Supreme Court of California Justia
Citation Loeffler v. Target Corp., 58 Cal.4th 1081, 324 P.3d 50, 171 Cal. Rptr.3d 189, 14 Cal. Daily Op. Serv. 4736

Loeffler v. Target Corporation

Filed 5/1/14




IN THE SUPREME COURT OF CALIFORNIA



KIMBERLY LOEFFLER et al.,

Plaintiffs and Appellants,

S173972

v.

Ct.App. 2/3 B199287

TARGET CORPORATION,

Los Angeles County

Defendant and Respondent.

Super. Ct. No. BC360004



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

1


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.1

I. FACTS AND PROCEEDINGS BELOW

A. Proceedings and arguments in the trial court

Plaintiffs’ first amended complaint alleged that defendant Target

Corporation (Target)2 had committed an unfair business practice as defined by the

unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) and an

unlawful practice in violation of the Consumer Legal Remedies Act (CLRA) (Civ.

Code, § 1750 et seq.). The complaint also alleged a cause of action for violation

of section 6359, a provision exempting many food sales from sales tax. Plaintiffs

sought class certification.3


1

Unless otherwise noted, statutory references are to the Revenue and

Taxation Code (hereafter sometimes referred to as the tax code or the tax law).

2

Like the Court of Appeal, we refer to defendant in the singular although the

first and second amended complaints named 100 “Doe” defendants as parties. We
note that in stating the allegations, plaintiffs’ complaint is inconsistent in its usage.

3

The first amended complaint also alleged claims for money had and

received, conversion, and negligent misrepresentation. At the hearing on
defendant’s demurrer to the first amended complaint, plaintiffs agreed that the
court should sustain the demurrer without leave to amend as to these three counts,
and the court did so. Plaintiffs nonetheless appealed from the trial court order
sustaining the demurrer to the first amended complaint as to these three causes of
action. In their opening brief in the Court of Appeal, plaintiffs stated that they
were “not appealing” the trial court’s ruling with respect to the conversion and
negligent misrepresentation causes of action. The Court of Appeal concluded the
trial court correctly sustained the demurrer to the money had and received claim.
Plaintiffs did not specifically challenge this conclusion in their petition for review
and it is not discussed in this opinion.

2

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 . . . .”

3

Plaintiffs sought an order enjoining defendant from “improperly charging

sales tax to consumers” on hot coffee to go, and from withholding information

regarding its practices. Plaintiffs also sought “restitution of any monies

wrongfully acquired or retained” and “disgorgement of . . . ill-gotten gains

obtained by means of . . . unfair practices.”

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

4

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.

Defendant also argued that consumer remedies regarding sales taxes should

be permitted only as specifically provided by the Legislature, asserting that the

Board is responsible in the first instance for deciding whether retailers have

collected too much sales tax reimbursement from consumers.

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 (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.

5

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 what we get out

of it.” The court sustained the demurrer with leave to amend as to the three causes

of action discussed above, formally granted plaintiffs’ motion for leave to add the

Board as a defendant, and sustained the demurrer without leave to amend as to the

money had and received, conversion, and negligent misrepresentation causes of

action.

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.”

6

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

7

the [Board], and inevitably when that answer is ‘no,’ we can come back and then

we are allowed to go forward with our case.”

Defendant countered that plaintiffs had chosen the wrong way to go about

their claim, and objected to the idea of staying the case, permitting plaintiffs to

seek reimbursement from the Board, then returning to court. On the contrary,

defendant argued, plaintiffs may do no more than was authorized in our Javor

decision (see Javor, supra, 12 Cal.3d 790), in which we permitted consumers to

bring an action to require retailers to seek a sales tax refund from the Board.

Defendant emphasized that plaintiffs had exhibited no interest in taking such a

course.

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.

B. Arguments on appeal, and the Court of Appeal’s decision

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.

8

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 sales tax.

