Opinion
B161927.
7-29-2003
ALI S. SALEH, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA, Defendant and Respondent.
Bewley, Lassleben & Miller, Richard L. Dewberry, Inc., Richard L. Dewberry, and Joseph A. Vinatieri for Plaintiff and Appellant. Bill Lockyer, Attorney General, W. Dean Freeman, Supervising Deputy Attorney General, and Michael R. Weiss, Deputy Attorney General, for Defendant and Respondent.
The trial court granted a motion for summary judgment by respondent State Board of Equalization of the State of California on appellant Ali S. Salehs complaint, and denied Saleh leave to amend his complaint. We affirm.
RELEVANT PROCEDURAL BACKGROUND
On June 13, 2001, Saleh filed a complaint against respondent seeking refund of certain payments that he had made for the tax years 1992 through 1997. The complaint alleged that from 1989 through 1997, Saleh held a resale permit and was engaged in the wholesale resale of clothes made by Levi Strauss & Co. (Levi). The complaint further alleged that during this period, he paid "sales tax reimbursement" to vendors that sold him Levi products, that is, he paid to the vendors the value of the state sales tax imposed on the vendors for the transactions in question. According to the complaint, respondent allowed refunds for sales tax reimbursement that Saleh claimed for the tax years 1989 to 1991, but subsequently denied in part his refund claims for the tax years 1992 through 1997.
The complaint asserted two causes of action: (1) for a refund based on unlawful disparate treatment and estoppel, resting on allegations that respondent had previously approved refunds of sales tax reimbursement under its existing policies, and that the denial violated respondents policy of providing fair treatment to all taxpayers on a consistent basis; and (2) for a refund due to erroneous advice, resting on the allegation that Saleh had reasonably relied on the refunds granted for the tax years 1989 through 1991.
On March 7, 2002, respondent filed its motion for summary judgment or, in the alternative, summary adjudication on Salehs claims. Saleh opposed this motion, and on June 5, 2002, he requested leave to amend his complaint to add a third cause of action. The proposed cause of action sought a refund through the imposition of a constructive trust, and rested on the allegation that respondent held sales taxes that it had erroneously collected from vendors who had sold Levi products to Saleh.
Following three hearings on the motions, the trial court granted summary judgment and denied Saleh leave to amend his complaint. Judgment was filed on August 2, 2002.
DISCUSSION
Saleh challenges the grant of summary judgment, and contends that the trial court erroneously denied his request for leave to amend his complaint. He is mistaken.
A. Summary Judgment
1. Standard of Review
"A summary adjudication motion is subject to the same rules and procedures as a summary judgment motion. Both are reviewed de novo. [Citations.]" (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 819.)
"A defendant is entitled to summary judgment if the record establishes as a matter of law that none of the plaintiffs asserted causes of action can prevail. [Citation.]" (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107, 252 Cal. Rptr. 122, 762 P.2d 46.) In moving for summary judgment, "all that the defendant need do is to show that the plaintiff cannot establish at least one element of the cause of action — for example, that the plaintiff cannot prove element X." (Aguilar v. Atlantic Richfield Co . (2001) 25 Cal.4th 826, 853, fn. omitted.) Nonetheless, all doubts as to whether there are any triable issues of fact are to be resolved in favor of the party opposing summary judgment. (Barber v. Marina Sailing, Inc. (1995) 36 Cal.App.4th 558, 562 .)
2. Statutory Scheme
We begin by describing the relevant statutory scheme. Under the Revenue and Taxation Code, state sales taxes are "imposed upon all retailers" in consideration "for the privilege of selling tangible personal property at retail . . . ." ( § 6051; see § 6051 et seq.; City of Pomona v. State Bd. of Equalization (1959) 53 Cal.2d 305, 309, 1 Cal. Rptr. 489, 347 P.2d 904.) Although a retailer "may add sales tax reimbursement to the sales price of the tangible personal property sold at retail" (Civ. Code, § 1656.1, subd. (a)), payment of the tax itself, insofar as the state is concerned, remains the retailers obligation (Market St. Ry. Co. v. Cal. St. Bd. Equal. (1955) 137 Cal. App. 2d 87, 103, 290 P.2d 20).
All further statutory citations are to the Revenue and Taxation Code, unless otherwise indicated.
