DICON FIBEROPTICS v. FRANCHISE TAX BOARDRespondent's Opening Brief on the MeritsCal.November 16, 2009Iu the Supreme Court of the State of California b _ DICON FIBEROPTICS,INC., ‘Plaintiff and Appellant, Case No. S173860 Vv. FRANCHISE TAX BOARD OF THE STATE OF CALIFORNIA, Defendant and Respondent. Court of Appeal, Second Appellate Dist. Div. Eight, Case No. B202997 Los Angeles County Superior Court, Case No. BC367885 The Honorable Mel Red Recana, Judge OPENING BRIEF ON THE MERITS EDMUND G. BROWN JR. Attorney General of California PAUL D. GIFFORD Senior Assistant Attorney General GORDON BURNS Deputy Solicitor General W. DEAN FREEMAN Supervising Deputy Attorney General State Bar No. 73869 300 South Spring Street, Suite 1702 Los Angeles, CA 90013-1230 Telephone: (213) 897-2489 Facsimile: (213) 897-5775 Email: Dean.Freeman@doj.ca.gov Attorneysfor Defendant and Respondent Franchise Tax Board ae. a TABLE OF CONTENTS Page ISSUE PRESENTED wssssssssssssssssssssssssssssssssssssseeeeesssessussssssestssnsasasecen 1 INTRODUCTIONccccccsesesssesssssssesssssvesesesessssssessetecevecssussssessssuusesvessesenee ad STATEMENTvecccccsssscsscecsccesessssssssssssssssesssssessasssssssssessssssssssessssssseseseesse 3 ARGUMENT. vvsssssessssssstseceecesseessessssssssssassasssessseseuasassssensnsausasasissesessssesee g I. A VOUCHERISSUED BY AN ENTERPRISE ZONE IS NOT PRIMA FACIE EVIDENCETHAT A WORKERIS A “QUALIFIED EMPLOYEE” UNDER REVENUE AND TAXATION CODE SECTION 23622.7, AND IT DOES NOT SHIFT THE BURDEN OF PROOF TO THE BOARD 1... eeeecceeeeeeees 8 A. In Tax-Refund Actions, the Law Places the Burden of Proof on Taxpayers. .......ccccceccscesesseeeereeeees 8 B. When Properly Construed, Section 23622.7 Does Not Provide That Vouchers Are Prima Facie Evidence That A WorkerIs a “Qualified Employee”or Shift the Burden of Proofto the Board, ...ccecccsccescessqeseeessecessssseeseeesaeeseessecseceseesseeeseees 13 1. The Plain Language of Section 23622.7, Subdivision (c)(1) Supports the Board’s Interpretation of That Section..........teeteseereeese 13 2. Even if the Language of Section 23622.7, Subdivision (c)(1) Is Ambiguous, the Rules of Statutory Construction Compel the Adoption of The Board’s Interpretation of That N10506)|seneeeseeee 15 a. Tax credit statutes are strictly . COMSHIUC..... ee eeeeeeesteeeteeseeeereetseeeseeaes 15 b. Courts will not lightly presume ' that the Legislature intended to overturn longstanding principles O 19 TABLE OF CONTENTS (continued) Page c. The Legislature knows how to bind the Board by the decision of another agency, to make a document prima facie evidence, or to shift the burden of proof............. 22 d. Legislative history supports the Board’s interpretation. «0.0.00...eee 25 -C. The Decision Below Violates the Ban on Prepayment Tax Litigation in Article XIII, Section 32, and it Is Contrary to the Rule That a Tax-Refund Lawsuit Is a Trial De Novoin the Superior Court. occceecceceeccceseeseeesesenseeesesennes 28 1.. The Decision Below Violates Article XII, Section 32 Because It Will Authorize Prepayment Tax Litigation........... 29 2. The Decision Below Is Contrary to the Rule That A Tax-Refund Lawsuit Is a Trial De Novo in the Superior Court............. 31 CONCLUSION.......eeesenseacsneanseacensersssnesneauanereseesesosecenenasseeanesswines 34 li TABLE OF AUTHORITIES Page CASES ~ Alpha Therapeutic Corp. v. Franchise Tax Bd. (2000) 84 CalApp.4th 1 onceesscseeseeseseseeaeateeateteeenenees 16, 17, 19 Auerbach v. AssessmentAppeals Bd. No. 2for County ofLos Angeles (2008) 167 CalApp.4th 1428oe.tsseeaseasesgessecessenentententessesnernesses 11 Butler Brothers v. McColgan (1941) 17 Cal.2d 664 oeeccccccsccesssecssenseseesesesssccsssessesstsecsucsavereaseensspassim Collier & Wallis, Ltd. v. Astor (1937) 9 Cal.2d 202 oe eccceccesssssssseseseescsscsescsesseecscecsessssssuscssusecsseseecnees weed l Cook v. United States (2000) 46Fed.CL. 110 oeccccccccsssecsesscssesesscsstsesscscsecsessessessessecacaseveaees 8, 21 County ofLos Angeles v. Frisbie (1942) 19 Cal.2d 634 oo ccccccccsesesesscseeseseeseesscsenssessescacsessssesssvscaeesees 21, 33 El Dorado Oil Works v. McColgan (1950) 34 Cal.2d 731 oieiecsecsesesssseseseesececssesssecsessssecsssesssesessvecterreeseateas 9 Flannery v. Prentice (2001) 26 Cal.4th 572 sececcccscsssssseseesesessessscssesescsesssacsecsuscsecsesseevaceaaes 25 General Motors Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 773 .........seseeeeseetecestaseeeaeseeseaesseesesesesseecsasesseeeeeeeseeeespassim Great Western Financial Corp. v. Franchise Tax Bd. (1971) 4 Cal.BOL ileecceeseeeeseeseessesetacsneessoseeseenevseeaeeaeeseesssaeeeeeaecaeeaees15, 32 Honeywell, Inc. v. State Bd. ofEqualization . . (1982) 128 Cal.App.3d 739 oeecccccscessssesssscscssesssssssessessesvssessssveseevacaeereress 9 Hospital Service ofCalifornia v, City ofOakland (1972) 25 Cal.App.3d 402 o.ccccccccsccssessessscsessceseseeesees 15, 16, 18, 19, 32 In the Matter ofthe Appeal ofDeluxe Corp. (Dec. 12, 2006, No. 297128) (2006-SBE-003).......esese dese veseeeeeeseeatenseenaees 5 iil Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911eeeescssessescsesseesesecseseneneeseeesseeeseeeetersesereeees vee 22 Krumpotichv. Franchise Tax Bd _ (1994) 26 Cal.App.4th 1667, rev. emied...sceccccsescsssssesesesssssesssssssessssssseeeee9 Lennane v. Franchise Tax Bd. (1994) 9 Cal4th 263 oo.cccccccccessessesesscsesseeecneseeneeereeeseeereseenensssseeges 13, 14,32 | Lewis v. Reynolds _ oe (1932) 284 ULS. 281 ec eescsscsensesessssetsssesseenesaseseseseeeeseeeeesereeeeeteey 8, 12, 21 Long Beach Fireman’s Credit Union v. Franchise Tr.axBad. (1982) 128 CalApp.3d'50 oiieescseneseseeseessereserenenenseneesseseeeeeeneeeenenneenee 9 Microsoft Corporation v. Franchise Tax Bd. (2006) 39 Cal.4th 750 oo.ee cecccsseeccsseeeesseneseeseseseneaneesenenssreeessenerenteneneees 12 Miller v. McColgan (1941) 17 Cal.2d 432 occseeeeescesseceeetenteaseeeeeesceeteaeeeteees 15, 16, 18, 32 Morris v. Williams (1967) 67 Cal.2d 733 acsseccssnssesssssnseenessenessestsesssnesensineetnsteneetatee 9 Nast v. State Board ofEqualization (1996) 46 CalApp.4th 343 vocecsccceeeeresessesseeeeenensereeeeeseeeseserenees 31, 32 Pacific Fruit Express Co. v. McColgan (1947) 67 Cal.App.2d 93 o.ccececesssescesessestssesereessenscsecsecssseeseesssesessesnensees .9 Pacific Gas & Electric Co. v. State Bd. ofEqualization (1980) 27 Cal.3d 277 .o.eseesssesseesseesseecssecssecssnsesssennecssnensaseccnsenssnscennennnsttn 30 Paine vy. State Bd. ofEqualization (1982) 137 Cal-App.3d 438 occccseecssecnssseseseessedessassesseesssensesesneneeees 10 People v. Murphy : (2001) 25 Cal.4th 136 oc cecccsescsssecsenecsesessessseseesssecseseeseensesssesseseneseeeetes 22 People v. Schwartz , (1947) 31 Cal.2d 59i.beseeseseneseeeeseeeeseaceseeeseeess beseveneeaeustseeteeseesatenseess 32 People v. Superior Court (Lavi) (1993) 4 Cal.4th 1164eeccccsessesesessesscneessnecneessesseeseseseeseeseeesenees 19 Silicon Valley Taxpayers Ass'n, Inc.v. Santa Clara County Open Space Authority (2008) 44 Cal4th 431eeecsecessesecescesenscseneenesssessnesneseseseesneeaees 11 Iv State Bd. ofEqualizationv. Superior(Court (1985) 39 Cal.3d 633 o.occececccecccselecsssssesecsseseeseesecessecsseeeseesseseseseeenseens 29, 30 Theodor v. Superior Court (1972) 8 Cab.3d. 77 voeeeccccceccsssesecessseaeeeeesesseesecssesesseeseeceaeesecessecaeseneeses 20, 33 Todd v. McColgan (1948) 89 CalApp.2d 509 occcccecsenseceseeseneceseeseseeeeesaeesesereseeeeeeenseseenees 9. United States v. Janis (1996) 428 U.S. 433...cevaeeedeceecceceesecetsaecaseseeeseeseeacecesesacecesesseeeasesseesteens 8 Western Oil and Gas Assn. v. State Bd. ofEqualization - (1987) 44 Cal.3d 208 oo... cceeccecccescccessesessceeseeesseeseesessessasessessaacsseeeessueeaeeaes 29 Woosley v. StateofCalifornia (1992) 3 Cal.4th 758 oo..ccccccccscecssccsseseessessesecsecsaeeseseeeseeecsesessessecsseessscaesaes 30 STATUTES Cal. Code Regs., tit. 25 § 8463, subd. (A)C1) ceeec ce ccscecseseeeneeeseeesseseccseecsecsseensaeecseesesessseeesseeesessae 5 § 8463, SUD. (A)(7) ....ccccecccsscessssceessecescsesensessesecsecessenceesececeaesenseueceessernees 5 Gov. Code § 7070. eccccccessccensccereceecseseenees deceseecesceeceseeecsasessesesuccesssssusesessesseseneuereeees 3, 25 § 7072, SUD. (Cd) ..eeceeccccccessecssscsesecessessacesceeseneeeencensceeueeseassessaseersessausensenses 3 § 7073, subds. (a) and (Db)... eeececeeceeeceseseesesseeeseeeeeeeeeaccseceseseseecseceseenessese 3 § 7076, subds. (a)(1)(B) and (C) ...cccccccccccsscsscssescesseeeesssseeeseessesssecessenseeeee4 -§ 7076.1, subd. (b) ......... seseeeeeenseceseueseseseseseeseseseacsesienssenessesesenesesssescaeeeseasseges 4 Int.Rev. Code . SLeeccccesssseeceesneecsseecesseecsseeeceeeasecsseeesseecsscsaeeccssteassesenessssensnecessssecesansess 20 Pen. Code § 1538.5...seaaeeseucacesensessacecssusecucececcssecesaeacuasenssceneecssacsessescususerevsssceseasavsase 20 Rev. & Tax Code ; § LOT eeeccccccssccsssesenseenseeseeseneens veseessecesssecsees sedeeseeseveeeeevaseeeeeeeeees Leseeees 11, 24 8 84Deeecccseccesseeesseeesseeeeesesseessscecsesesscessesessusesceeesssseecersecseaeteceateres 23 § 2634eeecccsscessssecsseeessseeesececssssaecsaececsusessessecessscessesesessseeesessseecnssusineses 23 § 2862... ccecceccessssceeseeccssecesseeecesseseesseeeneessreeesscabeseeeecaeeesssseesseeesensueceeuse 23 § 2927So eccccccsssecesesseesseeesseesccseceesescecesesecsseesssesereeses se see ca eeeeseseeeeneeseeeteneeeenes 23 § BOO4ee eeceeecessssecesscccsseecesssccesssscessecsssevsesesesessssesssececeseasecsasseuerssersenees 23 § 3364 cccccccsscccesstecessccssseecesseecesssssessscesseessesccsescssscesscsaussaseceversseveaseesenseres 23 § BBTAL ceccccesssccesssseceseeecesseesesseecsetaessseeecseeesaeesseeesseeens Lececeseeseseeeceseraceseesers 23 § 4376. ccccccsccccssccccecsscecssssececsessscsecsscsessssesscscscesersvasacaseasessvacesetaececseeaevatereates 23 § 6714 ceccccssseesssssssssesssseesesesssseees vssssstuuvessssssuvecessunvsesesuecsssuessauteserneveceaseees 23, Rev. & Tax Code (con’t.) § TO5S8..cecceccseessesesscsesescessseeeesssseensseecsenesereesseeesseeeeenseeseseeeeseesseeeeeeeeseceaeess23 S 7730 ..ccccccssseseeeeetecsesessesssesesseseeseaeeeesesseseceseeseenrseeneeeenenensnassessaeeseeeanetsseeranes 23 § 7865 ..cccccccccesceccscesesesseersesssseneessesensenecseneseenereecseberssareesensegeegessecseeeeteeenseeees 23 § S256. ccccccseseecececescessssscscsesssesesseeceeseneesensetesneetsseasetsssnseseeeneesseesenseeeceesneess 23 § 8973 oe eececeeesesseesesseecseeecseeseeseeesesrecseenteaeneey cescecaeeuceeseacessnenseesseneesnsesseens 23 § D257 .cessssecsececeseeesesseenenenennentensnsseenseesersneeeassenseneeeteeneny ves aeseeeteaeecneesanersaes 23 § LDATALeeeesceseseseeseneseesenenenseceeeesensceasergnsnsesecsssesesecnenenesssnensseaseneesenes 23 § L268 Lio. ceceeeceseeseceseteeeereceseseeseeseeseeseeseneesensdeseeecaesececnaceeeneeeesessneeesseenaeens 23 § D834cccceceeescecsenssensesecesesesessssaeseseneeessassnesecieaeesesersensessnessseesseeseneeses 23 § 13681 ee eccccceceseceteressseestscsescscseeeeseseneeseenenesasegersssecsessisenseseneeseeseseseenenanees 23 § 17053.8, SUbA.