Articles Posted in Tax Law

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For over 40 years, San Francisco has had an ordinance that imposes a tax on parking lot users for the “rent” paid to occupy private parking spaces. Since 1980, the amount of the tax has been 25 percent of the rent; parking lot users owe the tax, but parking lot operators are required to collect the tax when the users pay to park and periodically remit it to San Francisco. The ordinance states it is not to be construed as imposing a tax on the state or its political subdivisions but those “exempt” entities must “collect, report, and remit” the tax. The universities operate parking lots on property that is close to university facilities and is mostly owned by the state; they have never collected or remitted city parking taxes. In 2011, San Francisco directed the universities to start collecting and remitting the tax. After the universities refused, San Francisco unsuccessfully sought to compel compliance, citing its “home rule” powers. The court of appeals agreed that the universities are immune from compliance with the ordinance because they have not expressly consented to collecting and remitting the tax and their parking-lot operations are a governmental, not a proprietary, function. View "City and County of San Francisco v. Regents of the University of California" on Justia Law

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This case involved the interpretation, and application of Water Code section 51200 and articles XIII C and XIII D of the California Constitution, as approved by California voters in 1996 as Proposition 218, and the interplay between them. Defendants and cross-complainants Reclamation District No. 17 and Governing Board of Reclamation District 17 (collectively "Reclamation") maintained levees and other reclamation works within the district’s boundaries. Plaintiff and cross-defendant Manteca Unified School District (School) owned real property within Reclamation’s boundaries. School filed an action for declaratory relief, arguing section 51200 exempted it from paying assessments to Reclamation and Proposition 218 did not confer such authority. School also sought recovery of over $299,000 previously collected by Reclamation. Reclamation answered and cross-complained for declaratory relief. The trial court found the assessments levied by Reclamation were invalid under section 51200 but denied recovery of assessment payments made during the pendency of the action and concluded School’s action was not barred by the statute of limitations. Reclamation appealed, arguing section 51200 and Proposition 218 allowed assessments against school district property unless the district could show through clear and convincing evidence that the property received no special benefit. School cross-appealed, contending the trial court erred in denying recovery for assessments paid during the pendency of the case. The Court of Appeal concluded the trial court erred in declining to apply the constitutional mandate of Proposition 218 to the statutory exemption from assessments provided by section 51200. Accordingly, the Court reversed the judgment and dismissed the cross-appeal. View "Manteca Unified Sch. Dist. v. Reclamation Dist. No. 17" on Justia Law

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Plaintiffs each bought skin puncture lancets and glucose test strips from retail pharmacy stores owned and/or operated by defendants. When plaintiffs purchased these items, the retail pharmacies charged them "sales tax" and subsequently remitted the money they collected as sales tax to the Board of Equalization. Plaintiffs filed suit alleging that the lancets and test strips have been exempt from sales tax since March 10, 2000, the date on which the Board made effective California Code of Regulations, title 18, section 1591.1, subdivision (b)(5). The Supreme Court held in Loeffler v. Target Corp., that the customer was not the taxpayer and thus could not herself seek a refund from the Board. At issue was whether the customer may obtain a court order compelling the retail pharmacy to file an administrative refund claim with the Board. The state's Supreme Court held in Javor v. Board of Equalization that the Legislature's authority in this regard was not exclusive and that courts retain a residual power to fill remedial gaps by fashioning tax refund remedies in "unique circumstances." The court concluded that a court may create a new tax refund remedy—and, accordingly, that the requisite "unique circumstances" exist— only if (1) the person seeking the new tax refund remedy has no statutory tax refund remedy available to it, (2) the tax refund remedy sought is not inconsistent with existing tax refund remedies, and (3) the Board has already determined that the person seeking the new tax refund remedy is entitled to a refund, such that the refusal to create that remedy will unjustly enrich either the taxpayer/retailer or the Board. In this case, because the Revenue and Taxation Code does not provide for this remedy and because plaintiffs have not established any of the three prerequisites to the exercise of the judicial residual power to fashion new remedies, the court concluded that the trial court correctly sustained demurrers to all of the claims in the complaint without leave to amend. Accordingly, the court affirmed the judgment. View "McClain v. Sav-On Drugs" on Justia Law

