Plaintiffs are consumers who contend that defendant retailer represented that it properly was charging and in fact charged them sales tax reimbursement on sales of hot coffee sold "to go," when, according to plaintiffs, the tax code rendered such sales exempt from sales tax. They brought an action against defendant retailer under two consumer protection statutes, seeking a refund of the assertedly unlawful charges, damages, and an injunction forbidding collection of sales tax reimbursement for such sales. The trial court sustained defendant's demurrer without leave to amend, and the Court of Appeal affirmed, concluding that plaintiffs' action was not authorized under the tax code and was barred by article XIII, section 32 of the California Constitution. That provision limits the manner in which taxpayers may seek a refund of taxes from the taxing entity.
We affirm the judgment of the Court of Appeal, although our analysis differs somewhat from that court's analysis. We conclude that the tax code provides the exclusive means by which plaintiffs' dispute over the taxability of a retail sale may be resolved and that their current lawsuit is inconsistent with tax code procedures. As explained, the consumer protection statutes under which plaintiffs brought their action cannot be employed to avoid the limitations and procedures set out by the Revenue and Taxation Code.
Plaintiffs' first amended complaint alleged that defendant Target Corporation (Target)
Plaintiffs alleged that "the sale of hot coffee drinks `to go' or for `take-out' is not subject to sales tax" under section 6359 and a related regulation adopted by the state Board of Equalization (Board). They alleged that defendant nonetheless charged what the complaint referred to as "sales tax" on purchases of hot coffee to go to two named plaintiffs, and "thus caused [plaintiffs] to suffer monetary loss." (As we shall see, the complaint is inaccurate to the extent it refers to plaintiffs' payment to the retailer as "sales tax." The tax code provides that the retailer is the taxpayer and that it is the retailer which is required to pay sales tax to the state; the retailer is permitted but not required to collect a matching "sales tax reimbursement" from consumers. It is the reimbursement charge that is at issue in the present case.)
Plaintiffs also alleged that "[defendant] falsely and illegally represented to members of the general public that it had the legal right to charge the sales taxes described herein including, but not limited to, oral representations made by [its] agents, and on receipts and registers at [its] facilities."
Plaintiffs alleged that defendant's actions constituted "unlawful, unfair and fraudulent business acts and practices within the meaning of ... Business and Professions Code section 17200, et seq." It was further alleged that "[b]y [its] actions, [defendant] unfairly and unlawfully increased the costs to Class members in direct contradiction to law. In the event [defendant] retained these monies it unjustly enriched itself at the expense of Plaintiffs, other Class members and the general public and, as such, [defendant's] conduct amounts to unfair competition" and "offends public policy and is immoral, unscrupulous, unethical and offensive, and causes substantial injury." The complaint alleged continuing violations and asserted that defendant "refused to publicly acknowledge [its] improper imposition of the charges, correct [its] wrongdoing, and provide compensation ...."
Plaintiffs alleged a violation of the CLRA in that defendant "(a) misrepresented the source, sponsorship, approval or certification of [its] charges for sales taxes by indicating to consumers that [it has] ... the legal authority to charge the sales taxes that [it has] ... charged and continue[s] to charge"; (b) "[misrepresented the] affiliation, connection, or association with, or certification by, another by indicating to consumers that [it has] ... the legal authority to charge the sales taxes ...; [misrepresented that] the transactions at issue confer or involve rights, remedies, or obligations which [it does] not have or involve, or which are prohibited by law by charging the sales tax"; and inserted an unconscionable provision into contracts by charging the assertedly improper "sales tax."
Plaintiffs alleged that they had informed defendant by mail of its alleged violation of the CLRA and made a "demand for remedy," but that no remedy has been forthcoming.
Plaintiffs sought an order "enjoining the [defendant] from continuing the methods, acts and practices set out above regarding [its] charging of illegal sales taxes ...." They sought damages in "the amount of sales taxes wrongfully collected from plaintiffs and the Class for the purchase of hot coffee `to go' or for `take out,' without being limited thereto" and punitive damages on the ground that "[defendant's] conduct allegedly was willful, oppressive and fraudulent."
Finally, plaintiffs sought an order certifying the class, awarding restitution and disgorgement, enjoining the continuation of "illegal practices," requiring defendant to "inform the public of [its] unlawful practices and enjoining [defendant] from the practices complained of."
Defendant demurred. It objected that plaintiffs' action would call upon the court to order a refund and enjoin collection of the sales tax reimbursement "on the allegedly non-taxable items" "without a determination that Target erroneously paid the tax to the [Board]." Defendant argued that article XIII, section 32 of the state Constitution barred such a proceeding because plaintiffs' lawsuit sought, in effect, "an order preventing the [Board] from collecting this tax" and "remedies not provided for" in the tax code.
In addition, defendant argued that the court should decline to exercise jurisdiction over plaintiffs' claims, but should defer to the Board under the doctrine of primary jurisdiction.
Plaintiffs responded that at the demurrer stage, there was no record of whether Target paid the sales tax it collected to the Board, nor need there be any such allegation in the complaint. Plaintiffs argued that the Legislature had specifically provided that they "may sue Target for illegally charging them sales tax," alluding in support to section 6901.5 and a decision of this court interpreting a predecessor to that statute, Javor v. State Board of Equalization (1974) 12 Cal.3d 790 [117 Cal.Rptr. 305, 527 P.2d 1153] (Javor). Section 6901.5, they asserted, afforded them a private right of action "against those who charge them improper sales taxes."
Plaintiffs further asserted that the state constitutional limitation on lawsuits for tax refunds (Cal. Const., art. XIII, § 32) did not apply, and that the doctrine of primary jurisdiction should not apply.
As for their UCL claim, plaintiffs argued that even if the tax code provided no private right of action, the UCL supplied a basis for their claim. They alleged that violation of section 6359 (exempting many food sales from sales tax), and the statute's related regulation, is "unlawful" and therefore supports their UCL claim.
At the hearing on the demurrer, the trial court observed that "a determination has to be made by the [Board] regarding [any] ... `refund' ... or `damages' ... pursuant to sections 6901 [(governing refunds from the Board to retailers)] and 6901.5 [(governing the return of excess reimbursement from consumers)]." It added: "If the [Board] makes a determination, then the case or these causes of action might be ripe for adjudication."
In response, plaintiffs requested leave to amend the complaint to "bring in the Board and then proceed in that manner." There was some discussion of an amendment that would constitute a suit to compel defendant to seek a refund from the Board, but the court warned, "I'm not going to be creative for you. I'm going to allow you to try to amend the first three causes of action to see
Plaintiffs filed a second amended complaint, but this complaint did not add the Board as a defendant. Their amended complaint simply added a few details concerning plaintiffs' purchases, and alleged that defendant Target never inquired whether the named plaintiffs' coffee purchases were to go, thereby depriving plaintiffs of the "opportunity to avoid being wrongfully charged the taxes at issue."
Defendant once more demurred, repeating that the remedies plaintiffs sought were unavailable under the state Constitution because the injunctive remedy essentially would prevent the Board from collecting the tax, and a restitution award would afford tax relief in a manner not established by the Legislature. Defendant maintained that section 6901.5, a provision that governs reimbursement refunds, does not create a private right of action for consumers, but instead contemplates that consumers should apply to the Board to, in the words of the statute, "ascertain[]" whether retailers should make any refund to consumers. Defendant also repeated its assertion that the court should decline to exercise its equitable power under the doctrine of primary jurisdiction.
At the hearing on the demurrer, the trial court commented that the second amended complaint was "déjà vu all over again." The court explained that the question whether plaintiffs were appropriate "complainants" had not been answered and stated that "[n]either the statutory [scheme] nor any case authority allows you to go forward with this type of action unless there's been, at the very least — and I don't have an opinion about this — some request to the tax court ...."
Plaintiffs responded first that "regardless of whether the ... [Board] should be involved, the representation by [defendant] to its customers that they are paying a sales tax when in fact, they are not is an unfair business practice." Second, plaintiffs disputed the significance of the question of the Board's "jurisdiction over this claim." Plaintiffs asserted that the court had assumed that defendant had paid the Board sales tax on sales of hot coffee, but "the complaint doesn't allege that" and it is wrong for the "court [to] make that assumption." Third, counsel for plaintiffs stated that "what some courts have done in this circumstance that I've been involved with is that they stay the case, advise us to go seek the refund from the [Board], and inevitably when that answer is `no,' we can come back and then we are allowed to go forward with our case."
The court sustained the demurrer to the second amended complaint without leave to amend and dismissed the case with prejudice, stating that it agreed with "much" of defendant's argument and written pleadings.
Plaintiffs appealed, contending primarily that section 6901.5 afforded them a private right of action against defendant. Despite their concession at the hearing on the first amended complaint that the demurrer should be sustained without leave to amend as to the cause of action for money had and received, they also contended they had adequately pleaded that cause of action.
In response, defendant contended that the suit was barred by the California Constitution, and that section 6901.5 does not provide for a private right of action. It also disputed plaintiffs' claim concerning the money had and received count.
In reply, plaintiffs denied that article XIII, section 32 of the state Constitution applied to their suit, insisted that the language of section 6901.5 authorized their lawsuit, and argued that even if a Board determination was a prerequisite to their suit, the trial court should have stayed the action under the doctrine of primary jurisdiction.
