Justia California Court of Appeals Opinion Summaries

Plaintiff MCI Communications Services, Inc. (MCI) appealed the dismissal of its action for a state tax refund after the trial court sustained California Department of Tax and Fee Administration's (CDTFA) demurrer to MCI's first amended complaint without leave to amend. Certain categories of property are excluded from the definition of tangible personal property and therefore are not subject to sales and use taxation. This appeal required the Court of Appeal to decide whether the tax exclusion in Rev. & Tax. Code section 6016.5 extended to the pre-installation component parts that may one day be incorporated into completed telephone and telegraph systems. The Court held that section 6016.5 excluded only fully installed and completed telephone and telegraph lines from sales and use taxation, not the pre-installation component parts of such lines. Accordingly, the Court affirmed the judgment. View "MCI Communications etc. v. Cal. Dept. of Tax and Fee Admin." on Justia Law

When a lease of federal lands includes an option to extend its term and the tax assessor reasonably concludes that the option will likely be exercised, the value of the leasehold interest is properly based on the extended term. The Court of Appeal affirmed the judgment of dismissal entered after the trial court sustained without leave to amend the County's demurrer to Glovis's complaint for refund of property taxes. The court held that the terms of the lease evidenced the parties' mutual intent to grant Glovis the option to extend its possession of the Navy's property past the initial five-year term; the lease clearly and explicitly gave Glovis the exclusive right to lease the Navy's property under 2028; and there was no language permitting the Navy to withdraw or revoke its offer. The court independently reviewed whether to use extrinsic evidence to interpret the lease and held that there was no need to do so in this case. Finally, the court rejected Glovis's contention that the assessor erred when he determined it was reasonable to assume the option will be exercised. View "Glovis America, Inc. v. County of Ventura" on Justia Law

The U.S. Constitution prohibits states from taxing income earned outside their borders but permits taxation of an apportionable share of the multistate business carried on in the taxing state and grants states some leeway in separating out their respective shares of this multistate income, not mandating they use any particular formula. California adopted the Uniform Division of Income for Tax Purposes Act (UDITPA) (Rev. & Tax. Code 25120), which sets forth an apportionment formula for "unitary businesses." UDITPA does not define the term “unitary business.” In California, a unitary business is generally defined as two or more business entities that are commonly owned and integrated in a way that transfers value among the affiliated entities. Bunzl, a multinational entity comprised of numerous subsidiary corporations and limited liability companies, appealed the trial court’s judgment upholding the Franchise Tax Board’s determination that Bunzl owed $1,403,595 in taxes to California for 2005. Bunzl claimed the Board should have excluded income from Bunzl’s LLCs in calculating its California tax liability. The court of appeal rejected Bunzl’s contention and affirmed. The taxpayer has the burden of showing that the state tax results in extraterritorial values being taxed. That burden is increased because one of UDITPA’s purposes is to avoid double taxation. Bunzl, an acknowledged unitary business, made no showing that what it does inside California is unrelated to its operations outside California. View "Bunzl Distribution USA, Inc. v. Franchise Tax Board" on Justia Law

Plaintiff Harley-Davidson, Inc. and its subsidiaries (Harley-Davidson) formed a multistate enterprise with numerous functionally integrated subsidiary corporations. It contended that defendant California Franchise Tax Board's (Board) tax scheme violated the commerce clause of the federal Constitution, arguing it burdened interstate enterprises by providing a benefit to intrastate enterprises not available to interstate enterprises. The trial court granted summary judgment for the Board, finding that whether or not the state's tax law unduly burdened interstate commerce, the state had a legitimate reason for treating in-state and out-of-state unitary businesses differently that could not be served by reasonable nondiscriminatory alternatives - to accurately measure, apportion and tax all revenue acquired in California by an interstate unitary business. After independent review, the Court of Appeal also found there was a legitimate state interest to require combined reporting of taxable income of interstate unitary businesses, to accurately measure and tax all income attributable to California, that outweighed any possible discriminatory effect. Accordingly, the Court affirmed the trial court. View "Harley-Davidson, Inc. v. Franchise Tax Bd." on Justia Law

Mendocino County Ballot Measure AI, which imposed a tax on commercial cannabis businesses, was approved by a simple majority of county voters. The trial court dismissed a challenge and denied plaintiffs’ motion for a preliminary injunction. The court of appeal affirmed, rejecting an argument that under a correct interpretation of article XIII of the California Constitution the tax imposed by Measure AI was not a general tax but, together with a related advisory measure, amounted to a special tax requiring approval by a supermajority of county voters. The court also rejected an alternative argument that Measure AI did not involve a tax at all, and instead imposed an unlawful fee. Because Measure AJ did not in any way limit the County’s ability to spend the proceeds collected under Measure AI, the tax necessarily and by its terms remained a general tax. View "Johnson v. County of Mendocino" on Justia Law