Two sets of circumstances touching on this obligation to pay sales tax are pertinent here. First, if the purchaser of tangible personal property buys the property for the purpose of resale, and displays valid resale certificates, the transaction is not a retail sale, and the vendor is relieved from liability for sales tax. (Aerospace Corp. v. State Bd. of Equalization (1990) 218 Cal. App. 3d 1300, 1309, 267 Cal. Rptr. 685.)
Second, in some situations, a purchaser of tangible personal property who resells the property is entitled to a deduction affecting the purchasers obligation to pay sales tax. On this matter, subdivision (a)(1) of section 6012 provides in pertinent part: "In accordance with any rules and regulations as [respondent] may prescribe, a deduction may be taken if the retailer has purchased property for some other purpose than resale, has reimbursed his or her vendor for tax which the vendor is required to pay to the state or has paid the use tax with respect to the property, and has resold the property prior to making any use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business. If that deduction is taken by the retailer, no refund or credit will be allowed to his or her vendor with respect to the sale of the property."
The key regulation concerning this deduction is section 1701 of the California Code of Regulations, title 18 (regulation 1701). Subdivision (a) of regulation 1701 provides in pertinent part: "A retailer who resells tangible personal property before making any use thereof . . . may take a deduction for the purchase price of the property if, with respect to its purchase, he has reimbursed his vendor for the sales tax . . . . If such a deduction is taken by the retailer, no refund or credit will be allowed to his vendor with respect to the sale of the property." The deduction in question is to be identified on the return under the caption "Tax-paid purchases resold" (TPPR). (Ibid.)
Subdivision (b) of regulation 1701 enumerates four situations in which the TPPR deduction may be taken: "(1) The retailer when making the purchase intends to use the property rather than resell it, but later resells it before making any use thereof. [P] (2) The particular property is of a kind not ordinarily sold or stocked by the retailer, and not customarily covered by resale certificates given to his vendors and is the subject of an unusual sale, such as a sale for the accommodation of a customer, employee, etc. [P] (3) The particular property is generally for the use of the retailer, but a small portion is incidentally resold. [P] (4) Through error, sales tax reimbursement . . . is paid by the retailer with respect to the purchase price of property purchased for resale in the regular course of business."
3. Parties Showings and Ruling
In seeking summary judgment, respondent contended, inter alia, that Saleh lacked standing to seek refunds of sales tax paid by others, and that there was insufficient evidence that Saleh had suffered disparate treatment and that he could establish the elements of estoppel. The trial court agreed with these contentions. As we explain below (see pt. A.4., post), the trial court correctly determined that Saleh lacked standing to seek the refunds in question.
Before the trial court, respondent submitted evidence supporting the following version of the underlying events. Saleh buys Levi products and resells them overseas. During the tax years 1989, 1990, and 1991, he paid sales tax reimbursement to vendors that sold him Levi products, and then submitted claims to respondent for refund of the sales tax reimbursement that he had paid in purchasing the Levi products that he had resold overseas.
On July 24, 1992, respondent informed Saleh by letter that regulation 1701 did not provide for a refund of sales tax reimbursement. The letter stated in pertinent part: "Regulation 1701 provides for a deduction (not credit or refund) from gross receipts for tax-paid purchases resold. Administratively, a credit or refund will be allowed but only to the extent that there are taxable gross receipts in the reporting period in which the sale of the tax-paid property is made. Any additional tax refund should be sought from the vendor(s) to whom the sales tax reimbursement was paid." Notwithstanding this letter, respondent subsequently allowed Salehs refund claims for the tax years 1989 to 1991.
At some point in 1992, Levi informed Saleh that it would no longer sell its products to him, and it advised its authorized dealers not to assist Saleh in his resale of Levi products. Saleh continued his resale business by buying Levi products from California retail department stores, which included sales tax reimbursement in the costs of the Levi products that they sold to Saleh. He was engaged in this resale business as late as September 20, 2000.
Saleh submitted refund claims in the following amounts: for the tax years 1992 and 1993, $ 234,018; for the tax year 1994, $ 81,300; and for the tax years 1995, 1996, and 1997, $ 629,000. On January 16, 1996, respondent informed Saleh by letter that his refund request for 1992 and 1993 would not be allowed. The letter stated in pertinent part: "Section 6012[, subdivision (a)] and [regulation 1701] explains [sic] that a TPPR deduction is allowable as an offset against the tax due on the subsequent retail sale of that property. Our records have disclosed your subsequent resale of this property is in interstate/foreign commerce and tax is not collected on these sales. You do not have any tax due on the resale of this property to offset against the tax you have paid to your vendors."