(C)(1) .cecseesseecseeecseesseeseeseesseessesssseesseesseesssesneqsesecneeseneeeneesnes 25 § 17299. eceeseececeenenectsrsesesesesesnecseacseseneseneesuseesseasesnesessaseressenaneeeeeesseseassengas 23 § 17299, subd. (D) wc eeeeceeseteeeeeeeeteeeeeeesVaeeeenaceuseeensecsecetseceersaeseonaaes setters 23 § 19050...eee“seuscosensorenssaceacustaorceucesesoevsesnesseseenstacnenacharearenssenectacaries® 23 § 19374. ee eccecsecesseseeescersetsesnsseeseesescseseeseseaseeesssenenerarsensaseetessenestenseseseseeneseas 23 § 19382.eccceesceceeeeeeteeseneeneeesveseecaeceasessceeeesseensesecevarcesaecaesseueseeesseeaensees 5 § 19703 ..ececcceecsseceesescsssescscerenessssseseececaeseeeseeenseeeterteasissesessecnsnesaeneeaneneneenees23 § 19705(C) cecccscesescscssscesesescseseesesesssesscecsenensesensneeesseeesensasecsenessesesseaseessenaneney 23 § 19720(D) ..ceeeeecesecetessereesesesessseeesessenenseseseceesseeeeeseeneneresesaesetensnsseseseseeeeeeeey 23 § LOTQ1(C) w.eeeeeeetesereeeeeeenes vasavsasesecscseeseqessacseseseeseaeseeeeeneeaeeeeeseensnesseasensass 23 § 21027(D) .eceeeeeseessessseessedesesessenecseececscsesesesensnecscenscensnsnenenacseasasanecesenssessetens 23 § 23302(C) wreeececcsceccrerseseseesesesesesessseesesseseeeesensenesesecteetenensessesersseeesseaseseserses 24 § 2330SAi. eccceseceretceseseseeessessssesensssenseseseeeccessnecseaeneeesaeasesiesssssessetessassenegeegs 24 § 23305... eeeececseessesseseeseseneeseteeteseeesneneeeees baceeesaeceatecsaceneeerececteneeeeensseseeaers 24 § 23305.1(d) eeeeeeeceesereeeerrstees seeseecessecssecsssesaecesecenecaceeseeneecsaaesseesesessereeneeens 24 § 23609... eeccceccccceceseresersceecnessseseeesseeeessesensesesseseesceneneseeeessessenssessaseeenaes 19, 20 § 23622.7ieeeaceeceecaceneecenceeeacerssacersacesensecueesseeesssecsaeeesenesseeegs....passim § 23622.7, SUDA. (A).seeceecesceeeeertereeseetertsseenestesesesanereesseseeneeseesensanseneeneteceeentnns 3 § 23622.7, subds. (b)(4)(A)G)-(D)(AVAGI) occ cececeteteetenetereeeseseeteneeeeaees 1,3 § 23622.7, subd. (b)(4)(A)GY) secevseesuecececeseeececeaeseaeeenessesseeesseenes 2-4, 6, 18, 25 § 23622.7, SUDA. (C)...eeesecccsscseseeseeeeeessesenecnersenersenetereeeeneetenseestanieetees 4, 13, 26 § 23622.7, SUDA. (C)(1) es ccscecsesestecsenseteereteereteeeseeeeceenetieeeeneteenes 4, 13-15, 18 § 23622.7, Sub. (C)(2)..eeseecsseesereceeesseseesessecsssceneesesnsseaneessnseesnetseenteanesesiedey A § 23622.7, subds.(a), (C)(1), (C)(2).-essccccscseseeeeressereeeeneresneseeeesserenseesereeees 1 § D5 128. eeceeeeccsseeesesceeeeeeseceesenecseeseceessesseeseeneeaseeseesseeeacesseseeteeensersees 12, 24 § 2513 Torcccccsccsccscecescssssescsecsesessssesscsessesesseesieeseeseesenessesseersenecaenseseaseseesiens 12, 24 § 30213 ec ccecececeseseececeseeessscsesesseesscsenseseseseseneesenensnessesenenensenensnensnsestetseseeees 24 § 30303 ..ccceccsccsecssscsecsecsscesscnecsessesseececsssessnessesssssssseesseesesseeseernsenessnseneeetse 24 § 30456... cceceeccceceseesesecestsesssssesseesseeesenevessesseecaeeeseneetesearsseeeatasices seeeeeseteaeee224 § 32456... ccccccseereseecseesesessseseeesessssecsesesecseseaeeseaceeseneeieasseecaeaensnerssenesesensesesss 24 § 38514.eeeevsebecsesseeeesseceseccaeecseeeacecnsceneceseeesersueausseseseeesnasenssenseens 24 § 40191eeSeeeseeeetseee desseeseseaeedeneeseceseseesensnensasicsesecucatseneneneensuestacseeuesees 24 S ALLL Soc ccccccecccecessecesesseseeessessssseeeaecsssacsseesesseseeseaseetsseesaersentaseeresaneeaee te 24 § ALLAeeecere ceneeeeeeeceeseeseeneeseeneeessesseseessenseneenensWee veseeaeeseseateeseesooss 24 § AB402.eeeceeetesesssesseeesteeseneeeeeeyseeeaceesseeeseneesacersneeeseseeasenaes vesteneeseeeaeee 24 vi Rev. & Tax Code (con’t.) § 43504. cccseecssssssssssssssssssssseesesesesessssssesseessssussunnscestssteeiisissesineneneneesseese 24 § 45402. .ccceesecessssssesssssssvssssesssssasssseecsceeceecesessssseseusseeesesesseseeeestesssnineetseneessen 24 § AS 854. ccccccsscsccscsssesssesssssssssstisevisivissssssssusessseeeeseeeeseeseesnenunnesesseenesesseess 24 § AOA 1D cccscevecscssssssssssssessssssssssssssssssssssnseesssneneceecenseeneeceesceseneceeceeetieteseetsseees 24 § 46605. cccceevesesssssssssssssesssssssssvessssssssssceeeeecscececcesseseeeececeeceeseeecesessueeuseuessoness 24 § 50122 cceceevessesssssvessssssssssssessssssssvsnssssssscesscseceeseseenececceceeceeceeeeeeeseeeeeeenseuees24 § 50155 cccccccssssccsssscssssssssssssssssssseessiisissssstusssssesseeeeseceeeeeessennsnsnnnssssseneesstees 24 § 55122. cccsssscsssssssssssesessssssseesesscsssssesssessessumusssnsniisensessseusnrietennsentiueesssese 24 § 55304 cccccccssessssessesssssssssssssssssvesesitsisssssessussssesseeseeeeceeeesesdannnensssseneeeesseees 24 § 60364. ccccccsssssssessssesssssssssssssvessesssssscessussseseessseeeeceeceessnsnsnennnessssntenenees 24 § 60423 .cccsevcecesssssssssssvssssssssesevavasssssseesessesesenceceenseuseneeceeceneseeeeceeeesesesesesunseees 24 § 606 LO.crecscssseseseeeeseessssee sevessssstsseesetarsunevisssssunsessisuvisssessiueesssiaseeseestsnsesses 24 CONSTITUTIONAL PROVISIONS Cal. Const., art. XII, § 32...eeeeeneeeeesssseeeseeesteseesserssenneenesaneracennenpassim Cal. Const., art. XTIT D, § 4(d) oess ceceaseeseeeseesccessesseesseeenecsesseeeeaeeateenaas 1] OTHER AUTHORITIES Assembly Committee on Revenue and Taxation, 7 Analysis of Sen. Bill No. 1770 (1993-1994 Reg. SeSS.)cscs26 Evan Halper, State Tax Breaks Benefits Companies, Not Workers, L.A. Times, Jan. 31, 2006,at 1, available at 2006 WLNR 6950200.....5, 27 | Greater Avenues for Independence Act of 1985............ seeseussnssasesteeeeee veseeeees 25 ‘Vii ISSUE PRESENTED Revenue and Taxation Code section 23622.7 provides for a tax credit to employers that operate in depressed areas(called enterprise zones) and hire disadvantaged workers(called qualified employees). In addition to other requirements, an employer seeking to obtain the tax credit must obtain from one of several authorized entities, including the enterprise zone administrator, a voucher that certifies that its worker meets the statutory requirements to be a qualified employee. (Rev. & Tax. Code, § 23622.7, subds. (a), (c)(1), (c)(2).) | | The issue presentedis: When an employer seeks a tax refund from the Franchise Tax Board for allegedly hiring a qualified employee under Revenue and Taxation Code section 23622.7, and the employer’s only supporting documentation is a voucher issued by an enterprise zone agency, is the voucher prima facie evidence that a worker is a “qualified employee”that shifts the burden of proofto the Board? INTRODUCTION California provides favored tax treatment for certain expenditures in the form of tax credits. Dicon Fiberoptics, Inc. (Dicon) filed a claim for refund with the Franchise Tax Board (the Board) seeking over $3,000,000 in enterprise zone tax credits under Revenue and Taxation Codesection 23622.7, which provides a tax credit for a portion of the wagespaid by employers who operate in enterprise zonesto their “qualified employees.” A “qualified employee” is one who works a required amountoftime in an enterprise zone (§ 23622.7, subds. (b)(4)(A)(i)-(b)(4)(Aii),! and who meets whatis essentially a status test, which looks to whether the ' Statutory references are to the Revenue and Taxation Code unless otherwise noted. employeeis eligible for certain federal or state job training programs,or - meets one of several other similar criteria (§ 23622.7, subd: (b)(4)(A)(v)). In orderto qualify for the enterprise zone credit an employer must also obtain a certification (or voucher) from oneof severalentities, including the local enterprise zone administrator, stating that a particular workeris eligible underoneofthe status tests. (§ 23622.7, subd.(c)(2).) Part of Dicon’s claimed tax credit (approximately $1,000,000) was based on employees for whom Dicon’s only documentation of workereligibility was a voucherissued by an enterprise zone administrator. The Board denied this portion of Dicon’s claim. | Diconthenfiled a tax-refund lawsuit in which it claimed that a voucher standing alone conclusively establishes that the subject workeris eligible. After the trial court granted the Board’s demurrer without leave to amend, Dicon appealed. TheCourt of Appealalso rejected Dicon’s argument, but nevertheless held that a voucheris prima facie evidencethat shifts the burden to the Board to establish that the worker did not meetthe eligibility requirements of section 23622.7, subdivision (b)(4)(A)(iv). Underthe lower court’s interpretation of section 23622.7, in order to shift the burden to the Board, the employeris required merely to produce a voucher for the employee; indeed, according to the court below,the employer may discard all other supporting documentation that would establish the worker’s eligibility. In fact, employers would be free even to discard documentation establishing that the worker wasineligible. The appellate court’s decision misinterprets section 23622.7 and imposesa rule that substantially increasesthe risk that tax credits will be allowed for employees that are in fact statutorily ineligible. A voucheris not prima facie evidence; rather, the voucher requirement and the voucher program are part of a process designed to conserve scarce Board resources by providing for an additional level of review that may in somecases,but not necessarily all, relieve the Board of its need to audit, thus making the process more efficient for the Board, employees, and employers. The court’s decisionis incorrect because: (1) it violates the general historical rule that the taxpayer has the burden ofproof in tax-refundcases; (2) it is inconsistent with the plain language ofthe statute; (3) it violates other rules of statutory construction, particularly the rule that tax credit statutes must bestrictly and narrowly construed against the taxpayer; (4) it is inconsistent with the legislative history; (5) it violates article XIII, section 32 of the California Constitution; and (5) it is contrary to the rule that tax-refund actionsare trials de novo in the superior court. STATEMENT To encourage economic growth in areas that suffer from persistent unemployment, the Legislature enacted the Enterprise Zone Act, Government Codesection 7070et seq., which allows local governments to apply for and to obtain enterprise zone designation for economically depressed areas. (Gov. Code, §§ 7072, subd. (d), 7073, subds. (a) and (b).) Section 23622.7 providesa tax credit for enterprise zone businessesthat hire eligible disadvantaged workers, or “qualified employees.” The credit is between 10% and 50% of the wages of the employee, depending on the length of time he or she has been employed. (Rev. & Tax. Code, § 23622.7, subd.