Customers, the court pointed out, lack standing to file a claim with the Board for a

tax refund. The Court of Appeal rejected plaintiffs’ reliance upon section 6901.5

as a basis for a private right of action against the retailer. It declared that the

statute makes some provision for the refund of excess tax reimbursement amounts

to consumers, but the statute and related regulation do not provide a private right

of action for consumers. On the contrary, the reviewing court declared that

nothing in section 6901.5 “affirmatively indicates the intent of the Legislature to

authorize a private action by a customer against a retailer. . . . Rather, the statute

relates to a claim with the Board”— not a lawsuit — and the statute and related

regulation direct a retailer to make a refund to customers if the Board has

“ ‘ascertained’ ” that one is due.

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

9

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 (Woosley), under article XIII, section 32,

the courts cannot expand the methods for seeking tax refunds expressly provided

by the Legislature. The purpose of this constitutional provision is to ensure that

governmental entities may engage in fiscal planning so that essential public

services are not unnecessarily interrupted. [¶] . . . [¶]

“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.

10

“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.”

C. Parties’ claims

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 absence of a

private right of action for consumers under the tax code makes it imperative that

this court recognize their remedies under the UCL and CLRA. They contend, too,

11

that the Court of Appeal’s decision would undermine UCL and CLRA actions in

general and would leave consumers who are charged unauthorized or excessive

sales tax without a remedy.

Defendant contends that the Court of Appeal correctly analyzed the

constitutional and statutory provisions and properly concluded that plaintiffs’

action is barred.

II. DISCUSSION

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; 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.)

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.)

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,

12

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’.

Although in the past we have permitted consumer intervention into the

sales tax scheme in limited circumstances and only by means of a judicial

proceeding to compel the retailer/taxpayer to seek a refund from the Board (see

Javor, supra, 12 Cal.3d 790), such a remedy invokes, rather than avoids, tax code

procedures. Plaintiffs in the present case did not pursue that remedy.

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.4

A. Article XIII, section 32 of the state Constitution

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


4

We express no view on a question not presented by the complaint in this

case, namely, whether or to what extent consumers may bring a UCL or CLRA
claim against retailers for failing to remit to the Board amounts the retailer has
represented and collected as sales tax reimbursement charges. In their
supplemental briefs, plaintiffs have acknowledged that their lawsuit does not rest
on such a claim.

13

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.)

We have explained that the policy behind the provision is to ensure that the

State may continue to collect tax revenue during litigation in order to avoid

unnecessary disruption of public services that are dependent on that revenue.

(Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277

(Pacific Gas & Electric Co.).) We have observed that delay in tax collection

“ ‘may derange the operations of government, and thereby cause serious detriment

to the public.’ ” (Id. at p. 283.) To serve the same end, the constitutional

provision not only bars prepayment actions by taxpayers seeking injunctive relief

but ordinarily also bars those seeking declaratory relief or mandamus. (Id. at

pp. 280-281; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 838; State Bd.

of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638-639 [“[T]he sole

legal avenue for resolving tax disputes is a postpayment refund action. A taxpayer

may not go into court and obtain adjudication of the validity of a tax which is due

but not yet paid”; the constitutional provision prohibits “not only injunctions but

also a variety of prepayment judicial declarations or findings which would impede

the prompt collection of a tax”].) In sum, “[t]he section applies if the prepayment

judicial determination sought would impede tax collection.” (Western Oil & Gas

Assn. v. State Bd. of Equalization (1987) 44 Cal.3d 208, 213 (Western Oil & Gas

Assn.).)

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

14

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.”

Our jurisprudence directs that we avoid resolving constitutional questions if

the issue may be resolved on narrower grounds (Santa Clara County Local

Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 230), and that we

adopt an interpretation of the relevant statutes that gives full effect to their

15

language and purpose, but also “eliminates doubts as to the statute’s

constitutionality.” (Harrott v. County of Kings (2001) 25 Cal.4th 1138, 1151; see

Conservatorship of Wendland (2001) 26 Cal.4th 519, 548.)