Subsequently, respondent allowed refunds in the following amounts: for 1992 and 1993, $ 23,671.11; for 1994, $ 19,345; and for 1995, 1996, and 1997, $ 41,057. In letters dated April 19, 1999, respondent asserted that the sums so refunded were not refunds of Salehs payments of sales tax reimbursement. Instead, the letters indicated that the refunds arose solely from Salehs entitlement as a reseller of tangible personal property to a TPPR deduction for the purchase price of the property on his own sales tax return.
On appeal, respondent notes that Saleh may not have qualified for these partial refunds under section 6012, which limits the TPPR deduction to retailers who buy tangible personal property "for some other purpose than resale" ( § 6012, subd. (a)(1)), and regulation 1701, which enumerates four such situations in which the TPPR deduction may be taken. As respondent observed, Saleh intentionally bought Levi products and paid sales tax reimbursement in engaging in his resale business, and thus he falls outside the eligibility conditions specified in section 6012 and regulation 1701. However, respondent has not tried to recover these refunds, and thus we do not address this matter.
In opposition to summary judgment, Saleh did not dispute much of this showing. Instead, he submitted additional evidence intended to support the inference that respondent had a practice or policy of refunding sales tax reimbursement to persons in Salehs situation, notwithstanding section 6012 and regulation 1701, and that he had reasonably relied on advice and representations from respondent regarding this practice or policy in conducting his resale business.
Saleh submitted a declaration from Glenn Bystrom, who was employed by respondent from 1971 to 1998, and who was respondents principal tax auditor from 1982 to 1994. Bystrom stated that although respondent had generally interpreted regulation 1701 to mean that the pertinent deduction cannot result in a refund, in "limited and unique" situations, respondent had granted refunds "to numerous taxpayers, including Mr. Salah [sic], to avoid injustice and unjust enrichment . . . ."
Saleh also submitted his own declaration, which stated that he was born in Lebanon and emigrated to the United States in 1970. He opened retail clothing stores in Southern California, and in the late 1980s, he began selling Levi products to wholesalers who exported these products. This resale activity became Salehs principal business.
In 1990 or 1991, an auditor for respondent advised him to seek refunds for sales taxes that he had paid to numerous vendors of Levi products. In June 1992, respondent informed him that he was entitled only to a small refund, and that he should seek additional refunds from or through the vendors themselves. Saleh responded that his vendors were numerous, and they were unlikely to seek refunds on his behalf. In 1993, respondent reversed its decision, as communicated in June 1992, and he received the requested refunds in 1993 and 1995.
Despite Salehs possession of a valid resale certificate, his vendors insisted on collecting sales taxes on Levi products that he bought. Saleh sought additional refunds for payment of these taxes, and in 1996, respondent again advised him to seek refunds from or through his vendors. He wrote to the vendors and asked them to seek refunds on his behalf, but they did not do so.
According to Salehs declaration, his knowledge of sales tax law is limited. After 1992, Salehs profit margins on his resale of Levi products diminished, and the financial success of this business increasingly hinged on the prospects of his obtaining refunds of the sales taxes that he paid to his vendors. He relied on the advice from respondents auditor in the early 1990s, as well as the subsequent refunds and remarks by respondents employees, in conducting his business on the assumption that he was entitled to refunds of the sale taxes that his vendors had collected.
In ruling on respondents motion for summary judgment, the trial court sustained numerous objections to Bystroms declaration statements regarding respondents policies and practices, concluding they were legal conclusions or otherwise inadmissible opinion. It subsequently granted summary judgment, concluding that Saleh lacked standing to seek refunds of sales taxes paid by his vendors, and that his claims based on disparate treatment and estoppel failed for want of a triable issue of fact.
4. Standing
In our view, the trial court correctly granted summary judgment on the ground that Saleh lacked standing to seek refunds of sales tax reimbursement.
As our Supreme Court explained in Woosley v. State of California (1992) 3 Cal.4th 758, 789, 838 P.2d 758, "the California Constitution expressly provides that actions for tax refunds must be brought in the manner prescribed by the Legislature. Article XIII, section 32, of the California Constitution provides in this regard: After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature. (Italics added.) This constitutional limitation rests on the premise that strict legislative control over the manner in which tax refunds may be sought is necessary so that governmental entities may engage in fiscal planning based on expected tax revenues. (See State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638, 217 Cal. Rptr. 238, 703 P.2d 1131 . . . . )"
The sales tax is an excise tax (Delta Air Lines, Inc. v. State Bd. of Equalization (1989) 214 Cal. App. 3d 518, 526, 262 Cal. Rptr. 803), refunds of which fall within the ambit of article XIII, section 32 of the Constitution (Woosley v. State of California ,supra, 3 Cal.4th at p. 789). We therefore examine the statutory limitations that the Legislature has imposed on persons seeking refunds of sales tax reimbursement.