Posted in: Health Law, Tax Law

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The Association filed a property tax refund suit against the County under Revenue and Taxation Code section 5140. The County argued that the action was barred because the Association failed to file a timely refund claim pursuant to Revenue and Taxation Code section 5097, subdivision (a)(3)(A)(i). The superior court determined that the Association filed a timely claim, reversed the Board's decision, and remanded. The County appealed the superior court's judgment in favor of the Association, and the Association appealed the superior court's post-judgment order denying its motion for attorney's fees. Section 5097, subdivision (a)(3)(A)(i) sets the procedural time limit within which a party in the Association's position must file a claim with the County for a refund of taxes. The court explained that the one year time limit was not affected by the timing of the party's payment of the property taxes due. Because the Association did not file their claim for refund of taxes with the County within the one year time limit of section 5097, subdivision (a)(3)(A)(i), the court concluded that the superior court lacked jurisdiction over the Association's subsequent property tax refund action against the County. Accordingly, the court reversed and remanded with directions to dismiss the action. View "Cal. State University Fresno Association v. County of Fresno" on Justia Law

Posted in: Tax Law

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In a felony complaint, the prosecution charged Blake Hudson with three counts of willfully failing to timely file tax returns for three consecutive years with the intent to evade paying a tax. A magistrate presided over a preliminary hearing in which an Franchise Tax Board (FTB) agent testified as the prosecution’s sole witness. The agent testified that generally a person must file tax returns by either April 15, or October 15, for the prior taxable year. Generally, a crime occurs when a person commits a wrongful act with the requisite criminal intent. In California, it is a crime when a person willfully fails to timely file a state tax return with the intent to evade paying the taxes that are owed. Hudson had filed returns in other years and the FTB had repeatedly notified Hudson of his duty to file his tax returns. As a result, the magistrate bound Hudson over for trial; and the superior denied his motion to set aside the information. Hudson argues that there was insufficient evidence to show his intent to evade paying taxes. Hudson argued that in order to prove his intent, the prosecution needed to show an additional affirmative act of fraud. The Court of Appeal found that Hudson’s argument was based on a United States Supreme Court opinion interpreting a federal tax law. But unlike the California state statute, the federal tax law at issue did not explicitly make the failure to timely file a tax return a criminal act. "That distinction is ultimately fatal to Hudson’s claim." The Court concluded there was a rational basis for the magistrate to assume that Hudson harbored the requisite intent to evade paying his taxes when he failed to timely file his tax returns. View "Hudson v. Super. Ct." on Justia Law

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Swart is a small family-owned corporation, incorporated in Iowa, with its place of business and headquarters in Iowa. At issue is whether the franchise tax applies to Swart, whose sole connection with California is a 0.2 percent ownership interest in a manager-managed California limited liability company investment fund (Cypress LLC). The court concluded that passively holding a 0.2 percent ownership interest, with no right of control over the business affairs of the LLC, does not constitute “doing business” in California within the meaning of section 23101. In this case, Swart was not doing business in California based solely on its minority ownership interest in Cypress LLC. The court explained that the Attorney General’s conclusion that a taxation election could transmute Swart into a general partner for purposes of the franchise tax, and that the business activities of Cypress can therefore be imputed to Swart, is not supported by citation to appropriate legal authority and defies a commonsense understanding of what it means to be “doing business.” Accordingly, the court affirmed the judgment. View "Swart Enterprises v. Franchise Tax Bd." on Justia Law

Posted in: Business Law, Tax Law

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This appeal centered on who was entitled to real property tax increment revenue after the statutory dissolution of the San Jose Redevelopment Agency. The trial court held that tax increment revenue from a real property tax imposed to raise funds for the pension obligations of Santa Clara County was properly distributed to the Redevelopment Property Tax Trust Fund to pay the debts of the former redevelopment agency. Santa Clara County, with its Director of Finance Vinod Sharma, argued on appeal that this holding was erroneous. The trial court also held that statutes dissolving the former redevelopment agency required that certain tax increment revenue be passed through from the Redevelopment Property Tax Trust Fund to Santa Clara County instead of being used to meet the enforceable obligations of the former redevelopment agency. The City of San Jose, as the successor of the redevelopment agency, argued on appeal that this holding was erroneous. Finding no reversible error, the Court of Appeals affirmed the trial court. View "City of San Jose v. Sharma" on Justia Law

