield's Tiara Del Mar project involved construction of single family homes on 48 finished lots. By January 1974, about half of these units were nearing completion, and 18 were in escrow. Construction was just commencing on the remainder of these units. Finally, the Penthouse project, consisting of two large condominium units on adjoining parcels of land, was only partially completed when the first tax ordinance was enacted.

The contested tax ordinances exact a fee from residential builders and developers in the amount of $500 per dwelling unit, to a maximum of $1,000. The Environmental Tax Ordinance assesses such a "bedroom tax" as a special, nonrecurring tax upon "the occupation and construction of new dwelling unit(s)" as a method of "providing revenues with which the City may meet and deal with . . . the serious ecological and environmental problems created by the occupancy and construction of such facilities within the City." This tax is determined at the time of the issuance of the building permit or certificate of occupancy and must be paid prior to the occupancy of the dwelling. 2 The Business License Tax Ordinance assesses the same "bedroom tax" as the measure of the annual license tax due from a residential builder or developer. The dwelling units by which this tax is measured are those for which building permits or certificates of occupancy have been issued, or on which construction is in progress during the tax year. Excluded from such computations, however, are any units upon which the developer has paid an environmental excise tax. Effectively, the environmental excise tax operates as a form of business license tax with respect to residential builders and developers. 3

Appellants challenge these ordinances on several fronts. Their principal contention is that both ordinances, as applied to them, are unconstitutionally retroactive. They also contend that the taxes are discriminatory, in violation of the equal protection clause, and that the taxes conflict with the general law of the state and exceed the City's authority to tax lawful business. We conclude that the ordinances are valid, and we uphold the dismissal of appellants' action.


A retroactive law is one which relates back to a previous transaction and gives it a different legal effect from that which it had under the law when it occurred. (See, e. g., Bear Valley Mut. Wat. Co. v. County of San Bernardino, 242 Cal.App.2d 68, 72, 51 Cal.Rptr. 53; Ware v. Heller,63 Cal.App.2d 817, 821, 148 P.2d 410.) Laws which have some retrospect effect are not per se invalid. It is only when the law operates to deprive a party of a vested or substantive right in violation of due process that it is invalid. (Abrams v. Stone, 154 Cal.App.2d 33, 41, 315 P.2d 453. See also Magnano Co. v. Hamilton, 292 U.S. 40, 44, 54 S.Ct. 599, 78 L.Ed. 1109.) Appellants' retroactivity argument, as we understand it, is that the challenged taxes are wrongful because they are in derogation of appellants' vested right to complete projects for which building permits and financing have been secured and where construction has been substantially completed. This somewhat novel proposition draws upon the line of "vested rights" cases originating in the zoning context, and further relies upon a characterization of the City taxes as being a non-business tax imposed upon past construction activity. Appellants virtually concede, however, that their ongoing business activity might be subject to a business license tax which is measured by past business activity. (See Neild v. District of Columbia, 71 App.D.C. 306, 315, 110 F.2d 246, 255; Fullerton Oil Co. v. Johnson, 2 Cal.2d 162, 176, 39 P.2d 796; Title Ins. etc. Co. v. Franchise Tax Board, 145 Cal.App.2d 60, 64, 302 P.2d 79.)

Appellants' attempt to use a vested rights principle to gain immunity from unforeseen taxes is virtually without precedent, and if followed to its logical conclusions, would shield any lawful business from newly enacted municipal taxes if that business had made any sort of irrevocable commitments, either financial or contractual, in commencing operations in that municipality. The imposition of a new tax, or an increase in the rate of an old one, is simply one of the usual hazards of the business enterprise. (John McShain, Inc. v. District of Columbia, 92 U.S.App.D.C. 358, 359, 205 F.2d 882, 883.) Simply because a tax draws upon antecedent facts for its operations does not render it retroactive. (See Cox v. Hart, 260 U.S. 427, 435, 43 S.Ct. 154, 67 L.Ed. 332; Burks v. Poppy Construction Co., 57 Cal.2d 463, 474, 20 Cal.Rptr. 609, 370 P.2d 313.) Only where the measuring formula for the tax draws upon such disparate or long past antecedents so as to have little relation to the volume of current business might a business license tax fall on retroactivity grounds. (Cf. Title Ins. etc. Co. v. Franchise Tax Board, supra, 145 Cal.App.2d 60, 64-65, 302 P.2d 79.) Unlike the gift taxes struck down in Blodgett v. Holden, 275 U.S. 142, 48 S.Ct. 105, 75 L.Ed. 206 and Untermyer v. Anderson, 276 U.S. 440, 48 S.Ct. 353, 72 L.Ed. 645, the instant taxes were imposed not upon past, completed transactions, but upon the ongoing business of appellants. The business license tax, incorporating within it the environmental excise tax, was a tax upon residential developers which was measured by the number of dwelling units in construction or completed during the tax year. Insofar as it was measured upon some units which were substantially completed at the time of its enactment, taking into account some business activity occurring prior to its enactment, does not render this tax upon developers fatally retroactive. (Cf. Title Ins. etc. Co. v. Franchise Tax Board, supra.) Business as to appellants' various housing units, even those substantially completed, was still ongoing, and the privilege of engaging in business as to those units could validly be assessed in the form of a license tax.

Appellants vigorously maintain, however, that the City taxes are not in fact privilege or license taxes measured on business activity, but are non-business taxes on completed transactions. Among the indicia which the appellants claim betray the non-business character of the taxes is that portion of the measuring formula in the business license tax which assesses dwelling units as to which construction is "in progress" during the tax year. They theorize that this provision could include dwelling units which were begun in a prior year, but which lay dormant during the course of the tax year. We cannot endorse such a strained reading of the ordinance, whose manifest intent is clearly to tax ongoing construction either at the time of the issuance of the building permit or certificate of occupancy, or in the interim, while construction is actually in progress. A second factor which appellants note is the radically different and more burdensome measure of taxation imposed upon them as residential developers in contrast to that levied upon other businesses. 4 Yet the instant taxes do not lose their character as taxes and become an illicit regulation of residential development simply because the tax is higher or is measured differently than is the case with other businesses. It is within the discretion of the legislative body to exact different license taxes from different classes of business as long as the classification rests upon some rational basis. Gutknecht v. City of Sausalito, 43 Cal.App.3d 269, 276, 117 Cal.Rptr. 782. See infra.)

Lastly, appellants seize upon the prologue to the environmental excise tax ordinance (later reenacted in the business license ordinance) as indicative of the true color of the taxes assessed them. They suggest that the later enactment of the business license tax as to residential...

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