This appeal stemmed from a dispute between the parties as to how the County may tax Time Warner's possessory interests in using public rights-of-way. The trial court found that the Assessor may tax the possessory interests only on the franchise fee because anyone can obtain an identical franchise for five percent of television revenue.The Court of Appeal held that there was no legal restriction on the County valuing the possessory interests in providing television, broadband, and telephone services. The court agreed with the trial court that the Assessor's valuation was not supported by substantial evidence; that the County erred in taxing the entire five percent of revenue rather than the value of the possessory interests alone; and that substantial evidence supported the Los Angeles County Assessment Appeals Board's finding that the reasonably anticipated term of possession of Time Warner's rights-of-way was 10 years. Accordingly, the court affirmed in part, reversed in part, and remanded. View "Time Warner Cable Inc. v. County of Los Angeles" on Justia Law

Certain limited liability companies (LLCs) paid a levy under Revenue and Taxation Code section 17942, which was later determined by the court of appeal to be unconstitutional. After two separate actions seeking class treatment for the payment of refund claims were coordinated, the trial court rejected a jurisdictional argument from the Franchise Tax Board (FTB) that the LLCs had failed to adequately exhaust their administrative remedies as a class and could not proceed on a classwide basis. The court, however, went on to deny the motion for class certification on multiple other grounds, including lack of ascertainability, numerosity, predominance, and superiority. The court of appeal reversed. The court agreed with the trial court’s exhaustion determination but concluded that its class certification analysis was fundamentally flawed. The court deemed the matter “eminently suitable for treatment on a classwide basis.” There is no bar to certification of a class action for refund of unconstitutional taxes so long as all class members have filed their own individual claims and thereby exhausted their administrative remedies; no purpose would be served by erecting a jurisdictional barrier to class treatment of those claims on the formalistic ground that no class claim for refund was filed. View "Franchise Tax Board Limited Liability Corp. Tax Refund Cases" on Justia Law

Littlejohn sought to sue Costco, the California Board of Equalization, and Abbott to recover sales tax on purchases of Abbott’s product Ensure. Littlejohn alleged that Ensure is properly categorized as a food; no sales tax was actually due on his purchases; Costco was under no obligation to pay and should not have paid sales tax on its sales of Ensure. The complaint alleged that during the period in question Ensure was classified as a food product exempt from sales tax, not a nutritional supplement. Littlejohn based his claim on a 1974 California Supreme Court decision, Javor. The trial court concluded that the judicially noticed documents in the record showed the Board had not resolved the question of whether Ensure was nontaxable during the relevant period.. The court held that the documents were entitled to deference, but did not have the same force of law as Board regulations and were not binding. The court of appeal affirmed, reasoning that the case does not involve allegations of unique circumstances showing the Board has concluded consumers are owed refunds for taxes paid on sales of Ensure. A Javor remedy should be limited to the unique circumstances where the plaintiff shows that the state has been unjustly enriched by the overpayment of sales tax, and the Board concurs that the circumstances warrant refunds. View "Littlejohn v. Costco Wholesale Corp." on Justia Law

Plaintiffs Yvonne Reid and Serena Wong sued defendants the City of San Diego (City) and the San Diego Tourism Marketing District (TMD) in a putative class action complaint, challenging what they allege is "an illegal hotel tax." The trial court sustained Defendants' demurrer without leave to amend on statute of limitations and other grounds. The Court of Appeal affirmed, concluding some of the causes of action were time-barred and the remainder failed to state facts constituting a cause of action. View "Reid v. City of San Diego" on Justia Law

Petitioner Alysia Webb filed a verified petition for mandamus relief with the superior court, alleging the City of Riverside (Riverside) violated Propositions 26 and 218 when it began transferring additional revenue from electric utility reserve fund accounts into the general fund without approval by the electorate. Webb contended the court improperly dismissed her case without leave to amend on a demurrer because the 120-day statute of limitations arising under Public Utilities Code section 10004.52 did not apply to her challenge of Riverside's change in calculation of its electric general fund transfer. She further argued the fund transfers constituted a tax increase because they altered the methodology used to calculate the amount of money Riverside transfers from the electric utility reserve to the general fund. After review, the Court of Appeal disagreed and affirmed the superior court. View "Webb v. City of Riverside" on Justia Law