(a).) Section 23622.7, subdivision (b)(4) defines a “qualified employee” as one who meets two separate typesofstatutory criteria. One generally limits the type and place of employment. (§ 23622.7, subds. (b)(4)(A)(i)- (b)(4)(A)(iti).) The other, which is essentially a status requirement, looks to whether the employeeis eligible for certain federal or state job training programs,or is a dislocated worker, or meets one of various other similar. criteria. (§ 23622.7, subd. (b)(4)(A)(iv).) Section 23622.7, subdivision (c)(1) requires that an employer seeking to obtain the enterprise zone tax credit must obtaina certification. from oneofseveralentities, including the local enterprise zone administrator, stating that a particular employeeis “qualified,” that is, that the worker meets oneofthe statutory status tests under section 23622.7, subdivision (b)(4)(A)(Gv)). (§ 23622.7, subd. (c)(1).)? These certifications are typically referred to as vouchers and must be retained by the employer and presented to the Board upon request. (§ 23622.7, subd.(c)(2).) . Dicon does business in an enterprise zone. (Slip op. at p. 4; AA at p. 17, Ins. 9-12.)° In November 2003,itfiled an amended tax return forits ° taxable year ending March 31, 2001—whichis treated by law as a claim for refund pursuant to section 19322—in whichit claimed over $3 million in enterprise zone tax credits. (AA at p. 15, Ins. 9-12.) The Board audited Dicon’s return and denied approximately $1 million of the $3 million claim. (AA at p. 19, Ins. 5-6.) The Board denied the portion of the claim that was ~ for those wagespaid to employees for which the only documentation of workereligibility Dicon provided was a voucherissued by an enterprise zone administrator. (AA at p. 18, Ins. 7-21.) Although enterprise zone administrators are established by statute, they often function morelike a trade group or marketing organization whoseprimary function is to attract and accommodate enterprise zone employers. (See Gov. Code, §§ 7076, subds. (a)(1)(B) and (C), 7076.1,ploy * Effective August 16, 2004, and continuing thereafter, the provisions of section 23622.7, subdivision.(c), were amended to changethe entities authorized to issue vouchers. (Stats. 2004, c. 225 (S.B. 1097).) >? The designation “AA”refets to the Appellant’s Appendix filed in the Court of Appeal. References thereto are indicated by “AAat p. [page], In. [line].” . subd.(b).) And while there are significant statutory restrictions upon employeeeligibility for the tax credit, at the time the vouchers were issued in this case there were no statutory or regulatory requirements regarding the documentation required to obtain or issue a voucher. In addition,thereis no requirementfor an agency that issues vouchers to communicateat all with the employees for whom it is requested to supply vouchers, and vouchers may beretroactively issued years after the employment takes place. Nor, until new regulations that becameeffective November 27, 2006, wasthere even a requirementthat enterprise zone agencies keep voucher records. (Cal. Code Regs., tit. 25, § 8463, subd. (a)(1).) However, although these new regulationsin one section tightened the record keeping requirements, in another section they allowed zone administrators to | delegate the issuance ofvouchers to any other person or entity they chose. (Cal. Code Regs., tit. 25, § 8463, subd. (a)(7) [governing body of the zone “may designate a third party entity to process voucher applications”].) After Dicon’s administrative claim was denied, it filed a tax-refund action against the Board in the superior court under section 19382. (AA at p. 3, Ins. 21-23.) Dicon’s suit alleged that the Board had wrongfully refused to accept its vouchers as conclusively establishing employee eligibility, but instead demanded evidence thereof. (AA at p. 18, Ins. 7-9.) * Reports of voucher irregularities, or worse, have been widely circulated. (Evan Halper, State Tax Breaks Benefits Companies, Not Workers, L.A. Times, Jan. 31, 2006, at 1, available at 2006 WLNR 6950200.) Andan audit of the Oakland enterprise zone conducted by the former Technology, Trade and Commerce Agency concludedthat the “vouchering agent maintained inadequate records that were insufficiently documented or missing, failed to independently verify supporting source documents, and erroneously issued vouchersto ineligible employees.” (See In the Matter ofthe Appeal ofDeluxe Corp. (Dec. 12, 2006, No. 297128) (2006-SBE-003 at pp. 6-7) 2006 Cal.Tax Lexis 432 (Deluxe).) Dicon did not allege that its employees metthe eligibility requirements of section 23622.7, subdivision (b)(4)(A)(iv); instead it claimed that the Board erred in the audit, by rejecting Dicon’s vouchers and by “creat[ing] an additional administrative burden on the taxpayer. . ..” (AA at p. 18, In. 22 —p. 19, In. 4.) Under Dicon’s interpretation of section 23622.7, enterprise zone vouchers conclusively establish eligibility, and the Board is barred from auditing or looking behind the vouchers and therefore from requiring evidence of workereligibility. | The Board demurred. It argued, among other things, that taxpayers have the burden ofproof in tax-refund suits “not only to demonstrate the | Board’s determinationis incorrect, but also to allege facts from which a proper tax determination can be made... .” (AA at p. 36, Ins. 15-18.) Since Dicon’s complaint admitted that it had nothing other than its vouchers to establish that its workers were “qualified employees” under section 23622.7, the Board argued that Dicon could not as a matter of law establish its right to a refund and that the demurrer should therefore be granted without leave to amend. (AA at p. 37, Ins. 10-17.) The Board also argued that nothing in section 23622.7 barred it from looking behind the vouchers and requiring employers to provide evidencethat their workers metthe statutory eligibility requirements. (AA atp. 37, In. 18 = p. 38, In. 7.) In addition, the Board argued that tax credit statutes must be strictly and narrowly construed against the taxpayer. (AA atp. 42,In. 12 to p. 43, In. 2.) Thetrial court sustained the Board’s demurrer without leave to amend. (AA at pp. 240-241.) Dicon appealed, again arguing that under section 23622.7 vouchers conclusively establish workereligibility and are binding on the Board. ; (Slip op. at p. 7.) Shortly after oral argument, the Court of Appeal ordered the parties to submit letterbriefs on the previously unraised issue of whether “the voucher [should] be prima facie evidence that the taxpayer wasentitled to receive the voucher, thus placing on the board the burden of proving that the voucher does not support the taxpayer receiving a tax credit.” (See slip op. at p. 7, fn. 6.) The Board argued, among otherthings, that interpreting section 23622.7 in a way that would make vouchers prima facie evidence would impermissibly relieve the taxpayerofits historical burden of proof, was contrary to the plain language ofthe section, was contrary to other rules of statutory construction (primarily the long-standing rule that tax credit statutes are narrowly construed against the taxpayer), and wasinconsistent with the relevant legislative history. The Board also argued that a rule establishing an evidentiary presumption and accompanying shift in the burden of proofat the audit stage violates the constitutional provision against prepaymenttax litigation in article XT, section 32 andis contrary to the rule that tax-refund actionsare trials de novo in the superior court. | Although the Court of Appeal correctly rejected Dicon’s- interpretation of section 23622.7 that vouchers conclusively establish workereligibility, it did hold that “vouchers are prima facie proof a worker is a ‘qualified employee,’ but [the Board] may audit such vouchers” and that “[i]n such an audit, [the Board] bears the burden ofrebutting the voucher’s prima facie value....” (Slip op. at p. 7.) The court | acknowledged that the Legislature understands how to designate something as prima facie evidence, and that it did not do so here, but the court dismissed this omissionas “legislative oversight.” (Slip op. at p. 11, fn. 9.) The court also held that an employer maydiscard all relevant documents _ other than the voucher, and no adverse inference arises when an employer _ does so. (/d. at p. 12, fn. 10.) On August 19, 2009, this Court granted review. ARGUMENT 1. A VOUCHER ISSUED BY AN ENTERPRISE ZONEIS — NOT PRIMAFACIE EVIDENCE THAT A WORKERIS A “QUALIFIED EMPLOYEE” UNDERREVENUE AND TAXATION CODE SECTION23622.7, AND IT DOES NOT SHIFT THE BURDEN OF PROOF TO THE BOARD A. In Tax-Refund Actions, the Law Places the Burden of Proof on Taxpayers. In tax litigation; the burden ofproofhas historically fallen on . taxpayers. In Lewis v. Reynolds (1932) 284 U.S. 281, the Supreme Court of the United States explained that: “The action to recover on a claim for refundis in the nature of an action for money had andreceived,andit is incumbent upon the claimant to show that the United States has money which belongs to him.” (/d. at p. 283.) In United States v. Janis (1996) 428 U.S. 433, the high court also notedthat “{iJn a refund suit the taxpayer bears the burden of proving the amountheis entitled to recover.” (dd. at p. 440.) In Cook v. United States (2000) 46 Fed.Cl. 110, the Court of Federal Claimsnotedthat the rule may havehadits “genesis as early as 1836, when the Supreme Court‘recognized the existence of a right of action against a Collector of Customsfor a refund