The Court of Appeal affirmed the judgment in favor of defendant. It rejected plaintiffs' claim that the tax code itself afforded them a private right of action against retailers, and concluded that their UCL and CLRA claims were inconsistent with article XIII, section 32 of the state Constitution.
The Court of Appeal pointed to the tax code's comprehensive sales tax scheme and its intertwining provisions governing retailers. It emphasized that it is retailers who pay sales tax to the state, and that under the tax code, it is retailers who may file a claim with the Board seeking a refund of overpaid
The Court of Appeal believed that the Legislature has vested in the Board the authority to enforce the sales tax law, and that it would undermine the statutory scheme to permit customers to unilaterally "`ascertain'" when excess sales tax reimbursement had been collected. The court stated that plaintiffs' contrary claim "would disrupt the administration of the sales tax laws because it would allow customers to usurp the authority of the Board to determine the application of the law in the first instance." The reviewing court pointed out that the Board has not had an opportunity to ascertain whether sales tax was due on defendant's sale of hot coffee to go, nor has it ascertained whether any reimbursement is due under section 6901.5.
Moreover, according to the Court of Appeal, plaintiffs are trying to use the UCL and CLRA to resolve a sales tax dispute, but "[t]his they cannot do under article XIII, section 32" of the state Constitution. In the appellate court's view, constitutional restrictions would not permit a consumer action seeking to declare a particular sale exempt from tax, because a resulting award in favor of consumers could afford a tax refund in a manner not specifically authorized by the Legislature. The court also believed that constitutional principles would not permit an injunction against defendant's collection of sales tax reimbursement, because such an injunction could curtail tax collections.
The Court of Appeal summarized its constitutional analysis and holding as follows: "Article XIII, section 32 prohibits injunctions against the collection of state taxes and provides that refunds of taxes may only be recovered in a manner provided by the Legislature. As our Supreme Court explained in Woosley v. State of California (1992) 3 Cal.4th 758, 792 [13 Cal.Rptr.2d 30, 838 P.2d 758] (Woosley), under California Constitution, article XIII, section
"The complaint also alleges causes of action under unfair business practices and consumer protection statutes and a cause of action for money had and received. Plaintiffs seek damages, restitution and injunctive relief pursuant to these causes of action. However, plaintiffs are attempting to resolve a sales tax dispute by using consumer and common law remedies rather than the procedure set forth by the Legislature. This they cannot do under article XIII, section 32.
"Plaintiffs argue that they are not violating article XIII, section 32, because they do not seek to enjoin the state from collecting sales taxes. Rather, plaintiffs contend, they seek to enjoin a private company from collecting sales tax reimbursement. Plaintiffs further contend that article XIII, section 32 is not implicated because they only seek a refund of sales tax reimbursement, not a refund of sales taxes.
"We reject plaintiffs' argument and find that a court may not directly or indirectly enjoin or prevent the collection of a sales tax. As we will explain, the statutory schemes for sales taxes and sales tax reimbursement are intertwined. A determination by a court that sales tax is not due on `to go' hot coffee purchases from Target, and an injunction against the collection of sales tax reimbursement by Target on such purchases, is effectively an injunction against the collection of sales tax by the state. Further, under article XIII, section 32, plaintiffs cannot circumvent the statutory scheme for sales tax reimbursement refunds by asserting causes of action not contemplated by that scheme. We therefore affirm the judgment and hold that plaintiffs' action is barred by article XIII, section 32 and the sales tax statutes in the Revenue and Taxation Code."
We granted plaintiffs' petition for review. Plaintiffs challenge the Court of Appeal's constitutional analysis, and contend that UCL and CLRA remedies are cumulative to any remedy or procedure that is available under the tax code. Plaintiffs have now stated that they do not challenge that part of the Court of Appeal's decision rejecting their own claim in that court that the tax code, and specifically section 6901.5, provided them with a private right of action against defendant. On the contrary, in this court plaintiffs argue that the
Defendant contends that the Court of Appeal correctly analyzed the constitutional and statutory provisions and properly concluded that plaintiffs' action is barred.
On appeal, "[w]hen a demurrer [has been] sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse." (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865 [62 Cal.Rptr.3d 614, 161 P.3d 1168]; see Code Civ. Proc., § 430.10, subd. (e).) We follow the well-settled rule that "[w]hen reviewing a judgment dismissing a complaint after the granting of a demurrer without leave to amend, courts must assume the truth of the complaint's properly pleaded or implied factual allegations." (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 [6 Cal.Rptr.3d 457, 79 P.3d 569].) On the other hand, the reviewing court "does not ... assume the truth of contentions, deductions or conclusions of law." (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [9 Cal.Rptr.2d 92, 831 P.2d 317].)
We summarize our conclusions, which depend upon a proper understanding of both the procedural and substantive aspects of the governing sales tax provisions. The clear basis of plaintiffs' action — that Target represented that it properly was charging and in fact charged sales tax reimbursement on a sale that plaintiffs believe the tax code exempted from taxation — requires resolution of a sales tax law question, that is, whether Target's sales of hot coffee to go to plaintiffs were subject to sales tax or fell within an exemption. That question, which we may characterize as the "taxability" question, is committed in the first instance to the Board, subject to judicial review under the restrictions and pursuant to the procedures provided by the tax code. A UCL or CLRA cause of action such as plaintiffs' cannot be reconciled with the primary decisionmaking role that the tax code vests in the Board with respect to tax issues. Moreover, section 6901.5 provides a safe harbor for a retailer/taxpayer who remits reimbursement charges to the Board. For these reasons, the tax code precludes claims such as plaintiffs'.
Because we can resolve the issues presented on statutory grounds, it is not necessary to resolve the constitutional question addressed by the Court of Appeal, although constitutional considerations enter into our interpretation of the relevant statutes.
The Court of Appeal's determination that plaintiffs' claims were barred rested in large part upon article XIII, section 32 of the state Constitution: "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." (All further article references are to the California Constitution.)
Article XIII, section 32 also requires that tax refund actions be brought solely according to procedures established by the Legislature. It vests power over tax procedure in the Legislature, and limits or governs the authority of the courts over tax collection disputes. (Western Oil & Gas Assn., supra, 44 Cal.3d at p. 213 [the provision "broadly limits in the first instance the power of the courts to intervene in tax collection matters"].) This deference also serves the state's interest in being able to plan for needed public expenditures, and "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." (Woosley, supra, 3 Cal.4th at p. 789; see Pacific Gas & Electric Co., supra, 27 Cal.3d at p. 283.)
Plaintiffs argue that article XIII, section 32 does not apply to or bar their lawsuit because the provision applies solely (1) to actions against the state or its officers; and (2) to lawsuits brought by taxpayers; (3) to recover the tax paid. Plaintiffs observe that their action for restitution, damages, and injunctive relief is not against the state, or indeed any government taxing entity. They add that the reimbursement amount they challenge is not a tax, but an amount they, as nontaxpayers, paid to retailers pursuant to a contractual arrangement. They claim, moreover, that their action will not impair the state's ability to collect taxes, nor will the action recognize a refund procedure that is inconsistent with the tax code.
In response, defendant maintains that under the state Constitution, tax refund issues may be litigated solely according to the procedure specifically provided by the tax code, and that plaintiffs' lawsuit is inconsistent with that scheme. Defendant observes that the constitutional provision prohibits lawsuits to prevent or enjoin the collection of any tax, and argues that "because an action to recover sales tax reimbursement is substantively indistinguishable from an action to recover the tax paid, this constitutional protection must be afforded to retailers collecting sales tax reimbursement from their customers."
As already noted, and applying this authority, our interpretation of the tax code renders it unnecessary to resolve the constitutional question addressed by the Court of Appeal, although constitutional considerations enter into our interpretation of the relevant statutes.
As we shall explain, it would be inconsistent with this scheme to permit the consumer to initiate a consumer action such as plaintiffs' requiring a court to resolve, outside the searching regulatory scheme established by the tax code, whether a sale was taxable or exempt, and for the court to interfere in the statutory system by which the retailer is authorized to satisfy its obligations by remitting excess tax reimbursement amounts to the Board.
The central principle of the sales tax is that retail sellers are subject to a tax on their "gross receipts" derived from retail "sale" of tangible personal property. (§ 6051.)