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.

B. Overview of relevant provisions of the tax law

As noted previously and as discussed more fully hereafter, under

California’s sales tax law, the taxpayer is the retailer, not the consumer. In

addition, the taxability question, whether a particular sale is subject to or is exempt

from sales tax, is exceedingly closely regulated, complex, and highly technical. A

comprehensive administrative scheme is provided to resolve these and other tax

questions and to govern disputes between the taxpayer and the Board. Under these

administrative procedures, it is for the Board in the first instance to interpret and

administer an intensely detailed and fact-specific sales tax system governing an

enormous universe of transactions. Administrative procedures must be exhausted

before the taxpayer may resort to court. Parts II.B.1. and II.B.2. below describe

the system in more detail, supporting the view that this comprehensive statutory

scheme is inconsistent with consumer claims such as plaintiffs’ by which a party

other than the taxpayer would seek to litigate whether a sale is taxable or exempt.

As for the interests of consumers, parts II.B.3. and II.B.4. describe the

position historically accorded to them by statute and case law, and also set out the

current statutory system governing consumer reimbursements. More specifically,

retailer/taxpayers are permitted, but not required, to contract with consumers to

charge a reimbursement amount to reimburse the retailer for its own payment of

sales tax on a transaction. Alternatively, the retailer may choose simply to absorb

16

the sales tax. Retailer/taxpayers cannot retain the reimbursement amounts they

receive from consumers. When it is “ascertained” (§ 6901.5), whether through a

Board audit or deficiency determination or a refund proceeding, that a retailer

miscalculated its sales tax and charged consumers an erroneous reimbursement

amount, the retailer has a choice whether to make a refund to consumers or

instead, to remit the amount to the Board. Significantly, a retailer who remits the

amount to the Board reaches a “safe harbor.” In addition, there is no formal

administrative procedure for consumers who believe they have been charged

excess reimbursement, although they may complain to the Board, which may in

turn initiate an audit. Finally, we have recognized that in certain circumstances a

consumer may bring an action to require a taxpayer to seek a refund from the

Board, a proceeding in which the Board would ascertain whether excess

reimbursement had been charged and, assuming any excess had been remitted by

the taxpayer to the state, issue a refund to the taxpayer conditioned on its, in turn,

making a refund to the consumer.

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.

1. Who is the taxpayer and what sales are taxable?

The sales tax is imposed on retailers “[f]or the privilege of selling tangible

personal property at retail.” (§ 6051.) The retailer is the taxpayer, not the

17

consumer.5 “The tax relationship is between the retailer only and the state; and is

a direct obligation of the former.” (Livingston Rock & Gravel Co. v. De Salvo

(1955) 136 Cal.App.2d 156, 160; see also 9 Witkin, Summary of Cal. Law (10th

ed. 2005) Taxation, § 344, p. 497; 56 Cal.Jur.3d (2011) Sales and Use Taxes, § 10,

p. 22.)

The sales tax law provides the method by which retailers are required to

calculate taxable sales and remit the tax to the Board. Retailers must file returns

and pay sales tax quarterly on their gross sales for the preceding quarter.

(§§ 6451-6459.) For high volume sellers, the tax or a portion thereof must be

prepaid on a quarterly basis using a portion of prior year sales tax liability as a

measure. (§§ 6471-6479; 9 Witkin, Summary of Cal. Law, supra, Taxation,

§ 369, p. 541.)

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

closely defines taxable sales,6 governs whether particular sales or transactions are

subject to the tax, and defines what constitutes “gross receipts.”7


5

By contrast, the use tax falls on the purchaser, although the retailer may

collect the tax as an agent. (§§ 6202, 6203; Bank of America v. State Bd. of Equal.
(1962) 209 Cal.App.2d 780, 799; see also Direct Marketing Ass’n, Inc. v. Bennett
(9th Cir. 1990) 916 F.2d 1451, 1454-1455.)

