Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Agnew v. State Board of Equalization . . . (2005)

Costs of Litigation May Be Awarded to Successful Plaintiff Under Code of Civil Procedure, Even Though Not Authorized in Revenue and Taxation Code

Following substantial litigation in trial court and on appeal, Plaintiff Agnew and the Board stipulated to a judgment by which Agnew would receive a refund of 90%of the tax he paid arising from a certain transaction. Agnew then moved for an award of costs and attorney's fees, which the Board opposed. Revenue and Taxation Code ("RTC") section 7156 provides that, in a tax refund action, if the refund claimant is considered the prevailing party under that statute, the claimant may be awarded "reasonable litigation costs"—including reasonable attorney fees—if the trial court determines that the state's position was "not substantially justified." In its opinion, the court of appeal supported the Board on the most important legal issues regarding RTC section 7156: (1) the standard of review of the trial court's ruling on "substantial justification" is whether the trial court abused its discretion in reaching its decision, not a de novo review as Agnew had asserted; (2) a "substantially justified" position is one that is justified to a degree that would satisfy a reasonable person, or has a reasonable basis both in law and fact; and (3) the trial court did not abuse its discretion in ruling that the Board's position in this case was substantially justified. As a result, Agnew could have no recovery under RTC section 7156 of the approximately $400,000 claimed for attorney fees and costs.

The court of appeal, however, reversed the trial court's ruling that RTC section 7156 precluded an award of costs under the provisions of the Code of Civil Procedure ("CCP"). Because CCP sections 1028 and 1032 apply "[n]otwithstanding any other provision of law" and "[e]xcept as otherwise expressly provided by statute," and because RTC section 7156 does not contain an express provision disallowing a prevailing taxpayer from recovering costs except under its provisions, the court concluded that RTC section 7156 complemented, but did not supplant, the provisions of the CCP. The court remanded the case to the trial court to determine an appropriate award of costs to Agnew as the prevailing party under CCP section 1032, subdivision (b), as possibly augmented by an award of expert witness fees under CCP section 998 in the court's discretion. Agnew v. State Board of Equalization (2005) 134 Cal.App.4th 899.