Despite the apparent simplicity of a tax based on gross receipts, a complex system of statutes and regulations minutely controls tax liability. This system
Of particular note given plaintiffs' argument that consumer claims should lie when the retailer fails to correctly apply sales tax exemption law, an entire chapter of the sales and use tax law is devoted to exemptions. (§ 6351 et seq.) The law of exemptions is comprehensive, governing every imaginable type of sales transactions. One article in the exemption chapter includes 79 provisions exempting particular types of transactions from sales and use taxation — including, for example, relatively straightforward exemptions for poultry litter (§ 6358.2), to much more complicated and fact-specific exemptions for some sales of food or medicine (§§ 6359, 6369) or for gross receipts from food stamp sales (§ 6373), to some quite arcane exemptions (see § 6366.5 [sales of endangered species]). Many exemptions apply to various types of charitable or nonprofit transactions. (See § 6360.1 [sales of veteran's memorial lapel pins]; see also §§ 6359.3, 6361, 6361.5, 6363.2-6363.8.) Some of the exemptions turn on the use to which the purchaser will put the item being sold or
There are many exceptions to the exemption appearing in section 6359, however. Food products are not exempt if they are "served as meals on or off the premises." (Id., subd. (d)(1).) Also not qualifying for the exemption are items that are "furnished, prepared, or served for consumption at tables, chairs, or counters or from trays, glasses, dishes, or other tableware" provided by the retailer. (Id., subd. (d)(2).) In other words, a distinction is drawn between items of food depending on whether they are consumed on the premises. The exemption also does not apply when "food products are sold as hot prepared food products." (Id., subd. (d)(7).) On the other hand, the "`[h]ot prepared food products'" exception to the exemption does not apply "to a sale for a separate price of bakery goods or beverages (other than bouillon, consommé, or soup)" under defined conditions. (Id., subd. (e).)
In an amicus curiae brief filed in this court, the Board explains that "to go" sales are those for which the customer leaves the store's premises entirely before consuming the item. "Target would have to distinguish sales of coffee where the customer bought the coffee and immediately left the store from those where the customer bought the coffee but continued to shop in the same
The taxpayer must exhaust administrative remedies before bringing an action in court. As the tax code provides, "[n]o suit or proceeding shall be maintained in any court for the recovery of any amount alleged to have been erroneously or illegally determined or collected unless a claim for refund or credit has been duly filed ..." pursuant to provisions of the tax code. (§ 6932.)
The tax code also contains a provision that parallels article XIII, section 32 of the state Constitution. It provides that "[n]o injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against this State or against any officer of the State to prevent or enjoin the collection under this part of any tax or any amount of tax required to be collected." (§ 6931.)
Reimbursement amounts are deducted from the sales price for the purpose of calculating gross receipts, but only if the retailer establishes that the tax was added to the sales price and was not absorbed by the retailer. (§ 6012, subd. (c)(12) ["For purposes of the sales tax, if the retailers establish to the satisfaction of the board that the sales tax has been added to the total amount of the sale price and has not been absorbed by them, the total amount of the sale price shall be deemed to be the amount received exclusive of the tax imposed. Section 1656.1 of the Civil Code shall apply in determining whether or not the retailers have absorbed the sales tax."].)
The amicus curiae brief filed by the Board posits that as far as the consumer is concerned, for economic purposes, the sales tax reimbursement charge is part of the price paid by the consumer. The Board suggests that "[a]ny retailer who tried to over-collect sales tax reimbursement from its customers would quickly find them going to another retailer whose prices were lower."
As stated, plaintiffs' UCL and CLRA claims rest on the premise that Target violated the tax code by charging them a reimbursement amount on a retail sale that they allege was exempt from taxation. Before we analyze the current statutory provision governing excess reimbursement charges (§ 6901.5), we review the law that preceded it in order to understand the relative positions held in the statutory scheme by the consumer, the Board, and the taxpayer.
Prior law imposed the sales tax on retailers but stated that the "tax hereby imposed shall be collected by the retailer from the consumer in so far as it can be done" (former § 6052, added by Stats. 1941, ch. 36, § 1, p. 536), and prohibited the retailer from advertising that it would absorb, omit, or refund the tax (former § 6053, added by Stats. 1941, ch. 36, § 1, p. 536). As explained post, in part II.B.4.f., eventually, in 1978, these provisions were repealed because they were seen as potentially but inaccurately suggesting that it was the consumer who was the taxpayer, not the retailer.
In the meantime, in 1961 the Legislature added a provision that to some extent recognized consumer interests. Former section 6054.5 provided that if the retailer knowingly collected excess reimbursement, the amount should be refunded to the consumer or paid to the Board, and that the Board could condition a refund to the taxpayer on his or her payment of a refund to the consumer. It stated in pertinent part: "When an amount represented by a person to a customer as constituting reimbursement for taxes due under this part is computed upon an amount that is not taxable or is in excess of the taxable amount and is actually paid by the customer to the person, the amount so paid shall be returned by the person to the customer upon notification by the Board of Equalization or by the customer that such excess has been ascertained. In the event of his failure or refusal to do so, the amount so paid, if knowingly computed by the person upon an amount that is not taxable or is in excess of the taxable amount, shall constitute an obligation due from him to this State. Such obligation may be determined and collected by the board in accordance with Chapters 5 and 6 of this part. The amount so collected shall be refunded by the board to the [taxpayer] ... only upon submission of proof to the satisfaction of the board, or in the event the board denies his claim for refund, to the satisfaction of the superior court, that such amount has been returned or will be returned to the customer." (Former § 6054.5, added by Stats. 1961, ch. 872, § 1, p. 2289, italics added.)
We commented upon the customer's equitable interest in a refund of excess reimbursement amounts in Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 252 [23 Cal.Rptr. 589, 373 P.2d 637] (Decorative Carpets), in which we also discussed former section 6054.5, enacted during the pendency of litigation in that case. In Decorative Carpets, the taxpayer was a retail seller and also an installer of carpets. It mistakenly believed it was liable for tax on the total amount it charged the customer for the installed carpet. In fact, as an installer it was merely liable for sales tax on the installed-carpet transaction based on the amount it had paid the wholesaler for the carpet. "Because of its misunderstanding as to the proper method of computing the tax, plaintiff collected from its customers and paid to [the Board] $4,337.45 more than it should have collected and paid." (Id. at p. 254.)
The taxpayer filed a claim for refund from the Board of the excess it had collected and paid, but it sought the refund for itself and did not intend to make any refund to its customers. The Board responded that the taxpayer would be unjustly enriched if it could gain a refund of the excess it had paid without making a corresponding refund to customers to whom it had charged the full, excessive reimbursement amount.
We commented that even without reference to former section 6054.5, an erroneously computed and collected sales tax reimbursement amount is in some sense held in constructive trust, either by the retailer or, if the sum has been remitted to the state, by the state. (Decorative Carpets, supra, 58 Cal.2d at pp. 254-255.) We said that if the Board were treated as legally holding the excess tax payment in constructive trust for consumers, the ordinary result would be that the Board would be obliged to restore the amount in excess of the installer's correct tax liability to the taxpayer's customers. We explained, however, that such a direct remedy for consumers would be inappropriate, given the procedures established in the tax code. As we said: "[The Board's] liability to refund taxes erroneously collected, however, is governed by statute [citation] and the orderly administration of the tax laws requires adherence to the statutory procedures and precludes imposing on [the Board] the burden of making refunds to the taxpayer's customers." (Id. at p. 255, italics added.)
At the same time, we said, the Board bears some responsibility to consumers when excess sales tax has been remitted to it, given its "vital interest in the integrity of the sales tax." (Decorative Carpets, supra, 58 Cal.2d at p. 255.) Moreover, "[t]o allow plaintiff [(taxpayer)] a refund without
The Decorative Carpets case fell outside the new statutory provision regarding conditional refunds, not only because the enactment was adopted during the litigation but also because the claim involved a mistaken, not a knowing excess charge. We pointed out, however, that "the Legislature has never provided that customers are not entitled to recover from retailers amounts erroneously charged to cover sales taxes" (Decorative Carpets, supra, 58 Cal.2d at p. 256, italics added) and that it was, prior to enactment of the statute, and remained, subsequent to its enactment, "left to the courts to adopt appropriate remedies when excessive reimbursements have been collected by mistake and paid to the state." (Ibid.) We concluded that it would be best to model our remedy on that provided specifically in former section 6054.5 — a refund to the taxpayer conditioned on proof satisfactory to the court that the taxpayer would refund the excess reimbursement to consumers. (Decorative Carpets, supra, at p. 255.)
In sum, our decision acknowledged that courts must recognize that "the orderly administration of the tax laws" requires that consumer remedies be consonant with procedures set out in the tax code. (Decorative Carpets, supra, 58 Cal.2d at p. 255.) At the same time, our decision found that consumers had some undefined equitable interest in a refund of excess reimbursement charges, and that the Board bore some responsibility to consumers when excessive sales tax amounts have been remitted to it, given its "vital interest in the integrity of the sales tax," and the risk that an unconditional refund to the taxpayer/retailer could permit unjust enrichment for the retailer. (Ibid.)
In 1968, the Legislature amended former section 6054.5 to remedy the omission we had identified in Decorative Carpets and to provide for situations in which the taxpayer mistakenly, as opposed to knowingly, charged excess reimbursement. The amended statute provided that if the retailer charged reimbursement that mistakenly exceeded his or her own proper tax liability on the sale, the retailer could refund the amount to the consumer, but if not, the full amount collected had to be remitted to the state, which in turn could condition refunds to taxpayers on proof that the amount that exceeded tax liability would be refunded to customers. Thus the first two sentences of the statute were retained but separated and designated as subdivision (a), and two new subdivisions were added: "(b) When transactions occur during any period for which a return is required to be filed and the total of the amounts represented by a person to his customers as constituting reimbursement for
The 1968 amendment of former section 6054.5 was followed by our decision in Javor, supra, 12 Cal.3d 790. In that case, Congress had repealed a federal excise tax imposed on manufacturers for the sale of new vehicles and accessories. The repeal was retroactive and federal law required manufacturers who obtained the benefit of the repeal to make refunds to purchasers. Although purchasers received those refunds, they also had been charged excess state sales tax reimbursement amounts. This was because the retailers who had sold them the vehicles had themselves paid state sales tax on a base price that included — now inappropriately — the federal excise tax, and had collected reimbursement from consumers in an amount that included that inappropriate amount. The Board adopted a rule reducing the amount of the retailer's taxable gross receipts to reflect the refund of the federal excise tax to consumers and providing that accordingly, the excess in "the sales tax will be refunded [by the Board] to the retailer provided [the retailer] also repays to the consumer the amount collected from [the consumer] as sales tax reimbursement." (Javor, supra, 12 Cal.3d at p. 794.)