6

The term “sale” means “[a]ny transfer of title or possession, exchange, or

barter, conditional or otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration.” (§ 6006, subd. (a).) The term is
defined as including many specific transactions, including “[t]he furnishing,


(footnote continued on next page)

18

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

(footnote continued from previous page)

preparing, or serving for a consideration of food, meals, or drinks.” (§ 6006,
subd. (d).)


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 (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].)

7

“Gross receipts” are defined in pertinent part as “the total amount of the

sale . . . price . . . of the retail sales of retailers, valued in money, whether received
in money or otherwise,” generally without deduction for the cost of the property,
or the cost of materials, labor, transportation, or certain federal taxes. (§ 6012,
subd. (a).)


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.)

19

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 leased (see §§ 6366.4

[artwork sold to nonprofit museums for the purpose of public display], 6368.1

[leasing of watercraft for specified purposes]), and in some instances, the law

exempts transactions from only a small portion of the sales tax. (See § 6376.1.)

In this case, plaintiffs assert that the sales tax law plainly exempts the sale

of hot coffee to go from sales tax, and that Target violated the UCL and CLRA by

collecting reimbursement on an assertedly nontaxable sale. Plaintiffs refer to

section 6359, which generally exempts the “sale of . . . use, or other consumption”

of food products. (§ 6359, subd. (a).)

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 “foods products are sold as hot prepared food products.”

(Id., subd. (d)(7).) On the other hand, the “ ‘hot prepared food products’ ”

20

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).)

Accompanying regulations descend to the finest details. (See Cal. Code

Regs., tit. 18, § 1602 et seq.) The regulation defining the taxability of food

products is of amazing complexity. (Id., § 1603.) The regulation applies the tax

to sales of hot prepared foods (a term subject to very extensive refinement and

somewhat contradictory definition (see id., § 1603, subd. (e)), with provisions for

items furnished by specified establishments “whether served on or off the

premises.” (Id., § 1603, subd. (a)(2)(A).) There are special rules for sales of

straws and toothpicks along with food (ibid.), and a definition of “hot prepared

food products” that distinguishes between items sold separately and those sold

under a single price along with cold foods (id., subd. (e)(1)), which appears to

exempt hot coffee if sold separately but not if sold with a bakery item, unless

taxable because, among other reasons, it was sold for consumption at tables,

chairs, or counters provided by the retailer. (Id., § 1603, subds. (e), (f).)

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 store or drank the

coffee at tables and chairs in the coffee sales area. In addition, since the analysis

must be made on a location-by-location basis, Target would need to conduct

investigations in each of its California locations. [Citation.] The amount of

administrative expense incurred to obtain such figures and maintain proper records

would likely be passed on to Target’s customers in the form of higher prices.”

21

Putting aside fine points concerning the application of the law, and

returning to the general provisions of the tax law, it is presumed that all “gross

receipts” are subject to the sales tax unless the contrary is established by the

retailer. (§ 6091.) This presumption exists in order to ensure “the proper

administration of [the sales tax law] and to prevent evasion of the sales tax . . . .”

(Ibid.) Taxpayers’ exemption claims must be supported by adequate records.

(Paine v. State Bd. of Equalization (1982) 137 Cal.App.3d 438, 443 (Paine).) The

burden of proof is on the taxpayer. (Southern California Edison Co. v. State Bd.

of Equalization (1972) 7 Cal.3d 652, 663 (Southern California Edison); People v.

Schwartz (1947) 31 Cal.2d 59, 64 (Schwartz).)

2. Board jurisdiction over enforcement and tax challenges

The Board administers and enforces the sales tax law (§§ 7051-7060), and

adopts related regulations. (§ 7051.) It may audit taxpayers (§ 7054) and may

require them to file reports relating to their sales. (§ 7055.) The Board, if not

satisfied with the return or amount of tax paid, may make deficiency

determinations (§ 6481), and impose penalties (§§ 6484, 6485), and may offset

overpayments for one period against underpayments for another period or against

penalties and interest. (§§ 6483, 6512.) The law provides the method by which

retailers may challenge deficiency determinations made by the Board. (§§ 6561-

6566.)