ofduties illegally assessed and paid underprotest.’” (Id. at p. 116, fh. 15; citation omitted.) It is clear that the rule has a firm foundation in federal law. | | ~The samerule exists in California. In 1941, in a case where the Franchise Tax Commissionerutilized a formula to allocate the income and deductions of a multi-state corporation, this Court explained that “[t]o rebut the presumption that the formula produced a fair result, the burden is on the . taxpayer to make oppression manifest by clear, cogent evidence.” (Butler Brothers v. McColgan (1941) 17 Cal.2d 664, 677; internal quotation marks omitted.) In 1947, the Court of Appeal followed the lead of the United States Supreme Court’s 1932 Lewis v. Reynolds case and held, in Pacific . Fruit Express Co. v. McColgan (1947) 67 Cal.App.2d 93, that the taxpayer may “recover only if it be shown that more taxes have been exacted than in equity and good conscience should have been paid.” Ud. at p. 96.) In 1948, the Court of Appeal explained, in Todd v. McColgan (1948) 89 -Cal.App.2d 509, that “tthe taxpayer cannot merely assert the incorrectness of a determination of a tax or the method used andthereby shift the burden to the commissionerto justify the tax and the correctness thereof.” (/d. at p. 514.) In 1950, in a case challenging the constitutionality of a tax statute, this Court adopted the rule and language of the Pacific Fruit Express case and held that“the burden is on the taxpayer to . . . [establish] by clear, cogent evidence that more taxes have been exacted than in equity and good conscience should have been paid.” (El Dorado Oil Works v. McColgan (1950) 34 Cal.2d 731, 744,citations and internal quotation marks omitted: see also Long Beach Fireman’s Credit Union v. Franchise Tax Bd. (1982) 128 Cal.App.3d 50, 55 [“the burden of proof wason the taxpayer to show that the tax assessment wasin error and that money paid should have been refunded”|; and Krumpotich v. Franchise Tax Bd. (1994) 26 Cal.App.4th 1667, 1671, rev. denied [taxpayer claiming a deduction bears the ultimate burden of proving facts to justify the deduction].) The purposesofthe rule imposing the burden ofproof upon the | taxpayer are simple and supported by commonsense. As this Court has explained, as a matter of policy the person having the powerto create, _ maintain, and provide the evidence should carry the burdenofproof. (Morris v. Williams (1967) 67 Cal.2d 733, 760.) The Court of Appeal similarly explained in Honeywell, Inc. v. State Bd. of Equalization (1982) 128 Cal.App.3d 739, that the burden of proofis on the taxpayer rather than the tax agencyor tax collector becauseit is the taxpayer who (1) creates the transaction whichis the subject of the inquiry, (2) has the powerto determine the nature of the transaction, (3) has the power to create and retain detailed records or other evidence neededto prove its nature and propertax treatment, and (4) has the powerto destroy or conceal the records or other evidence which would establish the taxable nature of the transaction. (id. at pp. 744-745.) It is also a matter of fairness. In Paine v. State Bd. ofEqualization (1982) 137 Cal.App.3d 438, the Court of Appeal explained that “[f]airness dictates that those persons responsible for paying the tax should maintain sufficiently complete records that the Boardorother tax collecting agencies can determine if the correct amountoftaxes have been paid.” Cd. at p. 444.) | The factors discussed above are particularly important in an enterprise zone credit case. The employer certainly has more knowledge of its own employees’ eligibility than the Board does. In fact, of the three entities involved, the employer, the voucher provider, and the Board, the only one that has no knowledgeofthe facts or control of the evidenceis the Board. As a matter ofpolicy,it is appropriate to place the burden on the ‘employer becauseit controls the evidenceofits employees’ eligibility and can suppress or destroy contrary evidence. It is also fair given the Board’s lack of control over the evidence. Moreover,in light of the checkered history of enterprise zones’ voucher programs, following the general rule makes even moresense. | In the decision below, however, the Court of Appeal stated that eligibility documents are not ordinarily within the employer’s custody and control. (Slip op. at p. 12.) This is incorrect. Nothing requires a vouchering agency everto receive any documents from, or even have any ~ contact with, a prospective employee. In fact, the Board is concerned that in manycases, if not most, the only documents a vouchering agency receives arefrom the employer. And nothing bars an employer (or even an agent working for the employer on a contingency basis) from directly -10 contacting voucheragencies and obtaining vouchersyearsafter the fact. The Board is also concernedthat this practice is becoming increasingly common. | The only exceptions to the general rule placing the burden of proof. on the taxpayer are where the Legislature (or the electorate, in the case of an initiative) chose to shift the burden. For example, in lawsuits - challenging property fees and assessments, article XIII D, section 4(d). of the California Constitution places the burden of proofon local government agencies. (Silicon Valley Taxpayers Ass’n, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 445.) However,article XIII D, section 4(f) contains explicit language reversing the traditional burden of proof. It states that “[i]n any legal action contesting the validity of any assessment, the burden shall be on the agency... .” There is no similar language in section 23622.7. Likewise, in an appeal ofa property tax assessment on an owner- occupied single-family dwelling, or an escape (retroactive) assessment, section 167 shifts the burden to the assessor. (Auerbach v. Assessment Appeals Bd. No. 2for County ofLos Angeles (2008) 167 Cal.App.4th 1428, 1439.) Again, the burden-shifting language in section 167is clear: the sectionis entitled “Rebuttable presumption affecting burden of proof,” and states that “there shall be a rebuttable presumption affecting the burden of ° Given the problemsin the voucher programs,the court’s conclusion below that employers have “no duty to maintain the relevant documents” and are free to discard them (slip op. at p. 12, fn. 10) undercuts the historical rule regarding the burden ofproof andits underlying policy that fairness requires that those responsible for paying the tax should maintain sufficiently complete records so that tax agencies can determineif the correct amount of taxes have been paid. If the records are so deficient that a proper audit cannot be made, the defaulting record-keeping taxpayer should bear the consequences. 11 proof in favor ofthe taxpayer... .” Once, again, section 23622.7 contains no similar language. | Ina slightly different situation, this Court held that the party invoking section 25137 has the burden of proof, whether the taxpayeror the - Board. (Microsoft Corporation v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 765 [Microsofi].) Section 25137 provides an exception to section 25128’s statutory three-factor formula—payroll, property, and sales—for allocating or apportioning the incomeof multi-state and multi-national unitary businesses to California in cases where the statutory formula “do[es] not fairly represent the extent of the taxpayer’s businessactivity in this state... .” (§ 25137.) In such cases, “the taxpayer may petition for or the Franchise Tax Board may require” another method. (/bid.) Whichever party uses this exception to the general statutory rule has the burden of proving that its methodis reasonable. (Microsoft, supra, 39 Cal.4th at p. 765.) Here, too, the burden-shifting is obvious from the language of the statute and from its function as an exceptionto the general rule, whichis equally available to, both parties. | | ‘The general rule imposing the burden of proof ontaxpayers in tax- refund cases is of long-standing duration. It was established by the Supreme Court of the United States in 1932 in Lewis v. Reynolds, and in 1941 by this Court in Butler Brothersv. MeColgan. Therule is based on sound policy and has been followed since. And unlike the presentcase, the only exceptionsto the rule are where lawmakers explicitly shifted the burden of proof. Furthermore, therationale behindthe rule is particularly important here because inadequate review by voucher programs (whether intentional or otherwise) may leave the employeras the sole possessor of - the relevant records. Since the employerhas the powerto create, maintain, or even destroy these records,it is only fair that it also carry the burden of proof. 12 Wenow turn to the statute at issue. B. When Properly Construed, Section 23622.7 Does Not Provide That Vouchers Are Prima Facie Evidence That A WorkerIs a “Qualified Employee” or Shift the Burden of Proof to the Board. 1. The Plain Language of Section 23622.7, Subdivision (c)(1) Supports the Board’s Interpretation of That Section. Section 23622.7, subdivision (c) does not make vouchers primafacie evidence of workereligibility or shift the burden of proof to the Board.. This Court has explained the principles of statutory construction: The applicable principles of statutory construction are well settled. “In construing statutes, we must determine and effectuate legislative intent.” (Woods v. Young (1991) 53 Cal.3d 315, 323 [279 Cal.Rptr. 613, 807 P.2d 455].) “To ascertain intent, we look first to the words of the statutes”: (ibid.), “giving them their usual and ordinary meaning” (DaFonte v. Up-Right, Inc. (1992) 2 Cal.4th 593, 601 [7 Cal.Rptr.2d 238, 828 P.2d 140]). If there is no ambiguity in the languageofthe statute,“then the Legislature is presumed to have meant whatit said, and the plain meaning of the language governs.” (Kizer v. Hanna (1989) 48 Cal.3d 1, 8 [255 Cal.Rptr. 412, 767 P.2d 679].) “Wherethe statuteis clear, courts will not ‘interpret away clear language in favor of an ambiguity that does not exist.’ [Citation.]” (Hartford Fire Ins. Co. v. Macri (1992) 4 Cal.4th 318, 326 [14 Cal.Rptr.2d 813, 842 P.2d 112].) (Lennane v. Franchise Tax Bd. (1994) 9 Cal.4th 263, 268 (Lennane).) The Board submits thatthis is a case where the language of the statute is clear. The text of section 23622.7 is important bothfor whatit says and whatit does not say. It does not say anythingatall about the 13 burden of proof or prima facie evidence, but section 23622.7, subdivision (c)(1) does specifically require that an employer must obtain a certification from a voucherprovider. . Section 23622.7’s silence with regard to the burden of proof or primafacie evidence is to be expected because the law establishing that taxpayers have the burden ofproofin tax-refund actions is, as shown above (section A), well established. Tax statutes granting exemptions, deductions, or credits typically do not make even a passing reference to the burden of proof. One would not expect to see a tax deductionstatute state that the burden ofproof is on the taxpayer because the general rule already establishes that. For the same reason, the silence of section 23 622.7 regarding evidentiary presumptions or the burden of proof does not create an ambiguity because the existence of the general rule dictates that such silence is the norm. | However, the Court of Appeal found it significant that section 23622.7, subdivision (c)(1) requires an employerto obtain a voucher. The court apparently believed that “[the] employer’s compliance with the statute oughtto count for something.” (Slip op. at p. 12.) And so it should; it just does not “count for something” in the way the appellate court thinks. The Board’s position is that the voucher requirementin section 23622.7, subdivision (c)(1) is nothing more orless than whatit plainly states, which is that a taxpayer must obtain a voucher. Thus, compliance with the voucher requirement does “count for something,”it satisfies the terms of the statute that the Legislature enacted. Doingso is necessary, but not sufficient, to qualify for the tax credit. “If there is no ambiguity in the language ofthe statute, then the Legislature is presumed to have meant whatit said, and the plain meaning of the language governs.” (Lennane, supra, 9 Cal.4th at p 268; citations and internal quotations omitted.) In this case, there is no ambiguity in 14 section 23622.7. The statute simply requires a voucher as a condition of obtaining the tax credit. 2. Even if the Languageof Section 23622.7, Subdivision (c)(1) Is Ambiguous, the Rules of Statutory Construction Compel the Adoption of The Board’s Interpretation of That Section. Evenif this Court finds that the text of section 23622.7 is ambiguous, other rules of statutory construction fully support the Board’s interpretation. a. Tax credit statutes are strictly construed. Incometax credits are a matter of legislative grace and arestrictly and narrowly construed against the taxpayer. In Miller v. McColgan (1941) | 17 Cal.2d 432, this Court held that a “provision allowing a credit... isin effect an exemption from liability for a tax already determined and _ | admittedly valid, and suchstatute must be strictly construed against the taxpayer ....” (Ud. at pp. 441-442; Great Western Financial Corp.v.- Franchise Tax Bd. (1971) 4 Cal.3d 1, 5 [“[d]eductions may be.allowedor withheld by the Legislature as it sees fit... and such deductions,like credits and exemptions, are to be narrowly construed against the taxpayer. . ..”].) In construing a tax credit statute, all doubts must be resolved in favor of the Board. This Court explained, in General Motors Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 773, 790 (General Motors), that “[w]e construe ... the researchtax credit .. . strictly against [the taxpayer], resolving any doubts in favor of the Board.” (/d. at p. 790.) If the taxing authority’s “interpretation . . . is reasonable it must .. . be adopted. It is of no moment that the statute may be ambiguous, or that a contrary construction might alsobe reasonably permissible.” (Hospital Service ofCalifornia v: City of 15 Oakland (1972) 25 Cal.App.3d 402, 406 (Hospital Service).) “The taxpayer hasthe burden of showingthat he clearly comes within the exemption.” (Alpha Therapeutic Corp. v. Franchise Tax Bd. (2000) 84 Cal.App.4th 1, 6 [Alpha Therapeutic]; citations omitted.) The appellate court’s decision that vouchers are prima facie evidence which shifts the burden of proofto the Board violates each of these rules. The decision fails to construe section 23622.7 strictly against the taxpayer _andto resolve all doubts in favor of the Board as required by Miller V. McColgan and General Motors. As the Board explained below, the Legislature knows how to make a document prima facie evidence and has done so morethan fifty times in the Revenue and Taxation Code. The court, however, held that the “most likely explanation” of the Legislature’s failure to do so in this instance was merely “legislative oversight.” (Slip op. at p. 11, fn. 9.) Of course, because the court’s “most likely explanation” supported the taxpayer’s interpretation, the decision below violates the rules set forth by this Court in Miller v. McColgan that a tax credit “statute must bestrictly construed against the taxpayer” (17 Cal.2d at pp. 441-442) and in General Motors “resolvingall doubts in favorofthe Board”(39 Cal.4th at p. 790), The court’s decision also violates the rule that the tax authority’s interpretation of a tax credit statute must be adoptedifit is reasonable, regardless of whether the statute is ambiguous or susceptible of another reasonable interpretation. (Hospital Service, supra, 25 Cal.App.3d at p. | 406.) It is reasonable to conclude, as the Board has,that this statute did not silently shift the burden or proof, given the generalrule that taxpayers have =. the burden ofproofin tax-refundcases. It is reasonable to conclude that, as will be discussed in more detail below, if the Legislature wanted to impose the burden of proof on the Board it would not have doneso implicitly, | rather it would have used clear language. And it is reasonable to assume, as 16 will also be discussed in moredetail below,that, given the Legislature’s expression of concern aboutpotential tax abuse in regard to vouchers and enterprise zone credits, it would have imposed the voucher requirement on taxpayers while preserving both the Board’s discretion to audit and the traditional burden of proof. It is also reasonable to conclude that vouchers provide for an additional level ofreview which maysatisfy the Board in some cases, while not in others. For example, in some cases the Board’s review of a statistically significant sample of an employer’s vouchers may convinceit that the vouchers were properly issued only for eligible workers. In this case the Board may accept the vouchers without demanding the production of specific documentation of workereligibility, or without any additional investigation. In other cases, though, the review of the employer’s vouchers may raise concerns with the Board, or even reveal that vouchers were improperly issued. In these cases the Board will prudently demand _ evidence or documentation of workereligibility. The Board is not required to audit every voucherin every case, just as it is not required to audit every taxpayer’s return; in fact, the Board’s limited budgeteffectively prevents this as a practical matter. In fact, given budgetary constraints, one would expect that the Board’s review of employee eligibility would probably occur only in those cases whereit has information that vouchers may have been improperly issued. But it is reasonable to believe that the Legislature certainly intended to preserve the Board’s discretion to do so when warranted andto preservethe historical rule that taxpayers bear the burden of proof in tax-refund lawsuits. The court’s decisionalso relieves a taxpayer of “the burden of ‘showingthat he clearly comes within the exemption.” (Alpha Therapeutic, supra, 84 Cal.App.4th at p. 6.) Section 23622.7, subdivision (a) provides the tax credit to an employer who “employs a qualified employee.” 17 Section 23622.7, subdivision (b)(4) defines a “qualified employee” as one who meets several requirements, including a status requirement under subdivision (b)(4)(A)(IV). Because section 23622.7, subdivision (c)(1) does not explicitly shift the burden ofproof or state that vouchers are prima facie evidence, a taxpayer whorelies upon vouchers aloneto establish the entitlement to the enterprise zone tax credit has failed to establish that its workers are qualified under subdivision (b)(4)(A)(IV) and has accordingly failed to meetits “burden of showingthat[it] clearly comeswithin the exemption.” ([bid.) In addition, given the court’s acknowledgementthat the Legislature had not “directed its attention to the matter” (Slip op. at p. 11, fn. 9), the decision below is even more troublesome. The court explained: “Tf, however, we have incorrectly deduced what the Legislature would have enacted if it had directed its attention to the matter, the Legislature is free to _correct us by amending the statute to makeits intention clear.” (Slip op.at p. 11, fn. 9.) Again, however, this is contrary to the settled rulesthat tax “credit statute[s] must bestrictly construed against the taxpayer,” (Miller v. McColgan, supra, 17 Cal.2d at p. 442), andthat if the Board’s “interpretation ... is reasonable it must .. . be adopted” (Hospital Service, . supra, 25 Cal.App.3d at p. 406). The decision is also problematic because it will encourage courts in the future to resolve ambiguities in favor of the taxpayer, to reject the Board’s interpretation of a tax-credit statute evenifit is reasonable, and thento rely on the Legislature to make any corrections. _ As this Court explained in General Motors when considering the research ~ tax credit, “[o]ur role is confined to ascertaining what the Legislature has actually done, not assaying whether sound policy might support a different tule.” ([bid.; emphasis added.) | | In short, the decision below is contrary to the law. It does not construe section 23622.7 strictly against the taxpayer, as required by Miller 18 v. McColgan, nor doesit resolve all doubts in favor of the Board as required by General Motors. It also violates the rule in Hospital Services that the Board’s interpretation of a tax credit statute must be adoptedifit is reasonable, regardless of whether the statute is ambiguous,andit has relieved Dicon ofits burden under Alpha Therapeutic to show thatit clearly comes within the exemption. Andfinally, the court’s acknowledgement that the Legislature had not “directed its attention to the matter” (Slip op.at p. 11, fn. 9) will only encourage other courts to resolve ambiguities in favor of the taxpayer, to reject tax agencies’ reasonable interpretations, and then to rely on the Legislature forcorrections. b. Courts will not lightly presume that the Legislature intended to overturn longstanding principles of law. Courts should not presume that the Legislature, in enacting statutes, intends to overturn long-establishedrules or principles of law unless that intention is clearly made. Thepointis illustrated in General Motors, supra, in which this Court held that a corporate taxpayer group could not apportion its research tax credit among group membersthat did not actually incur research expenses even thoughthe statute wassilent on the point, primarily because there was an established federal rule denying such treatment.