Plaintiff, a purchaser of a new vehicle, sought to bring a class action against the Board and automobile retailers, alleging claims for money due and an accounting.
We turned to the general principle stated in Decorative Carpets that under ordinary constructive trust principles, the Board would hold mistakenly computed tax payments in constructive trust. (Javor, supra, 12 Cal.3d at p. 798.) As in our earlier decision we observed, however, that notwithstanding ordinary principles governing constructive trusts, the Board's liability is governed by the tax code and that "`the orderly administration of the tax laws requires adherence to the statutory procedures and precludes imposing on [the Board] the burden of making refunds to the taxpayer's customers.'" (Id. at p. 798, italics added.) Still, we reiterated that "`the Legislature has never provided that customers are not entitled to recover from retailers amounts erroneously charged to cover sales taxes.'" (Id. at p. 799, italics added.)
When we decided Javor, supra, 12 Cal.3d 790, the 1968 amendment to former section 6054.5 already authorized the Board to condition a refund for tax for which a mistaken reimbursement charge had been collected on proof that a refund had or would be made to consumers, but it did not prescribe a remedy when the retailer had paid the excess to the Board and had not sought a refund. (Javor, supra, at p. 800.) As there was no direct statutory provision for consumer refunds when taxpayers failed to seek a refund, we said that "we find ourselves in the same position as the court in Decorative Carpets and must fashion an appropriate remedy to effect the customers' right to their refund which is consonant with existing statutory procedures." (Ibid., italics added.)
We agreed with the Board that it would not be consonant with the tax code or Decorative Carpets to fashion a remedy that would give consumers a cause of action against the Board for the excess amounts the retailer had paid in taxes. (Javor, supra, 12 Cal.3d at p. 800.) Nonetheless, we said, "in respect to the customer's right to be reimbursed by the retailer, the Board is not a neutral or disinterested party for two reasons: First it has a vital interest in the integrity of the sales tax and therefore a responsibility to customers who are entitled to a refund; and, second, it holds the excessive monies collected by the retailers who paid them to the Board and it is not entitled to them. Section 6054.5 and Decorative Carpets make it clear that both the Legislature and the courts have placed a duty upon the Board to see that the customer eventually obtains any refund [the Board] made to the retailer. Although ... this duty may stop short of compelling the Board to repay the customers directly,
Of significance to the present case, we also recognized that under existing procedures, "the retailer is the only one who can obtain a refund from the Board," but observed that because the retailer cannot retain the excess tax amount for itself, but must undertake some procedure to make refunds to customers, it may have no particular interest in pursuing a tax refund. (Javor, supra, 12 Cal.3d at p. 801.) Similarly, the Board may lack incentive to examine returns on its own initiative to determine whether retailers have remitted excess taxes to it — that is, whether taxes have been overpaid. (Ibid.) We observed that the Board "is very likely to become enriched at the expense of the customer to whom the amount of the excessive tax actually belongs." (Id. at p. 802.)
We pointed out that the Board had issued instructions to retailers that they were entitled to a refund of the excess sales tax provided they returned the refund to the customer. The Board's procedure initially required the retailer to pay the refund to the customer and then claim a refund from the Board, but the Legislature enacted special legislation so that for a period of approximately a year, retailers could avoid the refund process with the Board and simply claim a tax credit for the amount it had refunded to customers. Once that special provision expired, again the retailer was "the only one who can obtain a refund from the Board; yet, since the retailer cannot retain the refund himself, but must pay it over to his customer, the retailer has no particular incentive to request the refund on his own." (Javor, supra, 12 Cal.3d at p. 801.)
We explained the remedy we adopted as follows: "[P]urchasers can most effectively enforce their refund right by compelling retailers to claim their own refunds from the Board. The Board has admitted that it must pay these refunds to retailers. All that plaintiffs seek in this action is to compel defendant retailers to make refund applications to the Board and in turn to require the Board to respond to these applications by paying into court all sums, if any, due defendant retailers. [¶] We think that to require this minimal
Our holding in Javor was limited to what we saw as "unique circumstances": "We hold that under the unique circumstances of this case a customer, who has erroneously paid an excessive sales tax reimbursement to his retailer who has in turn paid this money to the Board, may join the Board as a party to his suit for recovery against the retailer in order to require the Board in response to the refund application from the retailers to pay the refund owed the retailers into court or provide proof to the court that the retailer had already claimed and received a refund from the Board. We think that allowing the Board to be joined as a party for these purposes in the customer's action against the retailer is an appropriate remedy entirely consonant with the statutory procedures providing for a customer's recovery of erroneously overpaid sales tax." (Javor, supra, 12 Cal.3d at p. 802, fn. omitted.)
In 1978, four years after we decided Javor, supra, 12 Cal.3d 790, former section 6054.5 was repealed. (Stats. 1978, ch. 1211, § 8, p. 3922.) The repeal occurred as part of a revision of the tax code that was intended to clarify that the incidence of the state sales tax is on retailers, not consumers. In the earlier tax system, some ambiguity had arisen about who was the real taxpayer for sales tax purposes. Even though we had affirmed that the tax fell upon the retailer, we acknowledged that some elements of the law could be interpreted to suggest otherwise. (National Ice etc. Co. v. Pacific F. Ex. Co. (1938) 11 Cal.2d 283, 286 [79 P.2d 380].) When a federal decision found that the California sales tax fell on a bank as a purchaser (see Diamond National v. State Equalization Bd. (1976) 425 U.S. 268 [47 L.Ed.2d 780, 96 S.Ct. 1530]), the revision was considered necessary. (Stats. 1978, ch. 1211, § 19, p. 3925; 9 Witkin, Summary of Cal. Law, supra, Taxation, § 344, p. 498.) The 1978 enactment clarified that the tax fell on the retailer "by removing from the code those provisions of law which have characteristics of laws which impose the tax upon the consumer." (Assem. Com. on Revenue & Taxation, Analysis of Sen. Bill No. 472 (1977-1978 Reg. Sess.) as amended June 15, 1977, p. 3, italics added; see 9 Witkin, supra, § 344, pp. 497-498; Review of Selected 1978 California Legislation (1979) 10 Pacific L.J. 247, 585.) It repealed the former tax code provisions that had been seen as essentially requiring the retailer to collect reimbursement from customers and that plainly made it unlawful for the retailer to advertise that he or she would absorb the tax. (See
In their place, the Legislature added Civil Code section 1656.1, described above, permitting but not requiring the addition of reimbursement charges, designating the charges as a matter for a contractual agreement between seller and buyer, and permitting the retailer to absorb the tax. (Stats. 1978, ch. 1211, § 1, pp. 3915-3917; see Assem. Com. on Rev. & Tax., Analysis of Sen. Bill No. 472 (1977-1978 Reg. Sess.), supra, as amended June 15, 1977, pp. 1-3; Review of Selected 1978 California Legislation, supra, 10 Pacific L.J. at pp. 585-588.)
As described by the Board in an administrative memo issued shortly after the repeal of former section 6054.5, with the repeal the law returned to its state prior to the enactment of former section 6054.5. The Board explained that with the repeal, it would "have no statutory duty to police the retail trade to ensure that only the correct amount of tax reimbursement is collected from the customers on retail sales. The repeal of section 6054.5 removes the authority for the Board to req[u]ire the retailer to either refund the excess reimbursement to the customer or pay it to the Board. [¶] However, in situations where the retailer has paid excess reimbursement to the Board and then seeks a refund, the legal staff believes the Board would be justified in refusing to refund the excess tax unless the retailer agrees to refund the tax to his customers. This is the Decorative Carpets ... fact situation, which was decided on the law as it read prior to the addition of Section 6054.5." (State Bd. of Equalization, operations memo No. 611 (Oct. 23, 1978) p. 4 [on passage of Sen. Bill No. 472 (1977-1978 Reg. Sess.)].) The Board's reliance on Decorative Carpets, supra, 58 Cal.2d 252, seems well founded, given our recognition in that case that even without former section 6054.5, consumers had some undefined equitable interest in refund of excess reimbursement and that, consistently with tax code provisions, the Board could condition taxpayer refunds on return of excess reimbursement payments to consumers. (See Decorative Carpets, supra, at pp. 254-255.)