Various rules govern the Board’s ability to file tax liens, undertake court

actions, and execute judgments against taxpayers. (§§ 6701-6798.) The Board

generally has three years from the time taxes are due or remitted to give notice of

deficiency, but has eight years to act if no return is filed. (§ 6487, subd. (a).)

Taxpayers may file refund claims with the Board. (§ 6901 et seq.)

Taxpayers seeking a refund must first pay the tax; they may not deduct the

disputed amount from their quarterly payments pending determination of the

22

refund claim. (Cal. Code Regs., tit. 18, § 5232, subd. (f).) Failure to file a timely

refund claim constitutes a waiver of any claim for refund of overpayments.

(§ 6905.) When it is determined that the taxpayer is owed a refund, the amount of

excess tax payment is credited against amounts then due from the taxpayer.

(§ 6901; Cal. Code Regs., tit. 18, § 5238.) The law imposes strict time limits on

taxpayers for requests for refund or redetermination. (§§ 6561, 6902.)

Taxpayers are subject to penalty for late or improper returns (§§ 6476-

6478, 6591 et seq.), and may be criminally liable for false or fraudulent returns

(§ 7152) or other violations of the tax code. (§§ 7153, 7153.5.)

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.)

We have explained that “[t]he purpose of these statutory requirements is to

ensure that the Board receives sufficient notice of the claim and its basis” and to

give the Board “an opportunity to correct any mistakes, thereby conserving

judicial resources.” (Preston, supra, 25 Cal.4th at p. 206.) The issues raised in

the claim for refund establish and restrict the claims that may be raised in any

subsequent judicial challenge. (Ibid.)

23

3. Sales tax reimbursement

As for consumers, although the sales tax falls on retailers and must be paid

by them to the state, retailers are permitted but not required to obtain

reimbursement for their tax liability from the consumer at the time of sale. (Civ.

Code, § 1656.1; 9 Witkin, Summary of Cal. Law, supra, Taxation, § 344, p. 498;

56 Cal.Jur.3d, supra, Sales and Use Taxes, § 12, p. 25; 2 State Bd. of Equalization,

Business Taxes Law Guide (2009) Sales & Use Tax Annots., Annots. Nos.

460.0020, p. 4760 [retailers are not required to collect reimbursement], 460.0023,

p. 4760 [retailers may discount a price by the amount of the sales tax

reimbursement], 460.0005, p. 4759 [retailers may advertise a price as free of sales

tax].) Whether a reimbursement amount will be added is purely a matter of

contract between the retailer and consumer. (Civ. Code, § 1656.1, subd. (a); Cal.

Code Regs., tit. 18, § 1700, subd. (a)(1).) It is presumed that the parties agreed to

the addition of sales tax reimbursement to the sales price if the sales agreement so

states, if the sales tax reimbursement is shown on the sales check, or if the retailer

posts a notice or notifies consumers by specified methods that reimbursement for

sales tax will be added to the sales price of all items or certain items. (Civ. Code,

§ 1656.1, subd. (a)(1), (2) & (3); 9 Witkin, Summary of Cal. Law, supra,

Taxation, § 344, p. 498.)

A retailer who fails to remit to the Board the sales tax reimbursement

amount it has knowingly collected from the consumer is subject to a 40 percent

penalty (§ 6597, subd. (a)(1) [“Any person who knowingly collects sales tax

reimbursement . . . , and who fails to timely remit that sales tax reimbursement . . .

to the board, shall be liable for a penalty of 40 percent of the amount not timely

remitted”]; see id., subd. (a)(2) [providing for certain exceptions].)