° ‘Section 23609 provides a research taxcredit in “an amount determinedin accordance with Section 41 of the Internal Revenue Code....” General Motors arguedthat other membersofits corporate group should be able to share the research tax credit, even though section 23609 wassilent ° This point is also consistent with therule that the Legislatureis presumedto be aware ofexisting case law. (People v. Superior Court (Lavi) (1993) 4 Cal.4th 1164, 1178-1179,fn. 9.) 19 on the issue. This Court explained that Internal Revenue Codesection 41 (IRC section 41), which specifies the types of research, expenses, and calculations used to determine the credit, “provides insight into the question.” (General Motors, supra, 39 Cal4th at p. 791.) Although federal corporate tax law does not lookto principles of apportionmentthat apply under California law, the Court nevertheless found that IRC section 41 and its regulations established a rule disallowing the allocation of research. | credits to members of the corporate group that did not actually incur the | _ requisite research expenses. _ The Court concludedthat section 23609’s silence on the subject of ~ allocation was not an indication that the Legislature intended to depart from IRC section 4l’s general rule disallowing allocations. The Court explained that: TheLegislature could have noted its decision to depart from | this rule whenit passed section 23609 .... Yet nowhere in the statute does the Legislature indicate it wished to apply a different rule and issue credits based on apportioned, rather than actual, contributions to research. In the absence of a contrary statement, we mustinterpret section 23609 consistently with IRC section 41. (General Motors, supra, 39 Cal.4th at p. 791.) The samesituation exists here. The Legislature could have explainedthatit intended to depart from the existing rule that places the burden of proof on taxpayers, but it did not. Similarly, in Theodorv. Superior Court (1972) 8 Cal.3d. 77, 90-92 (Theodor), the defendant claimed he could challenge the facts contained in an affidavit in support of a search warrant under Penal Codesection 1538.5 (section 1538.5) even though the statute was silent on that point. In large part because there wasan established rule prior to the enactment of section 1538.5 that permitted such a challenge, this Court agreed. As here, the question in Theodor was whetherthe Legislature intended “by its silence to 20 abrogate [an] established rule... .” (8 Cal.3d. at p. 92.) The Court explained that “it should not be presumedthat the Legislature in the enactment of statutes intends to overthrow long-established principles of law unless such intention is made clearly to appeareither by express _ declaration or by necessary implication.” (/d. at p. 92, citations and internal - | quotation marks omitted.) | And in County ofLos Angeles v. Frisbie (1942) 19 Cal.2d 634, this Court explainedthat “it is not to be presumed that the legislature in the enactmentof statutes intends to overthrow long-established principles of law unless such intention is made clearly to appear.either by express declaration or by necessary implication.” (19 Cal.2d at p. 644.) Section 23622.7 does not indicate an express intent to abandonthe long-established principle that places the burden ofproof on taxpayers; nor,is it necessarily implied. Theprinciple that taxpayers bear the burdenofproofin tax refund casesis well established. As explained above, the Supreme Court ofthe - United States recognized the rule in 1932 in Lewis v. Reynolds, supra, 284 U.S. 281, and the Court of Federal Claims has explained that the rule may havehadits “genesis as early as 1836....” (Cook v. United States, supra, A6 Fed.Cl. at p. 116, fn. 15.) In California, this Court recognized the rule in 1941 in Butler Brothers v. McColgan, supra, 17 Cal.2d at p. 677, and has followed it ever since. The principle that the taxpayer has the burden of proofis a foundational elementoftax-refund litigation, andit is virtually. unthinkable that the Legislature would haveintendedto silently overturn that rule in section 23622.7. To use this Court’s words in General Motors, “nowhere in the statute does the Legislature indicate it wished to apply a different rule and [shift the historical burden of proof]. In the absence of a contrary statement, we mustinterpret section [23622.7] consistently with [the time-honoredrule].” (General Motors, supra, 39 Cal.4th at p. 791.) If | 21 the Legislature intended to make such a drastic departure from this well- settled law, it would not have done so by omission; it would haveplainly . stated its intent to make such a change. c. The Legislature knows how to bind the Board bythe decision of another agency,to make a documentprima facie evidence, or to shift the burden of proof. In interpreting whether the Legislature has intended byits silence to accomplish a particular result, courts also look to see whetherthe Legislature has in the past accomplishedthat result by using language that clearly expresses the requisite intent. Where the Legislaturehas shownit knowshowto usespecific languageto achieve a particular result, but has chosen not to use that language in a particular case, it suggests that the silence is intentional and that the Legislature did not intend the result. In a case dealing with whether members of the same corporate group could share a research tax credit that was silent on the issue this Court observed, “We note .. . that when the Legislature wishes to allow corporationsthat have not incurred expensesto share in a tax credit, it knows howto say so.” (General Motors, supra, 39Cal.4th at p 791; People v. Murphy (2001) 25 - Cal.4th 136, 159 [“the Legislature has shown that when it wants a sentence calculated without consideration of some circumstance, it knows how to use language clearly expressing that intent”]; Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 91 1, 919 [“wefind the Legislature knows howto specify the first day of paid service when it desires to designate that day as having legal consequences.”].) This principle is important here because the Legislature has used explicit language on prior occasions to specifically accomplish whatthe Court of Appealhas concluded wasits silent intent on this occasion. 22 In formersection 17299 (now section 17274), which was enacted in | 1974, the Legislature explicitly made the Board’s treatmentofa tax deduction dependent upon findings by another agency,yet it did not do so here. Section 17299 denies otherwise valid tax deductions forrental property that has been determined bya state or local regulatory agency to | be “substandard.” Substandard housing is defined as housing that has “been determined by state or local government regulatory agency to violatestate law or local codes dealing with health, safety, or building,” and which after notice by the regulatory authority has not been broughtinto compliance in a timely period. (§ 17299, subd.(b).) Although the Legislature knows how to maketax treatmentexplicitly dependent upon findings by other agenciesorentities, it chose not to in section 23 622.7. The Legislature also knows how to explicitly make a document prima facie evidence. The Revenue and Taxation Code contains more than fifty statutes that explicitly make a particular documentprimafacie evidence.’ Although most deal with tax agency assessmentsorliens, they 7 Rev. & Tax Code, § 1841 (notice of property tax assessment), § 2634 (certificate of delinquentroll), § 2862 (secured roll showing outstanding property taxes), § 2927.5 (delinquentroll, abstractlist, or tax collector’s certification), § 3004 (roll of assessment), § 3364 (affidavit for facts recorded), § 3374 (publication and affidavit for facts recorded), § 4376 (tax collector’s certificate of outstanding taxes), § 6714 (certificate of delinquency), § 7058 (certificate for service), § 7730 (Controller’s certificate of delinquency), § 7865 (certificate of outstanding taxes), § 8256 (certificate of service), § 8973 (certificate of delinquency), § 9257 . (certificate of service), § 11474 (certificate of delinquency), § 12681 (certificate of delinquency), § 12834 (county recorder’s certified lists), § 13681 (certificate of amount due), § 19050 (certificate of mailing), § 19374 (certificate of delinquency), § 19703 (certificate of non-filing), § 19705, subd. (c) (name appearingas a signature); § 19720, subd.(b) (name endorsementofrefund warrant), § 19721, subd. (c) (signature is endorsement by the signatory), § 21027, subd. (b) (references to United States mail treated as including referencestoany designated delivery (continued...) 