Four years later, in 1982, section 6901.5 was added to the tax code (Stats. 1982, ch. 708, § 2, p. 2867) and a minor revision in 1987 brought it to its current form (Stats. 1987, ch. 38, § 4, p. 101). The provision repeats the first
The legislative history of the enactment is obscure. Section 6901.5 was appended to a bill on a different topic — the bill initially provided a sales tax exemption for sale of donated clothing. (See Assem. Bill No. 2619 (1981-1982 Reg. Sess.) as amended Feb. 11, 1982.) The Board opposed this exemption. (See Sen. Democratic Caucus, 3d reading analysis of Assem. Bill No. 2619 (1981-1982 Reg. Sess.) as amended Aug. 17, 1982, p. 2; see also Board, letter to Gov. Edmund G. Brown regarding Assem. Bill No. 2619 (1981-1982 Reg. Sess.) Sept. 7, 1982, pp. 3-4.) When the bill progressed to the Senate, section 6901.5 was added. (See Assem. Bill No. 2619 (1981-1982 Reg. Sess.) as amended Aug. 17, 1982.) The Senate amendment was described as "altering the manner in which sales tax amounts are remitted to the state." (Assem. Off. of Research, Conc. in Sen. Amends. to Assem. Bill No. 2619 (1981-1982 Reg. Sess.) as amended Aug. 17, 1982, p. 1; see Dept. of Finance, Enrolled Bill Rep. on Assem. Bill No. 2619 (1981-1982 Reg. Sess.) as amended Aug. 17, 1982, p. 2 [the bill "makes procedural changes in the manner in which the sales and use tax is remitted by providing that the retailer return to the customer any sales or use tax mistakenly collected. If the retailer fails to issue a refund to the customer, the [amount] must be remitted
In its operations memo concerning the new provision, the Board expressed its view concerning the safe harbor afforded by the statute, asserting that by enacting section 6901.5, the Legislature intended "to allow a taxpayer to satisfy his or her tax liability on a transaction by paying to the State an equivalent amount of tax reimbursement collected from a customer on the same transaction." (State Bd. of Equalization, operations memo No. 754 (Jan. 12, 1983) p. 1 (Board Operations Memo No. 754) [on passage of Assem. Bill No. 2619 (1981-1982 Reg. Sess.)].) In other words, "[t]ax reimbursement collected from a customer on a transaction is excessive only to the extent that it exceeds the taxpayer's own tax liability on the same transaction." (Id. at p. 2.)
In the same operations memo, the Board emphasized that "[i]f tax reimbursement in excess of the tax liability on a transaction is collected and paid to the State, the taxpayer has no further tax liability...." (Bd. Operations Memo No. 754, supra, p. 1.) As for procedure, if the taxpayer pays the amount collected and seeks a refund, "any refund will be limited to the amount paid to the State in excess of the tax liability." (Ibid.) If the taxpayer does not remit the amount, the Board explained that "[i]f an audit discloses that tax reimbursement was collected in excess of the tax liability on the transaction, and that no tax has been paid to the State on the transaction, the tax liability will be assessed and the tax reimbursement in excess of that amount must be returned to the customer or paid to the State." (Ibid., italics added.) The Board added that reimbursement amounts that exceed the taxpayer's liability "must be returned to the customer. If the taxpayer fails or refuses to return such excess tax reimbursement to the customer, it must be paid to the State whether it was mistakenly computed or knowingly computed." (Id. at p. 2.)
The Board's Business Taxes Law Guide repeats the Board's view that, under section 6901.5, once the retailer has remitted the tax in the amount of the excess tax reimbursement to the state, the retailer's obligations are at an end. This guide also demonstrates that the Board contemplates that it is the retailer/taxpayer, not the consumer, who has standing to request any refund of amounts that have been remitted to the Board. (2 State Bd. of Equalization, Business Taxes Law Guide, supra, Annot. No. 460.0028, at pp. 4762-4763; see Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7-8 [78 Cal.Rptr.2d 1, 960 P.2d 1031] (Yamaha) [a court analyzing a statute may take the Board's annotations into account, but they are not binding as quasi-legislative rules].)
Specifically, the annotation states that when it has been "determined" that a retailer collected excess reimbursement, retailers "must either refund the money to the customer(s) or remit it to the State.... [¶] In circumstances where the retailer has filed its returns for the applicable tax quarter and remitted the monies to the State, it has complied with its duties under the Sales and Use Tax Law as to sales tax reimbursement. Once the retailer has remitted the tax reimbursement to the Board, the sole legal avenue available for determining the proper application of tax is for the retailer to submit a claim for refund under section 6901 ... [the general statute governing refunds].... The Board may only grant a tax refund to the person who paid the tax. If the Board were to deny the claim for refund, the retailer could pursue an action in court for refund of sales tax under section 6933. There is no provision in the law for an action on the part of a nontaxpayer to dispute the application of tax." (2 State Bd. of Equalization, Business Taxes Law Guide, supra, Annot. No. 460.0028, pp. 4762-4763, italics added.)
The provision also means that the regulation does not bar other, more informal efforts on the part of consumers. In its amicus curiae brief in this court, the Board asserts that although no formal administrative procedure is available by which consumers may require the Board to "ascertain[]" whether excess reimbursement has been charged, consumers may complain informally to the Board if they believe they have been charged excess tax reimbursement. The Board's amicus curiae brief notes that the agency's customer service representatives filed a large volume of calls and e-mails from the public. (See Bd. of Equalization, 2009-2010 Annual Report, p. 24 <http://www.boe.ca.gov/annual/pdf/2010/4-needs10.pdf> [as of May 1, 2014].) The brief also asserts that tips from informants may lead the Board to conduct an audit (see Bd. of Equalization, Dept. of Sales and Use Tax, Audit Manual, § 0122.02 <http://www.boe.ca.gov/sutax/manuals/am-01.pdf> [as of May 1, 2014]) and that informal complaints could lead to a deficiency determination against the taxpayer. The Board also comments that consumers as "interested person[s]" may petition the Board to adopt, amend, or repeal a regulation (Gov. Code, § 11340.6), and that they may file a declaratory relief action that does not seek an adjudication of tax liability but merely challenges a regulation as inconsistent with statute or constitution (id., § 11350). Nothing in the regulation would interfere with any of these remedies.
The above review of the sales tax scheme depicts a system that comprehensively regulates taxation on myriad types of transactions, and confirms that the Board is the entity responsible for determining in the first instance whether transactions, in their nearly infinite variety, are taxable and how much tax is due. This review has also demonstrated that it is the Board that "ascertains" whether a retailer has charged excess reimbursement on a sale and that a retailer may either refund excesses to consumers or remit them to the Board. It is the Board that is the entity charged with assuring the "integrity of the sales tax" following statutory procedures assuring the "orderly administration of the tax laws." (Decorative Carpets, supra, 58 Cal.2d at p. 255; see Javor, supra, 12 Cal.3d at pp. 798, 800.)
Plaintiffs, joined by the Attorney General as amicus curiae, urge that the UCL affords consumers a broad form of action, that the remedies provided by the UCL are cumulative to other remedies "[u]nless otherwise expressly provided" by law (Bus. & Prof. Code, § 17205), and that UCL actions are recognized for conduct that violates a statute that itself provides for no private right of action. (See Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 562 [71 Cal.Rptr.2d 731, 950 P.2d 1086] (Stop Youth Addiction).) They contend that the tax code does not specifically bar actions other than those recognized in that code. (See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, 183 [83 Cal.Rptr.2d 548, 973 P.2d 527] (Cel-Tech) ["To forestall an action under the unfair competition law, another provision must actually `bar' the action...."]; see also State of California v. Altus Finance (2005) 36 Cal.4th 1284, 1303 & fn. 6 [32 Cal.Rptr.3d 498, 116 P.3d 1175] (Altus Finance) ["the fact that there are alternative remedies under a specific statute does not preclude a UCL remedy, unless the statute itself provides that the remedy is to be exclusive"; leaving open whether an implied repeal of UCL remedies occurs when the UCL and another statutory remedy are clearly repugnant and so inconsistent that both cannot apply]; Stop Youth Addiction, supra, at p. 573.)
Plaintiffs also contend that because the tax code affords them no formal procedure by which to seek a refund of a reimbursement charge on a nontaxable sale, it is reasonable to conclude that their remedy lies elsewhere — with the UCL and CLRA. The Attorney General joins plaintiffs in urging the broad protections of the UCL and CLRA should be available to consumers who are charged for sales tax reimbursement on a nontaxable sale, emphasizing the absence of other measures requiring the Board or retailers to protect consumers, and claiming that the tax code and remedies under the consumer laws are not in direct conflict.
The UCL was intended "`to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur'" and to "`enable judicial tribunals to deal with the innumerable "`new schemes which the fertility of man's invention would contrive.'" [Citation].'" (Cel-Tech, supra, 20 Cal.4th at p. 181.)