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

24

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”].)8

The corollary is that if the retailer “absorb[s]” the sales tax, the retailer

owes the state tax on the full price. Sometimes the taxability of a sale depends on

the identity of the purchaser, but it appears that nevertheless, for convenience,

retailers in some instances may sell items at a single price to all buyers. For

example, food bought from vending machines by students is exempt from tax (Cal.

Code Regs., tit. 18, § 1574, subd. (b)(2)(D)), but the same purchase from the same

machine by someone else on the school property is taxable. (Id., subd. (b)(2)(A).)

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.”

4. Potential return to consumers of reimbursement charges

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


8

It is the retailer’s burden to rebut the presumption that sales tax was added

to the sale price. (Cal. Code Regs., tit. 18, § 1667, subd. (a).) The presumption
may be rebutted “by establishing to the satisfaction of the Board” that the sale was
not subject to tax. (Ibid.)

25

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.

a. Early law

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.

b. Former section 6054.5

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

26

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.)

c. Decorative Carpets

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 (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.

27

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 requiring it to repay its

customers the amounts erroneously collected from them would sanction a misuse

of the sales tax by a retailer for his private gain.” (Ibid.)

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

28

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.)

d. 1968 amendment to former section 6054.5

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

29

required to be filed and the total of the amounts represented by a person to his

customers as constituting reimbursement for taxes due under this part with respect

to those transactions exceed the taxes due from the person measured by his gross

receipts during that period, the excess, if paid by and not returned to the

customers, shall constitute an obligation due from the person to this state. The

provisions of this subdivision shall apply when the amounts are mistakenly and

not knowingly computed upon amounts that are not taxable or are in excess of the

taxable amounts. [¶] (c) The obligations specified in subdivisions (a) and (b)

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

person in accordance with Chapter 7 of this part, 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 his customers.” (Former § 6054.5, as amended by Stats. 1968, ch.

501, § 1, pp. 1143-1144.)

e. Javor

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

30

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.9 The plaintiff/consumer alleged that he had no remedy under the tax

code. He pointed out that there was no statutory requirement that

taxpayer/retailers seek a refund from the Board, nor was there a financial incentive

for them to do so because the Board would simply require them to refund the

excess to customers. He urged that a class should be certified to avoid requiring

each member of the class to require each individual retailer to seek a refund from

the Board. (Javor, supra, 12 Cal.3d at pp. 795, 797.) The plaintiff urged that

under these unique circumstances, the court should fashion a remedy.

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


9

The complaint named as defendants the Board, the State of California, a car

dealership, and “all” California retailers of new vehicles. Our opinion noted,
however, that “the Board is the only defendant either served with summons or
appearing in the action.” (Javor, supra, 12 Cal.3d at p. 793 & fn. 2.)

31

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, nevertheless the Board

cannot use the refund procedure to abdicate its responsibility to the customer,

32

particularly where the Board stands to unjustly profit under such circumstances.”

(Javor, supra, at p. 800.)

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 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.)10


10

We commented in passing that for the period during which the short-lived

special statute had provided that retailers could simply claim a credit for the
excess tax they had paid based on the federal excise provision, without the need


(footnote continued on next page)

33

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 action from the Board is clearly

mandated by the Board’s duty to protect the integrity of the sales tax by ensuring

that the customers receive their refunds. The integrity of the sales tax requires not

only that the retailers not be unjustly enriched [citation], but also that the state not

be similarly unjustly enriched.” (Javor, supra, 12 Cal.3d at p. 802.)

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


(footnote continued from previous page)

for a refund action to establish their own right to refund, consumers could have
sued the retailers who had claimed such a credit for refund. (Javor, supra, 12
Cal.3d at p. 802.) Our comment does not explain the legal basis of such an action,
and former section 6054.5 no longer is in effect. Under current law, the taxpayer
may remit the funds to the Board if he or she decides not to issue refunds to
consumers. (§ 6901.5.) Moreover, in Javor, there was no controversy over the
taxability question — it was agreed that an excess had been collected and the
amount of the excess also was not in dispute.