23 clearly show that the Legislature knows how to make a document prima facie evidenceby explicit language whenit so chooses, yet it chose notto in section 23622.7. . | Finally, the Legislature knows how to shift the burden ofproof ina tax statute. As explained above (section A), both sections 167 and 25137 shift the burden ofproof. In section 167, the burden is shifted to the assessor in an appealof a property tax assessment and section 25137 shifts the burden to whichever party attempts to use the exceptionto section » 25128’s statutory three-factor formula for apportioning the income of multi-state and multi-national unitary businesses in California. But even though the Legislature knows how to shift the burden ofproof, it chose not to in section 23622.7 Because existing statutes clearly establish that the Legislature knows how to make tax treatment dependent upon findings by other agencies or (...continued) service), § 23302,subd. (c) (Secretary of State’s certificate of suspension or forfeiture), § 23305a(certificate of revivor for corporate name reinstatement), § 23305d (certificate of suspension or forfeiture), § 23305.1, subd. (d) (certificate of relief from voidability), § 30213 (certificate ofjeopardy determination), § 30303 (certificate of delinquency), § 30456 (certificate of notice), § 30456 (certificate of delinquency for tax levy), § 32456(certificate of notice), § 38514 (certificate of delinquency), § 40144 (certificate of delinquency determination), § 40191 (certificate of notice), § 41118 (certificate of delinquency determination), § 41144 (certificate of notice), § 43402 (certificate of compliance), § 43504 (certificate of notice), § 45402 (certificate of deficiency), § 45854 (certificate of notice), § 46412 (certificate of delinquency determination), § 46605 (certificate of notice), § 50122 (certificate of delinquency), § 50155 (certificate of notice), § 55122 (certificate of delinquency), § 55304 (certificate of notice), § 60364 (certificate ofjeopardy determination), § 60423 (certificate of delinquency), and § 60610 (certificate of notice). a, 24 entities, to make a document primafacie evidence, or to shift the burden of proof, it is extremely unlikely that the Legislature intended to do any of those things in section 23622.7 without plainly stating such. Neither Dicon nor the court below have cited one tax statute where the Legislature did any of these things without including an explicit statutory directive. Yet the court below attributed the Legislature’s silence to “legislative oversight.” (Slip op. at p. 11, fn. 9.) The court erred. d. Legislative history supports the Board’s interpretation. In situations where a statute is ambiguous, “in order to ascertain the most reasonable interpretation . . . the court may examineextrinsic _ information, including the statute’s legislative history and underlying purposes.” (Flannery v. Prentice (2001) 26 Cal.4th 572, 579.) The legislative history in this case showsthat the Legislature was concerned with the potential for tax abuse in regard to enterprise zonecredits. The Legislature first established enterprise zones in 1984 along with the predecessor enterprise zone tax credit. (See § 23622.7; Enterprise Zone Act, Gov. Code, § 7070,Stats. 1984, ch. 45, § 1.) Prior to 1994, the credit was based on qualified wages paid to a “qualified disadvantaged individual,” which included those actually receiving services under the federal Job Training Partnership Act or registered in the Greater Avenues for Independence Act of 1985. (See also former § 17053.8, subd.(c)(1).) In 1994, the tax credit was expandedto include those eligible to participate in those and other programs, or those who metother “‘status” requirements. (§ 23622.7, subd. (b)(4)(A)(iv).) The tax credit voucherfirst appeared as a statutory requirementat the sametime. (§ 23622.7, subd. (c) | (Stats. 1994, ch. 755).) Thus, the voucher program was imposedat the same time the Legislature expanded the base of qualified employees. (AA 25 at p. 202 [Assembly Committee on Revenue and Taxation, Analysis of Sen. Bill No. 1770 (1993-1994 Reg. Sess.) as amended on Jun. 2, 1994 [As currently drafted, no documentation ofeligibility would be required, openingthe door for potential abuse of the credit.”].) The Legislature’s concern over the potential abuse of enterprise zone credits is addressed by preservingthetraditional burden of proof,not by making vouchers prima facie evidence of employeeeligibility. | | The court below claimed that making vouchers primafacie proof was necessary to promote the purpose of the tax credit. (Slip op. at p. 12.) However,this is incorrect. As noted above, nothing bars an employer from obtaining its vouchers a substantial period of timeafter the close of the tax year at issue. Searching through personnelrecords in an effort to find eligible employeesyears after they were hired does nothing to promote — enterprise zone employment. | The lower court also relied upon statements that the Board’sstaff madeto the Legislature that the “vouchering process serves numerous | functions forall parties” and that enterprise zone agencies “ought to shoulder the laboring oar in issuing vouchers.” (Slip op.at pp. 12, 13.) _ These statements are consistent with the Board’s interpretation of section — 23622.7 that vouchers provide for an additional level of review which may satisfy the Board in somecases, but not in others. Despite the facts that some vouchers may be improperly issued and some employers will be required to provide documentation of workereligibility, the program itself is still valuable because it has the potential in the right circumstances to conserve scarce Board resources and to generate efficiencies for both applicant employees and employers. - The mostlikely explanation for the voucher requirementinsection . 23622.7is that the Legislature understood that enterprise zone credits carried a significant potential for abuse and imposed the voucher 26 requirement to help the Board by imposing an additional level of review. While in some instances this additional layer of review maybe sufficient, in others it may not. But regardless, if put to the test by the Board, employers must not only establish that they met the threshold requirement byobtaining a voucher, they must also independently and affirmatively establish the other requirements of section 23622.7, including that each of their workers was a qualified employee.*® C. The Decision Below Violates the Ban on Prepayment Tax Litigation in Article XIII, Section 32, and it Is Contrary to the Rule That a Tax-Refund Lawsuit Is a Trial De Novo in the Superior Court. Not only did the Court of Appeal hold that vouchers issued by an enterprise zone administrator are prima facie proof a worker is a qualified employee, it also held that the vouchers’ status as prima facie evidence and the correspondingshift in the burden of proof apply at the audit stage. (Slip op. at p. 7.) The Board does not believe that section 23622.7 makes vouchers prima facie evidence at any point in eitherthe administrative or legal process, but applying the presumptionat the audit stage—rather than during a tax-refund lawsuit—is even more troublesomeand has unintended implications for the Board and for tax litigation in general. | First, article XIII, section 32 of the California Constitution bars lawsuits seeking to enjoin the assessmentor collection of a tax before the 8 Andit turns out that the Legislature was wise to be concerned. As the Los Angeles Times reported: “Loopholes, lax oversight and alleged. cheating have allowed companiesto profit from the state’s enterprise zone program,in some cases shaving millionsoff their tax bills without meeting requirements.” (Evan Halper, State Tax Breaks Benefits Companies, Not Workers, L.A. Times, Jan. 31, 2006, at 1, available at 2006 WLNR 6950200.) The Timesalso notedthat officials “are auditing hundreds of companies that they suspect have received dubiouscredits totaling $100 million.” (bid) 27 tax is paid. Althoughtheaudit in this case followed Dicon’s paymentof taxes, the lower court’s decision does not distinguish audits that precede payment from those that follow payment. While this case may not technically implicate article XIII, section 32 because the taxes were paid, the Board is concerned that as a practical matter the lower court’s failure to distinguish post-paymentaudits from prepayment audits virtually guarantees that taxpayers who are undergoing an audit, but who have not yet paid their taxes, will refuse to comply with the Board’s demandsfor non-voucherevidence of employeeeligibility under section 23622.7, and will bring legal actions to enjoin the Board. The Legislature, however,has no powerto authorize such taxpayer actions because they wouldviolate article XIII, section 32. | Second,.article XIII, section 32 also establishes that the only procedure available in California to challengethe validity of a tax is a post- paymenttax-refund action. A post-paymenttax-refundactionis trial de novo in the superiorcourt, it is not a challenge to the Board’s administrative findings, determinations, or assessments. Though theaudit in this case occurred after the taxes were paid, the lower court’s decision ignores the trial de novo requirement and impliedly (and erroneously) authorizes actions that challenge the Board’s administrative decisions. While the Legislature may have the powerto changethetrial de novo rule, it did not do soin section 23622.7, which is completely silent on the subject. 1. The Decision Below Violates Article XIII, Section 32 Because It Will Authorize Prepayment Tax Litigation. The bedrock of California tax litigation is article XIII, section 32 of the California Constitution. Although the Legislature has the powertofine- tune the rules regarding tax-refund lawsuits, the scope ofits powersare 28 dependent on, and limited by, the terms of the state Constitution. Article XIII, section 32 provides: No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. 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. (Cal. Const., art. XIH, § 32.) The first sentence of article XIII, section 32 bars injunctions against the collection of state taxes, while the second sentence “providesthat an action to recover an allegedly excessive tax bill may be brought‘[after] 299paymentof [that] tax... .’” (State Bd. ofEqualization v. Superior Court (1985) 39 Cal.3d 633, 638; parenthetical material in original.) This Court has explained that the two sentences together “establish that the sole legal avenue for resolving tax disputes is a postpaymentrefundaction.” (Jbid.) Thus, while the Legislature may sculpt the general contours of a refund action, the explicit language ofarticle XII, section 32 prohibits the _ Legislature from providing for a prepaymentlegal challengeto the validity of an underlying tax assessment. Althoughthis case is a post-payment tax refund case where the audit occurred after the paymentofthe tax, audits routinely precede the payment of the disputed tax and result in subsequent tax assessments. By imposing an evidentiary presumption and shifting the burden of proof during an audit, | the lower court’s decision would allow taxpayers to challenge the Board’s audit determinations before the taxes are paid, a practice often referred to as “prepaymenttax litigation,” and one whichis barred by the provisions of article XIH, section 32, which “applies if the prepaymentjudicial determination sought would impede tax collection.” (Western Oil and Gas . Assn. v. State Bd. ofEqualization (1987) 44 Cal.3d 208, 213.) 29 Article XIII, section 32 is to be “construed broadly” in support ofits provisions. (State Bd. ofEqualization v. Superior Court, supra, 39 Cal.3d at p. 639.) The reason for barring prepaymentlitigation is because the state mustbe able to collect its revenues “so that essential public services dependenton the funds are not unnecessarily interrupted.” (Pacific Gas & Electric Co. v. State Bd. ofEqualization (1980) 27 Cal.3d 277, 283.) “TStrict legislative control over the manner in which tax refunds may. be sought is necessary so that governmententities may engagein fiscal planning based on expected tax revenues.” (Woosley v. State ofCalifornia (1992) 3 Cal.4th 758, 789.) Those reasons are even more importantin this challenging budgetary environment. The decision of the Court of Appeal does not distinguish audits that follow payment from those that precede payment. If the lower court’s rule stands it will apply in both casesandits application will violate the | provisionsofarticle XIII, section 32 barring prepaymentlawsuits. Giving _ taxpayers a new right at the audit stage presumes an equivalent remedy allowing taxpayersto petition a court to enjoinor correct whatever they claim is a violation ofthat right. Thus, if this rule stands it would generate prepayment lawsuits challenging the Board’s audit proceduresand findings, the resulting judgments ofwhich taxpayers will attempt to use against the Board in later tax-refund actions. That violates article XII, section 32. 2. The Decision Below Is Contrary to the Rule That A Tax-Refund Lawsuit Is a Trial De Novoin the Superior Court. In State Bd. ofEqualization v. Superior Court, this Court held that article XIII, section 32 “establish[es] that the sole legal avenue for a resolving tax disputes is a postpaymentrefund action.” (39 Cal.3d at p. 638.) This “postpayment refund action,” whichis the “sole legal avenue for resolving tax disputes,” is not however a review ofwhat happenedatthe 30 audit stage or in the administrative proceedings below,it is instead a trial de novo in the superior court. (Nast v. State Board ofEqualization (1996) 46 Cal.App.4th 343, 348 [‘‘a refund action obviates the needfor [a] ‘correction’ of an SBE determination because the taxpayer’s contention is heard de novo in superior court’].) | Dicon’s tax-refund lawsuit and the Court of Appeal’s decision both ignore this important rule. Dicon’s lawsuit does not allege that it was entitled to a refund because it met all of the necessary requirements for the. enterprise zonecredit, but rather it alleges that the Board erredat the administrative level by rejecting Dicon’s vouchers duringtheaudit and “creat[ing] an additional administrative burden on the taxpayer....” (AA at p. 18, In. 22 —p. 19,In. 4) Dicon’s lawsuit failed to state a cause of action becauseit allegedonly that the Board erred during the audit. Ina tax-refund lawsuit the court does not review the Board’s actions for errorat the audit or administrative level, it holds a trial de novo. “A hearing de novoliterally means a new hearing. ... It is in no sense a review ofthe hearing previously held, but is a completetrial of the controversy, the same as if no previous hearing had ever been held.” (Collier & Wallis, Ltd. v. Astor (1937) 9 Cal.2d 202, 205.) The lower court’s decision sanctioned Dicon’s improper focus on alleged administrative error whenit held that a voucheris prima facie evidence at audit andthat “[i]Jn such an audit, [the Board] bears the burden of rebutting the voucher’s prima facie value ....” (Slip op. at p. 7.) The decision loses sight of the fact that Dicon filed a tax-refund lawsuit; the ” Tn fact, Dicon even argued in the Court of Appealthat the Board’s actions at the audit stage should be reviewedunder the substantial evidence test in what would essentially be a writ of mandate-type proceeding. (Dicon’s Letter Brief to the court dated Feb. 20, 2009, at p. 2.) The Court of Appeal’s opinion did not address this argument. 31 question should not be what the Board did at the audit stage, but whether the taxpayer has pled and can provesufficient facts at the trial de novo in the superior court to establish a different amount of tax. (People v. Schwartz (1947) 31 Cal.2d 59, 64 [taxpayer “has theburdenofproving not only that the board’s determination, based uponhis records, is incorrect, but also ofproducing evidence from which another and proper determination - may be made”; Nast v. State Board ofEqualization, supra, 46 Cal.App.4th at p. 348.) | While the Legislature has the powerto changetherule providing for de novotrials in tax-refund lawsuits, it did not do so in section 23622.7. The actual language of section 23622.7 says nothing at all about changing the rule that a tax-refund lawsuitis a trial de novo in superiorcourt. This is a case wherethe languageofthe statute is clear. “If there is no ambiguity in the languageofthe statute, then the Legislature is presumed to have meant what it said, and the plain meaning of the language governs.” (Lennane, supra, 9 Cal.4th at p. 268; citations and internal quotations omitted.) | Other rules of statutory construction also support the Board’s interpretation that section 23622.7 does not override the trial de novo rule in tax-refund lawsuits. Incometax credits are a matter of legislative grace and are strictly and narrowly construed againstthe taxpayer. (Miller v. . McColgan, supra, 17 Cal.2d at pp. 441-442; Great Western Financial Corp. v. Franchise Tax Bd., supra, 4 Cal.3d at p. 5; General Motors, supra, 39 Cal.4th at p. 790.) Ifthe Board’s “interpretation . . . is reasonableit must... be adopted. It is of no momentthat the statute may be ambiguous, or that a contrary construction might also be reasonably permissible.” (Hospital Service, supra, 25 Cal.App.3d at p. 406.) The lower court’s decision wasin error becauseit failed to construe section 23622.7 against the taxpayerandit rejected the Board’s reasonable interpretation. 32 Moreover, courts will not presumethat the Legislature intendedto overturn long-established principles of law unless that body makesits intention clear by declaration or necessary implication,. (General Motors, supra, 39 Cal.4th at p. 790; Theodor v. Superior Court, supra, 8 Cal.3d.at pp. 90-92; County ofLos Angeles v. Frisbie, supra, 19 Cal.2d at p. 644.) The principle that a tax-refund lawsuitis a trial de novo in superior court is well established. It is highly unlikely that the Legislature would have intendedto silently overturn thatrulein section 23622.7. To use this _ Court’s words in General Motors, “nowhere in the statute does the Legislature indicate it wished to apply a different rule... . In the absence of a contrary statement, we mustinterpret section [23622.7] consistently with [the time-honored rule].” (General Motors, supra, 39 Cal.4th at p. 791.) 33 CONCLUSION An enterprise zone voucheris not primafacie proofin a tax-refund action that a workeris a “qualified employee” under Revenue and Taxation Code section 23622.7. The decision of the Court of Appeal must be vacated and the judgmentofthetrial court granting the Board’s demurrer without leave to amendaffirmed. Dated: November 16, 2009 LA2007601901 60490262.doc Respectfully submitted, EDMUND G. BROWN JR. _ Attorney General of California PAUL D. GIFFORD Senior Assistant Attorney General GORDON BURNS Deputy Solicitor General W. DEAN FREEMAN Supervising Deputy Attorney General Lf Nenr W. DEAN FREEMAN Supervising Deputy Attorney General Attorneysfor Defendant and Respondent Franchise Tax Board 34 CERTIFICATE OF COMPLIANCE I certify that the attached OPENING BRIEF ON THE MERITSuses a 13 point Times New Romanfont and contains 9,649 words. | Dated: November 16, 2009 EDMUND G. BROWN JR. _ Attorney General of California PAUL D. GIFFORD Senior Assistant Attorney General: GORDON BURNS Deputy Solicitor General W. DEAN FREEMAN Supervising Deputy Attorney General # DEAN FREEMAN Supervising Deputy Attorney General Attorneysfor Defendant and Respondent Franchise Tax Board DECLARATION OF SERVICE BY U.S. MAIL Case Name: Dicon Fiberoptics, Inc. v. Franchise Tax Board of the State of California Case No.: S173860 I declare: I am employedin the Office of the Attorney General, whichis the office of a memberofthe California State Bar, at which member's direction this service is made. I am 18 years of age or older and not a party to this matter. I am familiar with the business practice at the Office of the Attorney Generalfor collection and processing of correspondence for mailing with the United States Postal Service. In accordance with that practice, correspondenceplacedin the internal mail collection system at the Office of the Attorney General is deposited with the United States Postal Service that same day in the ordinary course of business. On November 16, 2009, I served the attached OPENING BRIEF ON THE MERITSby placing a true copy thereof enclosedin a sealed envelope with postage thereon fully prepaid,in the internal mail collection system at the Office of the Attorney Generalat 300 South Spring Street, Suite 1702, Los Angeles, CA 90013, addressed as follows: ThomasR.Freeman, Esq. The Honorable Mel Red Recana Bird, Marella, Boxer, Wolpert, Nessim, Department 45 Drooks & Lincenberg,P.C. Los Angeles County Superior Court. . 1875 CenturyPark East, 23rd Floor 111 North Hill Street - Los Angeles, CA 90067-2561 (Attorneysfor PlaintiffandAppellant) Los Angeles, California 90012 William Hilson, Tax Counsel Franchise Tax Board Legal Department P.O. Box 1720 MS:B-17 Rancho Cordova, CA 95741-1720 Marty Dakessian, Esq. Akerman Senterfitt LLP 725 South Figueroa Street, 38th Floor, Los Angeles, CA 90017 (Attorneysfor PlaintiffandAppellant) Clerk, Court of Appeal (Hand-delivered) Second Appellate District, Div. 8 300 South Spring Street, 2nd Floor Los Angeles, California 90013 AmyL.Silverstein, Esq. Edwin Park Antolin, Esq. Silverstein & Pomerantz LLP 55 HawthorneSt., Suite 440 San Francisco, CA 94105-3910 (Attorneysfor Amicus Curiae Deluxe Corp.) LaShelle T. Wilson, Esq. The California Credits Group LLC 234 E. Colorado Blvd., Suite 700 Pasadena, CA 91101 , I declare under penalty of perjury, under the laws ofthe State of California, the foregoingis true and correct and that this declaration was executed on November 16, 2009, at Los Angeles, Declarant 60451872.doc California. | ROSITA V.EDUARDO tiad— Signature