Moreover, in some instances, an action may not lie under the UCL because another statutory scheme provides the exclusive means for resolving disputes. For example, a claim cannot be brought under the UCL if it falls within the scope of the exclusive remedy provision of the workers' compensation law and the "risks encompassed by the compensation bargain" — even if the claim is "`collateral to or derivative of' an injury compensable by the exclusive remedies of the [workers' compensation system]." (Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 811-812 [102 Cal.Rptr.2d 562, 14 P.3d 234] (Vacanti).) We explained in Vacanti that "[w]here the acts are `a "normal" part of the employment relationship' [citation], or worker's compensation claims process [citation], or where the motive behind these acts does not violate a `fundamental policy of this state' [citation], then the cause of action is barred." (Id., at p. 812; see id. at pp. 812-813 [the holding encompassed plaintiffs who were medical providers, not employees, but whose claim that insurers mishandled lien claims was "`collateral to or derivative of'" an injury falling within the workers compensation scheme]; see also Altus Finance, supra, 36 Cal.4th at p. 1291 [the Attorney General
We may draw an analogy between the present case and the workers' compensation scheme discussed in Vacanti. Whether alleged under the UCL or the CLRA, plaintiffs' claim is that defendant injured them by representing that it was charging — and actually charging — reimbursement amounts on what plaintiffs assert are nontaxable sales. The claim depends upon the correctness of the allegation that, as a matter of law, and notwithstanding the presumption that sales are taxable unless the taxpayer demonstrated otherwise, defendant did not owe the state the tax because the defendant's sales of hot coffee to go at its various premises were exempt from the sales tax. Before any court could enjoin Target from collecting reimbursement charges on such nontaxable sales in the future, or order defendant to refund such improperly charged reimbursement amounts to plaintiffs, the court hearing plaintiffs' claims would have to decide whether the sales were taxable or exempt. But the tax code contemplates that the method by which the taxability of a sale may be challenged and determined is through an audit or deficiency determination made by the Board, or through a taxpayer's refund claim before the Board, followed by judicial review of the Board's decision.
The taxability question lies at the center of the Board's function and authority. We have seen that the sales tax law is exceedingly comprehensive and complex; its application to specific types of transactions is debatable in innumerable circumstances. The Legislature has subjected such questions to an administrative exhaustion requirement precisely to obtain the benefit of the Board's expertise, permit it to correct mistakes, and save judicial resources. (See Preston, supra, 25 Cal.4th at p. 206; see also Yamaha, supra, 19 Cal.4th at p. 7; Plaza Hollister Ltd. Partnership v. County of San Benito (1999) 72 Cal.App.4th 1, 23 [84 Cal.Rptr.2d 715].) Permitting plaintiffs to maintain their UCL and CLRA actions against Target based on a dispute over the taxability of a sale would require resolution of the taxability question in a manner inconsistent with this system, forfeiting these benefits.
As for the applicable procedures by which tax matters are resolved, it would be anomalous if persons not subject to the tax were in a better position than taxpayers to secure judicial review of the question whether a certain
The tax code does not permit consumers to require the Board to ascertain whether excess reimbursement charges have been made. Rather, with respect to excess reimbursement charges, section 6901.5 contemplates that it is for the Board to ascertain under its normal procedures whether any mistake has been made. If the matter is not raised through an audit or a deficiency determination, it is for the taxpayer to claim a refund from the Board, which may in turn require the taxpayer to refund excess reimbursement to consumers. Again, section 6901.5 confirms that binding decisions on such disputes are committed to the Board in the first instance, with the taxpayer as the party with standing to make a claim for a refund. As we have seen, under the Board's annotations, the consumer lacks standing in disputes over the application of the tax law to particular transactions. (2 State Bd. of Equalization, Business Taxes Law Guide, supra, Annot. No. 460.0028, pp. 4762-4763 ["In circumstances where the retailer has filed its returns for the applicable tax quarter and remitted the monies to the State, it has complied with its duties under the Sales and Use Tax Law as to sales tax reimbursement. Once the retailer has remitted the tax reimbursement to the Board, the sole legal avenue available for determining the proper application of tax is for the retailer to submit a claim for refund under section 6901 ... et seq. The Board may only grant a tax refund to the person who paid the tax. If the Board were to deny the claim for refund, the retailer could pursue an
Plaintiffs' claim also depends on a view of the retailer's duties to consumers that may be inconsistent with the approach taken in the tax code. When the question whether a transaction is taxable or exempt arises between the retailer and the taxing entity under procedures established by the tax code, it is presumed that the transaction is taxable unless the taxpayer establishes to the contrary. (§ 6091; Lyon Metal Products, Inc. v. State Bd. of Equalization (1997) 58 Cal.App.4th 906, 912 [68 Cal.Rptr.2d 285].) The retailer, as taxpayer, bears the burden of maintaining records and demonstrating that the transaction is exempt from the sales tax. (Southern California Edison, supra, 7 Cal.3d at p. 663; Modern Paint & Body Supply, Inc. v. State Bd. of Equalization (2001) 87 Cal.App.4th 703, 707-708 [104 Cal.Rptr.2d 784]; Paine, supra, 137 Cal.App.3d at p. 443; see Schwartz, supra, 31 Cal.2d at p. 64.) Given the taxpayer's burden of proof, the fact that retail sales are presumed to be subject to the sales tax, and the fact that a retailer is not required to seek a refund but rather will be deemed to have waived the right to refund if a timely claim is not filed (§ 6905), it would not be unreasonable if the retailer's tax payment to some extent erred on the side of considering sales taxable. Indeed, the taxpayer may recognize that it has failed to retain records adequate to carry its burden of establishing it is entitled to an exemption or has overpaid.
The Board also suggests that in its view, taxpayers are not required to take advantage of sales tax exemptions, and owe no duty to consumers in that respect. The Board argues that the injunction plaintiffs seek would require a holding that defendant was not entitled to waive the benefit of the alleged exemption — despite section 6933, which provides that a taxpayer's failure to bring a claim within the statutory period constitutes a waiver "of any demand against the state on account of alleged overpayments." (§ 6933.)
Other conflicts between the tax code and the consumer remedies claimed by plaintiffs are readily identified. Under the tax code, if the taxability question proceeds from administrative proceedings to court, the Board will be the opposing party in any ensuing legal challenge. (See § 6933; see also § 6711.) The Board will be present to fully and vigorously litigate its position, leading to a judgment that defines the law for all and is binding on the Board for the future. Plaintiffs, by contrast, seek a proceeding that would produce a binding interpretation of tax law, but in which a party considered by the Legislature to be necessary, namely the Board, would be absent. In
Furthermore, in the context of a refund claim filed by a taxpayer, the Board would be able to determine whether the state should refund excess tax to the taxpayer (conditioned on refund to customers) in order to avoid unjust enrichment of the state. In a consumer action such as plaintiffs', by contrast, the action would be directed solely at the taxpayer and would not seek to require the Board to refund any excess amount that had been remitted to it. The Board would thereby lose the ability to ensure the integrity of its own tax collections.
It is evident how exceedingly numerous, as well as arcane, would be the disputes advancing to court for judicial resolution if consumer reimbursement claims turning on the taxability question could be brought under the UCL and CLRA. As a practical matter, if we did not view the tax code as providing the exclusive procedure under which a claim such as plaintiffs' may be resolved, independent consumer claims against retailers for restitution of reimbursement charges on nontaxable sales could form a huge volume of litigation over all the fine points of tax law as applied to millions of daily commercial transactions in this state. Such litigation would occur outside the system set up by the Legislature to develop that law, and without the benefit of the Board's expertise or its ability to conserve judicial resources by correcting error by means of administrative proceedings. Actions of this sort could displace the Board and the procedures currently established by the Legislature, thereby undermining the "orderly administration of the tax laws." (Decorative Carpets, supra, 58 Cal.2d at p. 255.)
Further impact on revenue collection would follow an injunction prohibiting retailers from collecting the reimbursement, because the injunction necessarily would be based upon a determination whether certain sales were taxable or exempt. This would affect the retailer's (and its accountant's) view of the legal question of what sales the retailer should in the future include in its estimate of its gross taxable income. So in the end, as the Court of Appeal recognized, such an injunction could indirectly reduce the flow of tax revenue in the future.
The prospect of a question of tax law being settled without any litigation between the state and the taxpayer implicates another element of the constitutional provision — that is, the obligation that courts defer to the system established by the Legislature for ascertaining tax liability and a taxpayer's entitlement to a refund. If a retailer decided to continue to pay the tax, collect the reimbursement the consumer considers excessive, and seek a refund according to normal tax code procedures, the Board in that proceeding could
In sum, the existing sales tax system is irreconcilable with these plaintiffs' UCL and CLRA claims.
Plaintiffs' claim that consumer actions such as theirs are necessary to deter misconduct by the retailer is unfounded, as is their claim that our decisions in Decorative Carpets, supra, 58 Cal.2d 252, and Javor, supra, 12 Cal.3d 790, support their argument in favor of a consumer action. First, the Legislature has provided the methods it believes necessary to deter and punish taxpayer misconduct by enacting statutes authorizing the exaction of interest and the imposition of financial, criminal, and other penalties against taxpayers who fail to remit sales tax to the state. (See § 6597 [any retailer who knowingly collects sales tax reimbursement but fails to timely remit the amount to the Board is subject to a penalty of 40 percent of the amount not timely remitted]; see also §§ 6484-6485 [general penalties], 6512 [interest on tax deficiencies], 6514 [penalty for fraud], 6591 [interest and penalty for late payments or nonpayments].)