34

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.)

f. Repeal of former section 6054.5

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.)

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),

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 Rev. & Tax., Analysis of Sen. Bill 472

(1977-1978 Reg. Sess.) as amended June 15, 1977, p. 3, italics added; see also 9

Witkin, supra, § 344, pp. 497-498; 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 former §§ 6052, 6053, repealed by Stats. 1978, ch. 1211, §§ 4

35

& 6, p. 3922, and see Historical and Statutory Notes, 59B West’s Ann. Rev. &

Tax. Code (1998 ed.) notes to former §§ 6052 to 6054.5, p. 468.) Of note for the

present case, the enactment also repealed former section 6054.5, with its apparent

concern for consumers. All of these repealed provisions evidently were thought to

create a danger that they might support the view that consumers bore the economic

burden of the tax and therefore were the actual taxpayers.

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 472

(1977-1978 Reg. Sess.), supra, as amended June 15, 1977, pp. 1-3; 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

36

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.)

g. Section 6901.5 — current law

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 and part of

the second sentences of former section 6054.5, subdivision (a), language we had

interpreted in Decorative Carpets as confirming that the Legislature viewed the

consumer as having some equitable interest in a return of excess reimbursement

charges but significantly, as we shall see, the provision also affords a safe harbor

for retailers who remit the amounts to the Board. Thus section 6901.5 provides:

“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. Notwithstanding subdivision (b) of Section

6904 [concerning class claims], those amounts remitted to the state shall be

credited by the board on any amounts due and payable under this part on the same

transaction from the person by whom it was paid to this state and the balance, if

37

any, shall constitute an obligation due from the person to this state.” (§ 6901.5,

italics added.) In an uncodified section of the original enactment, the Legislature

stated that the addition of section 6901.5 to the code was intended “to make a

procedural change in the manner in which the sales tax is remitted and to affect all

applicable pending proceedings.” (Stats. 1982, ch. 708, § 4, p. 2868.)

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, as

amended Aug. 17, 1982, p. 2; see also Board’s letter to Gov. Edmund G. Brown re

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, Concurrence in Sen. Amends. to

Assem. Bill No. 2619 (1981-1982 Reg. Sess.) as amended Aug. 17, 1982, p. 1; see

also 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 to the Board

of Equalization. A credit will then be issued by the [Board] against the retailer’s

current obligation on the same transaction”].)

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

38

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 [on passage

of Assem. Bill No. 2619 (1981-1982 Reg. Sess.)] (Board Operations Memo No.

754).) 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., 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., p. 2.)

Section 6901.5 makes plain that the retailer is not permitted to retain excess

sales tax reimbursement amounts. Indeed, the Board evidently saw this as a

change. In connection with the possible retrospective operation of section 6901.5,

the Board stated that during the period after section 6054.5 was repealed, “there

was no requirement . . . that ‘excess tax reimbursement’ be paid to the state . . . .”

39

(Bd. Operations Memo No. 754, supra, p. 3.) Under the terms of section 6901.5,

however, the excess must be returned to consumers or remitted to the Board.

Based upon the statutory language, it appears that a retailer may refuse a

consumer’s request that excess reimbursement be refunded, so long as the retailer

remits the amount to the Board. It follows that the taxpayer reaches a safe haven

vis à vis the consumer if it pays the sums to the Board.

Section 6901.5 also refers to a return of excess reimbursement charges to

consumers once it has been, in the words of the statute, “ascertained” that an

excess has been charged. Under the procedures established by the code, the Board

could “ascertain” whether excess reimbursement was charged during an audit (see

§ 7054), a deficiency determination proceeding (see §§ 6481-6483), or Board

consideration of a taxpayer’s claim for refund. (§ 6901 et seq.) Section 6901.5

provides no procedure by which consumers can require the Board to “ascertain”

whether excess reimbursement has in fact been charged, nor is there a statutory

procedure by which the consumer can make certain that the retailer will be ordered

to refund an excess amount to the consumer.