Section 6937 provides that "[a] judgment shall not be rendered in favor of the plaintiff in any action against [respondent] to recover any amount paid when the action is brought by . . . any person other than the person who paid the amount." Here, as we have explained (see pt. A.2., ante), the obligation to pay the sales taxes in question is imposed by statute on Salehs vendors, and not on Saleh, and the relief to Saleh regarding his payment of sales tax reimbursement is limited by statute to the deduction described in section 6012, subdivision (a)(1).
This does not end our inquiry. "There have been some refinements of the rule barring suits for refund to persons not technically regarded as taxpayers, . . . resulting from unusual circumstances which have been subject to judicial review." (Delta Air Lines, Inc. v. State Bd. of Equalization, supra, 214 Cal. App. 3d at p. 526.) In these circumstances, judicial intervention has been authorized "to prevent unjust enrichment" and "to ensure some remedy for persons who have been overtaxed." (Ibid .)
The sources of the refinements in question are Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 252, 23 Cal. Rptr. 589, 373 P.2d 637 (Decorative Carpets) and Javor v. State Board of Equalization (1974) 12 Cal.3d 790, 117 Cal. Rptr. 305, 527 P.2d 1153 (Javor ). In Decorative Carpets, a carpet installer miscalculated the sales tax that it owed on carpets that it installed. (58 Cal.2d at pp. 253-254.) It thus collected excessive sales tax reimbursement from its customers, and paid more taxes than necessary to respondent. (Ibid.) The installer then initiated an action against respondent for a refund of the overpayment, which it did not intend to pass on to its customers.
Applying equitable principles, the court in Decorative Carpets directed the trial court to enter judgment in favor of the installer only upon proof that the installer would pass the refund to its customers. (58 Cal.2d at p. 256.) It reasoned that respondent had become the constructive trustee of the excessive funds collected by the installer, and that permitting the installer to obtain and retain funds that it had erroneously collected from its customers "would sanction a misuse of the sales tax by a retailer for his private gain." (Id . at p. 255.)
In Javor, a purchaser of a new car brought a class action against respondent and a large class of car retailers, alleging that the retailers had collected excessive reimbursement for sales and use taxes in selling new cars, which in turn had been paid to respondent. (12 Cal.3d at pp. 793-794.) After a demurrer was sustained to the complaint without leave to amend, the purchaser-plaintiffs asked the court in Javor to fashion an equitable remedy by which they could obtain a refund because no such remedy was provided by statute. By contrast, respondent contended that there was no statutory authority for action against it.
Citing Decorative Carpets, the court in Javor concluded that the plaintiffs could join respondent as a party in their action against the retailers to seek a refund from the retailers. (Javor, supra, 12 Cal.3d at p. 802.) The Javor court observed that a class action had been properly alleged against the retailers and stated: "All that plaintiffs seek in this action is to compel defendant retailers to make refund applications to [respondent] and in turn to require [respondent] to respond to these applications by paying into court all sums, if any, due defendant retailers." (Ibid.)
In the present case, Saleh contends that Decorative Carpets and Javor establish that he has standing to seek a refund from respondent. We disagree. In each of these cases, the taxpayers, that is, the individuals or entities obliged by law to pay the taxes in question, were named as parties to the action, and the court fashioned an equitable remedy for nontaxpayers predicated on the trial courts jurisdiction over the taxpayers to compel them to seek a refund for the ultimate benefit of nontaxpayers. By contrast, Saleh has not joined the relevant taxpayers — the vendors that sold him Levi products — in the present action, notwithstanding his knowledge of their identity and status as taxpayers, as indicated by his declaration, which states that he wrote to them and asked them to seek refunds on his behalf. For this reason, Saleh has failed to bring an action adequate under Decorative Carpets and Javor.