Concerns about providing a remedy so that the retailer is not unjustly enriched thus have been mitigated since our decisions in Decorative Carpets, supra, 58 Cal.2d 252, and Javor, supra, 12 Cal.3d 790. The Legislature has taken steps that diminish the need to consider a consumer remedy that is independent of the tax code. Section 6597, subdivision (a)(1), with its 40 percent penalty, was adopted in 2006. (Stats. 2006, ch. 252, § 1, p. 2167; see Sen. Com. on Revenue and Taxation, Analysis of Sen. Bill No. 1449 (2005-2006 Reg. Sess.) Apr. 26, pp. 1, 2 [previously, no specific penalty applied to failure to remit the tax after knowing collection of sales tax reimbursement]; Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 1449 (2005-2006 Reg. Sess.) as amended Aug. 7, 2006, p. 3 [it was difficult for the Board to demonstrate the mental element required under § 6484 to impose the general 25 percent penalty for fraud or intent to evade tax; the enactment "`will enable [the Board] to impose a stiff, swift, and sure penalty on dishonest retailers who collect sales tax reimbursement from consumers, but who keep the money for themselves rather than remitting it to the state'"].)
Neither Javor, supra, 12 Cal.3d 790, nor Decorative Carpets, supra, 58 Cal.2d 252, contains language implying that current law — with its firmer identification of the retailer as the taxpayer, its safe harbor for retailers who have paid the state amounts they collected as reimbursement, and its penalty system — would require that a court approve a consumer action that would in various ways be inconsistent with the tax code. Rather, in those cases we warned that any remedy must be constrained by and not inconsistent with the tax code. We carefully identified an appropriate means to vindicate a consumer interest in a refund of a reimbursement charge without embracing procedures that were inconsistent with the tax code or disregarded the central function of the Board. In addition, the taxability question was not in dispute in those cases. The decisions certainly do not suggest that a question concerning the applicability of the tax code to a particular type of transaction should be resolved in a consumer action.
The integrity of the tax system and avoidance of unjust enrichment, possibly of the retailer, but more probably of the state, in certain circumstances may support a Javor-type remedy for consumers. Plaintiffs, however,
For the reasons discussed above, the judgment of the Court of Appeal is affirmed.
Baxter, J., Corrigan, J., and Chin, J., concurred.
Whether Target may charge sales tax on a cup of coffee is probably not the most gripping issue before the California Supreme Court this term. But this is not really a tax case. This is a case about the reach of consumer protection statutes that prohibit unfair business practices, including misrepresentations by a retailer as to what its customers are actually paying for. Today's decision weakens those statutes by blessing an arrangement that mutually benefits retailers and the state treasury at the expense of everyday consumers. Because our tax laws do not foreclose private enforcement of consumer rights in the manner the court suggests (if they do at all), I respectfully dissent.
When we go to a store like Target, we pay sales tax on many of the things we buy. Legally speaking, though, what we commonly call sales tax is actually sales tax reimbursement because the tax applies to the retailer, not the customer. (Rev. & Tax. Code, § 6051; all undesignated statutory references are to this code.) In other words, the retailer is the taxpayer responsible for paying sales tax; when a customer pays sales tax on a transaction, the customer is actually reimbursing the retailer for its sales tax liability arising from the transaction. Importantly, no law requires a retailer to recoup sales taxes from its customers, and no law requires customers to reimburse a retailer for sales taxes. "Whether a retailer may add sales tax reimbursement to the sales price of the tangible personal property sold at retail to a purchaser depends solely upon the terms of the agreement of sale." (Civ. Code, § 1656.1, subd. (a).) As with any sales agreement, the terms must not misrepresent what the purchaser is paying for.
According to plaintiffs' allegations, which we accept as true on demurrer, Target charges its customers sales tax reimbursement on all sales of hot coffee to go even though not all such sales are subject to sales tax. As the complaint says, Target "falsely and illegally represented to members of the general public that it had the legal right to charge the sales taxes," thereby causing customers to pay an additional charge on hot coffee to go based on a misrepresentation. This misrepresentation, plaintiffs contend, violates the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) and the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.).
One might wonder why Target would adopt such an arrangement — that is, charging its customers sales tax reimbursement on hot coffee to go and then remitting all the proceeds to the Board. At first glance, it does not appear that Target has unjustly enriched itself, as plaintiffs contend.
But here it is important to note that the law governing whether a sale of hot coffee is subject to sales tax is remarkably complex. Section 6359 generally exempts from sales taxes "the sale of ... food products for human consumption." (§ 6359, subd. (a).) The term "food products" is defined to include "coffee." (§ 6359, subd. (b)(1).) But the statute provides that this exemption does not apply "[w]hen the food products are served as meals on or off the premises of the retailer" (§ 6359, subd. (d)(1)) or "are furnished, prepared, or served for consumption at tables, chairs, or counters..." (§ 6359, subd. (d)(2)). Further, the sales tax exemption does not apply "[w]hen the food products are ordinarily sold for immediate consumption on or near a location at which parking facilities are provided primarily for the use of patrons in consuming the products purchased at the location, even though those products are sold on a `take out' or `to go' order and are actually packaged or wrapped and taken from the premises of the retailer." (§ 6359, subd. (d)(3).) The exemption also does not apply "[w]hen the food products sold are furnished in a form suitable for consumption on the seller's premises, and both of the following apply: [¶] (A) Over 80 percent of the seller's gross receipts are from the sale of food products. [¶] (B) Over 80 percent of the seller's retail sales of food products are sales subject to tax ...." (§ 6359, subd. (d)(6).) And the exemption does not apply "[w]hen the food products are sold as hot prepared food products," although sales of "beverages (other than bouillon, consommé, or soup)" are exempt. (§ 6359, subds. (d)(7), (e).) Finally, California Code of Regulations, title 18, section 1603, subdivision (c)(1)(B) provides that the sale of hot coffee "on a `take-out' or `to go' order" by a seller that does not satisfy the "80-80" criteria described in subdivision (d)(6) of section 6359 is not subject to sales tax.
Thus, some sales of hot coffee are likely subject to sales tax while other sales are not. The key point is that sorting all this out would be quite onerous for Target. As the Board explains in its amicus curiae brief, "the overhead
Rather than keep track of what its customers do with each cup of hot coffee to go, it is far simpler and less costly for Target to collect sales tax reimbursement on every sale and remit those amounts to the Board. In so doing, Target gains the advantage of advertising its coffee at a lower price before adding to each sale a charge for what it represents as sales tax.
Of course, Target is not required to take advantage of any sales tax exemption (see §§ 6905, 6933 [taxpayer's failure to bring timely claim to recover overpayment "constitutes a waiver"]), and Target may understandably believe that the burden of maintaining relevant records and proving the exemption's applicability to particular transactions is not worth the benefit (see maj. opn., ante, at pp. 1107, 1129). Moreover, it is possible that consumers end up paying less for hot coffee to go than if Target were to track each cup of coffee and pass the administrative costs on to its customers.
But none of this speaks to whether a retailer may represent to its customers that it is collecting sales tax on a transaction when the transaction is not actually subject to sales tax. That is the unlawful business practice alleged here. For both Target and its customers, it may be more efficient for Target not to incur the cost of tracking each cup of coffee. But as the court acknowledges (maj. opn., ante, at p. 1120, fn. 11), this efficiency need not come at expense of misleading consumers as to what they are paying for. Target could have avoided this lawsuit simply by advertising hot coffee to go at a higher (posttax) price with a sign that says "all prices include applicable sales tax." Such an approach would not misinform customers; it would tell them that the price they are paying includes any applicable sales tax, with no representation as to whether sales tax was applicable to a particular transaction. Indeed, the Board has informally advised Target to use this approach to avoid future problems. But it is evident that this approach would eliminate the competitive advantage that Target enjoys from its current practice of advertising its coffee at a lower (pretax) price and then adding sales tax to each sale, whether or not each sale is actually subject to sales tax.
The court today holds that a customer has no judicial recourse to challenge this arrangement because only the retailer, who is the taxpayer, can seek an official determination of whether sales tax is actually owed. According to the court, the customer's only recourse is to politely ask the Board to consider the issue, even though no law requires the Board to resolve the issue upon a consumer's request. The upshot is that Target, which has every reason to avoid administrative costs and keep its advertised prices low, will have no incentive to seek an official determination so long as it remits all of the sales tax reimbursement it collects to the Board. And the Board has little incentive to question whether the amount of tax revenue it receives from Target is too much. The customer is the only one harmed. The customer is the only one with a reason to compel an official determination of whether Target has misled the public by purporting to collect reimbursement for sales taxes that it does not actually owe.
Today's opinion does not really dispute that telling customers they are being charged for sales tax when no sales tax applies is an unlawful business practice within the meaning of the UCL and CLRA. Instead, the court holds that no consumer may invoke the UCL or CLRA to seek an adjudication of the issue because the tax laws do not allow it. The court's expansive discussion of the tax laws boils down to two claims, one specific and one general: First, section 6901.5 provides a safe harbor for retailers who collect excess sales tax reimbursement and remit the excess amount to the Board. Upon reaching this safe harbor, "the retailer's obligations are at an end." (Maj. opn., ante, at p. 1120.) Second, "the tax code contemplates that the method by which the taxability of a sale may be challenged and determined is through an audit or deficiency determination made by the Board, or through a taxpayer's refund claim before the Board, followed by judicial review of the Board's decision." (Id. at p. 1127.) Any other process, the court says, would undermine the orderly administration of the tax laws. (Id. at p. 1130.) Neither claim is persuasive.