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 (Yamaha) [a court

analyzing a statute may take the Board’s annotations into account, but they are not

binding as quasi-legislative rules].)

40

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.)11

h. Regulation 1700(b)(2)” (Cal. Code Regs., tit. 18, § 1700, subd. (b)(2))

The regulation adopted to carry out the terms of section 6901.5, section

1700, subdivision (b)(2) of title 18 of the California Code of Regulations,

amplifies the statute and offers some guidance on the situation in which excess


11

The annotations also suggest that a retailer may avoid the need to make

refunds to consumers if it advises consumers in advance that the price for the
particular sale includes a reimbursement amount. In other words, the retailer
charges the same price to the consumer, but by “absorbing” the tax itself within
that price, the retailer excludes the consumer from the tax altogether even though
the consumer pays the same price. This is achieved by posting a sign that “all
prices include applicable sales tax.” (2 State Bd. of Equalization, Business Taxes
Law Guide, supra, Annot. No. 460.0149, at p. 4766.) According to an amicus
curiae brief filed by the Board in this case, the Board informally advised Target to
use this mechanism to avoid problems in the future.

41

sales tax reimbursement has been collected. The regulation makes it plain that the

consumer’s refund is dependent upon the Board first taking action to “ascertain[]”

that the amount charged was excessive. The implication is that ordinarily it would

be in the course of an audit, refund, or deficiency determination proceeding that

the Board would “ascertain[]” that excess reimbursement amounts had been

collected. In the case of an audit or deficiency determination, once the Board

“ascertains” that an excess charge was made, the retailer is given the option to

make a refund to the customer. If the retailer declines, the amount must be

remitted to the state. The Board will make a determination against the retailer for

any reimbursement amount that the retailer failed to remit to the state, adding

applicable interest and penalties. Excess tax reimbursements are offset against the

taxpayer’s tax liability on the same transaction. The regulation provides in

pertinent part as follows:

“(1) Definition. When an amount represented by a person [i.e., a

retailer/taxpayer] to a customer as constituting reimbursement for sales tax 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 is excess tax

reimbursement. Excess tax reimbursement is charged when reimbursement is

computed on a transaction which is not subject to tax, when reimbursement is

computed on an amount in excess of the amount subject to tax, when

reimbursement is computed using a tax rate higher than the rate imposed by law,

and when mathematical or clerical errors result in an overstatement of the

reimbursement on a billing.

“(2) Procedure upon Ascertainment of Excess Tax Reimbursement.

Whenever the board ascertains that a person [i.e., a retailer/taxpayer] has

collected excess tax reimbursement, the person will be afforded an opportunity to

refund the excess collections to the customers from whom they were collected. In

42

the event of failure or refusal of the person to make such refunds, the board will

make a determination against the person for the amount of the excess tax

reimbursement collected and not previously paid to the state, plus applicable

interest and penalty.” (Cal. Code Regs., tit. 18, § 1700, subd. (b)(1) & (2), italics

added.)

Various additional provisions govern offsets, which may be claimed by the

taxpayer when he or she files a return, during deficiency determinations, or in

refund proceedings. The regulation provides that “[i]f a person who has collected

excess tax reimbursement on a transaction fails or refuses to refund it to the

customer from whom it was collected, the excess tax reimbursement shall be

offset against any tax liability of the taxpayer on the same transaction. Any excess

tax reimbursement remaining after the offset must be refunded to the customer or

paid to the state. The offset can be made when returns are filed, when a

determination is issued, or when a refund is claimed.” (Cal. Code Regs., tit. 18,

§ 1700, subd. (b)(4), italics added.)

The regulation states that the taxpayer’s ability to offset tax liability on a

transaction by excess reimbursement amounts does not necessarily limit the

consumer’s rights to a refund of the amount by which the reimbursement amounts

collected exceeded the taxpayer’s proper sales tax liability. