Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Sales And Use Tax Court Decisions
On December 11, 1971, the U.S. Congress repealed the federal manufacturer's excise tax imposed on the sale of specified new motor vehicles and accessories retroactively to August 15, 1971, and required manufacturers to refund taxes collected during this four month period. The Board had promulgated a regulation that provided that repayment of the federal tax by the manufacturer to the consumer would be regarded as a price adjustment. Since the federal tax was originally included in the gross sales price by which sales tax was measured, the reduction in the federal tax resulted in a reduced measure of sales tax. A purchaser of a new automobile during the four-month period who was unable to obtain a refund of sales tax reimbursement he had paid brought a class action suit against his retailer and all California retailers of the product for refund of the excess sales tax reimbursement the retailers and paid to the Board.
The Board argued, and the court agreed, that the customers should not be allowed a direct cause of action against the Board; only a retailer who had paid the tax would have a direct cause of action. Instead, the court compelled defendant retailers to make refund applications to the Board, and required the Board to respond to these applications by paying into court all sums, if any, due defendant retailers. Javor v. State Board of Equalization (1974) 12 Cal.3d 790.
Plaintiff, a consumer, purchased an automobile and paid sales tax reimbursement on the entire purchase price which included federal excise tax. The United States Congress later repealed the excise tax retroactively, resulting in a refund of that tax to plaintiff. Plaintiff brought a class action for all motor vehicle purchasers against all dealers, seeking to obtain refunds of all amounts of sales tax reimbursement paid with respect to the refunded federal excise tax. The Board was joined in the suit. The Supreme Court held that the Board was a proper party to the suit in Javor v. State Board of Equalization (1974) 12 Cal.3d 790. On remand, the Superior Court held that joinder of the Board in the suit tolled the three-year statute of limitations of Section 6902 of the Revenue and Taxation Code and that the Board must make the refunds to the dealers who would be required to pay over the money to the consumers who had paid excess tax reimbursement. The court also held that the amounts in question could not be used to offset other amounts owed by individual dealers to the Board. The court of appeal upheld the trial court on appeal by the Board. Javor v. State Board of Equalization (1977) 73 Cal.App.3d 939 (disapproved to the extent inconsistent with Woosley v. State of California (1992) 3 Cal.4th 758, which held that class claims for tax refunds were not authorized prior to 1989 legislative amendment to Revenue and Taxation Code).
A corporation and its two shareholders were under investigation by the IRS Criminal Investigation Division when the Board issued an assessment for sales tax against the corporation. The corporation filed a petition for redetermination, requesting a hearing before the Board, but also requesting a stay of that hearing and all administrative proceedings until the criminal investigation was completed (the corporation's shareholders were later charged with federal crimes). The Board refused the request and set the hearing. Before that hearing, the corporation and the two shareholders filed a civil rights action for injunction and declaratory relief in federal district court. The district court held that the Tax Injunction Act (28 U.S.C. § 1341) deprived it of jurisdiction because there was an adequate state remedy. The Board thereafter held the hearing and issued a Notice of Redetermination.
The Court of Appeals held that the state provided an adequate remedy, and the hearing and administrative proceedings that plaintiffs sought to enjoin are an integral part of California's sales tax assessment and collection scheme. Thus, the court held that regardless of the basis for seeking the injunctive relief, the explicit language of the Tax Injunction Act divests jurisdiction from the US District Court. The court held further that the correct procedure is for plaintiff corporation to file a claim for refund before the Board and, if the criminal proceedings are still pending, again request the stay, raising its constitutional arguments. The court explained that if the Board declines to stay the action and denies the claim, plaintiffs would thereafter have an adequate remedy in state court. Jerron West, Inc. v. California State Board of Equalization (9th Cir. 1997) 129 F.3d 1334.
Taxpayer was a religious organization that sold religious books, tapes, records, and other religious and nonreligious merchandise at crusades it conducted in California. The Board informed taxpayer that religious materials were not exempt from sales tax, and requested taxpayer to register as a seller to facilitate reporting and payment of the tax. Taxpayer responded that it was exempt from such taxes under the First Amendment. The Board also asserted that taxpayer had sufficient nexus with the State of California to require it to collect and report use tax on its mail-order sales to California purchasers.
The U.S. Supreme Court held that California's generally applicable sales and use tax was not a flat license tax, which might operate as a prior restraint on the free exercise of religious beliefs. In addition, the sales and use tax represents only a small fraction of any retail sale and applies neutrally to all retail sales of tangible personal property made in the state. The court also found that the state's registration requirement does not act as a prior restraint on the exercise of religious beliefs, since no fee is charged for registering, the tax is due regardless of preregistration, and the tax is not imposed as a precondition of disseminating the religious message. The court found that, to the extent the imposition of a generally applicable tax decreased the amount of money taxpayer had to spend on its religious activities, that burden was not constitutionally significant. Since the collection and payment of the tax imposed no constitutionally significant burden on taxpayer's religious practices or beliefs, the court concluded that there was no violation of the Free Exercise Clause of the First Amendment.
The court also held that imposition and collection of the tax did not violate the Establishment Clause of the First Amendment. The tax has a secular purpose and neither advances nor inhibits religion, and California's imposition of the tax on taxpayer threatened no excessive entanglement between church and state. The imposition of sales and use tax does not require the state to inquire into the religious content of the items sold or the religious motivation for selling or purchasing the items, because the materials are subject to the tax regardless of content or motive.
Finally, the court refused to consider the merits of taxpayer's claim that the imposition of use tax liability on it violated the Commerce and Due Process Clauses of the U.S. Constitution because, as an out-of-state distributor, it had an insufficient "nexus" with California. The court found that taxpayer failed to properly raise this argument in its refund claim before the Board. Jimmy Swaggart Ministries v. Board of Equalization of California (1990) 493 U.S. 378; 107 L.Ed.2d 796.
The Legislature adopted the Smog Impact Fee as part of the Sales and Use Tax Law in Revenue and Taxation Code sections 6261 through 6263. This fee, in the amount of $300, was imposed upon the registration of a vehicle last registered outside this state, unless the vehicle was "California certified." The fee was imposed even though the vehicle would have to pass the biannual smog test as a condition of registration. The Court of Appeal held that that the Fee was unconstitutional under the Commerce Clause of the United States Constitution and also violated Article XIX of the California Constitution. Jordan v. Dept. of Motor Vehicles (1999) 75 Cal.App.4th 449.
Revenue and Taxation Code Section 6909 (b) implicitly contained a cap of $18.194 million in attorneys' fees and costs. At the time this section was enacted, the state had appealed a trial court judgment for this amount but the plaintiffs had not. Any arbitration award greater than this amount would be an unconstitutional gift of public funds. Jordan et al. v. Department of Motor Vehicles et al. (2002) 100 Cal.App.4th 431.