The court acknowledges, as it must, that the UCL and CLRA provide "broad" protection for consumers against unfair business practices. (Maj. opn., ante, at p. 1125; see Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 181 [83 Cal.Rptr.2d 548, 973 P.2d 527] (Cel-Tech) [UCL's "`broad, sweeping language'" was intended "`to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur'" and "`precisely to enable judicial tribunals to deal with the innumerable "`new schemes which the
Our case law holds that "[w]hen specific legislation provides a `safe harbor,' plaintiffs may not use the general unfair competition law to assault that harbor." (Cel-Tech, supra, 20 Cal.4th at p. 182.) But we have made clear that "[t]o forestall an action under the unfair competition law, another provision must actually `bar' the action or clearly permit the conduct." (Id. at p. 183.) The court does not contend that any provision actually bars plaintiffs' lawsuit. Instead, it contends that section 6901.5 clearly permits the allegedly unlawful conduct.
The plain text of the statute refutes the court's thesis. Section 6901.5 says, in pertinent part: "When an amount represented by a person to a customer as constituting reimbursement for taxes due under this part is computed upon an amount that is not taxable or is in excess of the taxable amount and is actually paid by the customer to the person, the amount so paid shall be returned by the person to the customer upon notification by the Board of Equalization or by the customer that such excess has been ascertained. In the event of his or her failure or refusal to do so, the amount so paid, if knowingly or mistakenly computed by the person upon an amount that is not taxable or is in excess of the taxable amount, shall be remitted by that person to this state."
In the sales tax scheme, this language establishes that "`[i]f tax reimbursement in excess of the tax liability on a transaction is collected and paid to the State, the taxpayer has no further tax liability....'" (Maj. opn., ante, at p. 1119.) But the fact that the retailer has no further tax liability does not mean it is immunized from liability under the consumer protection statutes. Remitting excess sales tax reimbursement to the state simply forestalls any tax dispute between the retailer and the Board. It does not forestall a dispute between the retailer and its customers over unlawful business practices. Plaintiffs in this case are not suing for a tax refund; they are suing to prevent and remedy misrepresentations that induce customers to reimburse Target for sales tax on transactions for which no sales tax is actually owed. The fact that Target may have reached a safe harbor with respect to any audit or enforcement action by the Board does not give Target permission to tell its customers
The court's more general argument is that allowing plaintiffs' suit to go forward will undermine the orderly administration of the tax laws. The court relies on the familiar precepts, codified in article XIII, section 32 of the California Constitution and related statutory provisions, that only a taxpayer can seek recovery of an overpayment, that a taxpayer must first pay the tax before disputing it, and that a taxpayer seeking a refund must first exhaust administrative remedies before going to court. But plaintiffs' lawsuit does not run afoul of these precepts because it is not a tax refund action. Nor is it an action to compel Target to seek a refund or claim a tax exemption, or to compel the Board to provide a refund, or to prevent or enjoin the Board from collecting any tax. This is an ordinary consumer action that seeks to remedy a retailer's practice of misinforming consumers as to the taxability of particular sales.
Because the court cannot point to any law that actually bars this lawsuit or clearly permits the alleged misconduct, it must ultimately resort to considerations of policy. Thus, the court says that allowing this suit to go forward will lead to adjudication of tax questions "without the benefit of the Board's expertise or its ability to conserve judicial resources by correcting error by means of administrative proceedings" (maj. opn., ante, at p. 1130), "could produce inconsistent judgments" between courts or between a court and the Board (id. at p. 1130), and "could threaten revenue collection and the ability of government to plan for expenditures" (id. at p. 1131). These concerns flow from the premise that the Board "would be absent" from any consumer litigation and thus will not have had any chance to reach its own determination on the taxability question before a court issues a judgment. (Id. at p. 1129.)
But there is a simple solution for this: In any civil action, a court "shall" join as a party a person who "claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest." (Code Civ. Proc., § 389, subd. (a).) Today's opinion
There is no reason to think that the Board would be reluctant to participate as a party or that a court would be reluctant to join the Board. In this case, the Board has filed a lengthy amicus curiae brief defending its prerogative to decide the taxability question at issue. If plaintiffs' suit were to go forward, presumably the Board would not hesitate to be joined as a party. Joining the Board would not run afoul of the state Constitution because plaintiffs do not seek "to prevent or enjoin the collection of any tax." (Cal. Const., art. XIII, § 32.) In the course of the proceeding, the Board would provide its determination of when hot coffee to go is subject to sales tax, and the court would have the benefit of the Board's expertise before rendering a judgment.
Suppose the court decides that Target has overpaid its taxes. Target would then be required to return any overcharges to its customers and to avoid future misrepresentations. Going forward, Target may choose to distinguish taxable from nontaxable sales of hot coffee, and it may seek a refund of any excess sales taxes it remitted to the Board. But Target need not do so if it believes the administrative costs outweigh the benefits. As noted, Target can elect to keep paying sales tax on all sales of hot coffee to go while passing the cost on to consumers by charging higher prices with a sign that says "all prices include applicable sales tax." The decision whether to utilize an exemption or seek a refund is entirely up to Target. Further, plaintiffs have not sought any remedy from the Board, and the burden is on Target, not the Board, to initiate the refund process. (§ 6091.) I do not see how such a procedure would undermine the orderly administration of the tax laws any more than judicial review of a Board decision on the same question in an audit, deficiency determination, or refund action.
The court distinguishes Javor v. State Board of Equalization (1974) 12 Cal.3d 790 [117 Cal.Rptr. 305, 527 P.2d 1153] (Javor) on the ground that compulsory joinder of the Board in that case served to allow the "retailers to make refund applications to the Board" and to enable "the Board to respond to these applications by paying into court all sums, if any, due defendant retailers." (Id. at p. 802; see maj. opn., ante, at pp. 1101, 1133.) But nothing in Javor indicates that this remedial approach is exclusive of all others. Today's opinion, unlike Javor, leaves consumers who have been charged sales tax reimbursement on nontaxable sales with no judicial recourse at all, even as it makes no attempt to explain why joinder of the Board would not adequately protect the interests of the Board, retailers, and the public in the orderly administration of the tax laws.
This case is really quite straightforward. Plaintiffs allege an unlawful business practice that lies squarely within the broad language and policy objectives of the UCL and CLRA. No statute bars this action, and no law clearly permits the allegedly unlawful conduct. Plaintiffs' suit implicates a taxability question. But judicial resolution of the question, with the Board joined as a party, presents no greater threat to the orderly administration of the tax laws than judicial review of a Board determination addressing the same question. The lengthy disquisition on our tax laws in today's opinion suggests a category error: The court has mistaken an ordinary consumer action that involves a tax question for a tax refund suit that precludes an ordinary consumer action.
The court's ruling, though erroneous, need not be read to broadly establish that a consumer action may never go forward if it involves a tax issue. This case implicates a rather arcane and complicated question of taxability. Future cases may implicate tax questions that are distinguishable from the one at issue here. In light of California's strong legislative policy against deceptive business practices, courts should hesitate to expand the hole that today's decision carves out of our consumer protection statutes.
Because of today's ruling, we may never know when hot coffee to go is actually subject to sales tax because neither a retailer nor the Board has any incentive to resolve the issue. That in itself is no great travesty. But why should a retailer be allowed to misrepresent to consumers that all sales of a particular item are subject to sales tax when in fact they are not? A consumer who seeks her day in court to contest this misrepresentation is simply out of luck, while the retailer and the Board stay mum and mutually benefit.
I respectfully dissent.
Werdegar, J., and Moore, J.,
An example illustrates the statutory refinements to the term "sale" that face the taxpayer and the Board. Leases of tangible personal property for a consideration are included as sales, with some readily understood exceptions, such as leases of motion pictures or household furnishings leased along with living quarters (§ 6006, subd. (g)(1), (3)), and a host of other exceptions for a number of closely defined circumstances. These include "[t]angible personal property leased in substantially the same form as acquired by the lessor or leased in substantially the same form as acquired by a transferor, as to which the lessor or transferor has paid sales tax reimbursement or has paid use tax measured by the purchase price of the property," with the term "transferor" including "[a] person from whom the lessor acquired the property in a transaction described [by another statute as an occasional sale]," or "[a] decedent from whom the lessor acquired the property by will or the laws of succession." (§ 6006, subd. (g)(5); see Preston v. State Bd. of Equalization (2001) 25 Cal.4th 197 [105 Cal.Rptr.2d 407, 19 P.3d 1148] (Preston) [considering whether a certain agreement to provide artwork constituted a taxable sale or lease of tangible personal property or an exempt transfer of an intangible copyright interest].)
Again, to illustrate the complexity facing the taxpayer and the Board, the crucial term "gross receipts" is subject to detailed refinement, and the limitation on deductions or exclusions from gross receipts is subject to a number of exceptions, from readily understood circumstances such as cash discounts given on sales, or the amount refunded to customers for items returned by the customer (see § 6012, subd. (c)(1), (2)), to a number of other circumstances subject to detailed conditions defined in terms of the "reasonableness" of the charge. (See § 6012, subd. (c)(10)(A); see also id., subd. (c)(7).) The term "sales price" contains parallel complications. (See § 6011.)