Saleh contends that despite his failure to join the vendors as parties, he is entitled to bring an action solely against respondent because respondent has a practice or policy of issuing direct refunds to nontaxpayers in circumstances resembling his own situation. Assuming that there is a triable issue of fact as to the existence of such a policy or practice, we nonetheless decline to extend equitable relief beyond the boundaries set in Decorative Carpets and Javor.
"Neither this court nor the trial court has unfettered discretion" to fashion equitable remedies for nontaxpayers, given that the Constitution "places strict legislative control over the manner in which tax refunds may be sought." (Rider v. County of San Diego (1992) 11 Cal.App.4th 1410, 1421.) As we explain below, Saleh asks us to establish a novel form of action for him resting on an alleged practice or policy that cannot be reconciled with subdivision (a)(1) of section 6012 and regulation 1701.
Generally, in construing statutes and regulations, we apply the rules of statutory interpretation (Brewer v. Patel (1993) 20 Cal.App.4th 1017, 1021), and we accord great weight to the interpretation placed on a statute or regulation by officials charged with its administration (Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 1269, 252 Cal. Rptr. 278, 762 P.2d 442).
Nonetheless, the administrative agencys interpretation does not control when "it is clearly erroneous or inconsistent with the plain language of the regulation." (Motion Picture Studio Teachers & Welfare Workers v. Millan (1996) 51 Cal.App.4th 1190, 1195.) Here, section 6012, subdivision (a)(1) and regulation 1701, by their plain language, limit relief to a deduction against taxes paid, and thus any policy or practice allowing refunds beyond this point must yield to this statute and regulation. (Motion Picture Studio Teachers & Welfare Workers v. Millan, supra, at pp. 1195-1196; Prudential Ins. Co. v. City and County of San Francisco (1987) 191 Cal. App. 3d 1142, 1155, 236 Cal. Rptr. 869.)
In view of this determination, permitting Saleh to bring an action solely against respondent would be an affront to the Legislatures authority over actions for refunds. To allow such an action upon evidence that respondent has issued refunds in a manner at odds with existing statutes would nullify legislative control over actions for refunds through these statutes, and effectively transfer control over refund actions to respondent. Under the circumstances, this conclusion does not result in any unfairness to Saleh, given that Decorative Carpets and Javor provide an adequate vehicle for relief that Saleh failed to employ.
In so concluding, we do not resolve whether respondent is estopped from denying refunds to the vendors for Salehs benefit due to respondents alleged policy or practice, had Saleh properly joined the vendors in his action. Our conclusion concerns the proper form of Salehs action, rather than the merits of his claims.
For the first time in Salehs reply brief, he contends that he did not bring an action against his vendors within the limitations period due to respondents dilatory administrative review of his refund claims, and that this delay works an estoppel against respondent. We are not persuaded.
Generally, "an argument or theory will generally not be considered if raised for the first time on appeal, unless the question is one of law to be applied to undisputed fact. Thus, possible theories not fully developed or factually presented to the trial court cannot create a triable issue on appeal." (Johanson Transportation Service v. Rich Pikd Rite, Inc. (1985) 164 Cal. App. 3d 583, 588, 210 Cal. Rptr. 433.)
Here, respondents motion for summary judgment argued that only Salehs vendors had standing to seek a refund from respondent, and respondents reply to Salehs opposition expressly distinguished Javor on the grounds that Saleh had not brought an action against his vendors. Despite a continuance and multiple hearings on the motion for summary judgment, Saleh never offered any explanation or factual argument before the trial court regarding his failure to join the vendors in his action against respondent.
Summary judgment on Salehs complaint was therefore proper.
B. Leave to Amend the Complaint
Saleh also sought to amend his complaint to allege an additional claim for relief solely against respondent. The crux of this newly proposed claim was that respondent was the constructive trustee of the excessive sales tax reimbursement charged by Salehs vendors and paid to respondent.
The trial court did not err in denying Saleh leave to amend the complaint. "Where the complaint is challenged [on summary judgment] and the facts indicate that a plaintiff has a good cause of action which is imperfectly pleaded, the trial court should give the plaintiff an opportunity to amend. [Citations.] [P] [However,] . . . if the proposed amendment fails to state a cause of action, it is proper to deny leave to amend. [Citation.]" (Soderberg v. McKinney (1996) 44 Cal.App.4th 1760, 1773.) Here, the proposed amendment does not cure the fatal deficiency in Salehs action, namely, his failure to join the taxpayers in his action against respondent.
DISPOSITION
The judgment is affirmed.
We concur: VOGEL (C.S.), P.J., HASTINGS, J.