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A developer sought approval from the City of San Ramon to build 48 townhouses on two parcels. Because an analysis showed that the cost to the city of providing services to the new development would exceed the revenue generated by the project, the city conditioned its approval on the developer providing a funding mechanism to cover the difference. Using California’s Mello-Roos Act, the developer petitioned the city to create a “community facilities district” and then, as landowner, voted to approve a tax within the district to raise the necessary revenue. Building Industry Association-Bay Area unsuccessfully challenged the validity of the tax. The court of appeal affirmed. The tax will provide “additional services” to meet increased demand for existing services resulting from the townhouse development and meets the requirements of the Mello-Roos Act; the tax is a special (and not a general) tax because it is imposed for specific purposes and not for general governmental purposes, and therefore meets the requirements of the California Constitution; and the property owners’ constitutional and statutory rights are not burdened by an ordinance explaining that the services funded by the special tax will not be provided by the city if the tax is repealed. View "Bldg. Indus. Ass'n of the Bay Area v. City of San Ramon" on Justia Law

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San Diegans For Open Government (SDOG), represented by Briggs Law Corporation (BLC), filed a verified answer in response to the City of San Diego's (City) complaint in a validation action regarding the City's plan to levy a special tax to finance the expansion of the San Diego Convention Center. SDOG represented that it was an interested party to the litigation. However, at the time it filed its answer, both SDOG and its counsel knew that SDOG was a suspended corporation and neither SDOG nor its attorney informed the superior court or the City of this fact. After SDOG and another defendant ultimately proved successful in the validation action, SDOG sought its attorney fees. The City discovered after a final judgment was entered in SDOG's favor that SDOG had been suspended when it filed its verified answer and was not revived until well after the time period by which an interested party had to answer the validation action. As such, the City moved to strike SDOG's answer and motion for attorney fees. The superior court denied the City's motion and awarded SDOG attorney fees, but limited those fees because SDOG first appeared when it was suspended and did not inform the court or the City of its status. This case presented an issue of first impression for the Court of Appeal: whether under Code of Civil Procedure section 1021.5, should attorney fees be awarded when a suspended corporation files an answer in a validation action and both the corporation and its attorney know it is suspended and it is not revived before the expiration of the deadline to appear in that action? The Court answered this question in the negative, and thus, reversed the order granting SDOG its attorney fees. The Court affirmed the court's order denying the City's motion to strike both the answer and SDOG's motion for attorney fees. View "City of San Diego v. San Diegans for Open Government" on Justia Law

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MediMarts, a nonprofit collective, paid the Marijuana Business Tax (MBT) for a year, then began submitting returns showing no money due. The City of San Jose sent notices and found that MediMarts owed $58,788.53 as of August 2012, plus future penalties and interest. MediMarts owed $215,111.17 as of November 2013. The city sued MediMarts and its president, Armstrong, for $767,058.60. Defendants filed a cross-complaint under 42 U.S.C. 1983 and 1988, arguing that payment of the MBT would subject them to self-incrimination because it “forces [defendants] to admit to the sale or possession for sale of marijuana.” The tax also violated defendants’ due process rights by failing to provide for notice or a hearing before declaring MediMarts a nuisance and forcing it to cease operations. Armstrong was not afforded a hearing on his personal liability for the taxes. Finally, the cross-complaint alleged that the MBT “unjustly treats collectives and medical marijuana patients differently from other similarly situated individuals and organizations.” Applying the “collective entity rule,” the court determined that neither MediMarts nor Armstrong was entitled to assert the Fifth Amendment to resist the tax. The court of appeal affirmed. Neither assertion of Armstrong’s constitutional rights nor their accommodation would abate MediMarts’s duty to pay the tax. View "City of San Jose v. MediMarts, Inc." on Justia Law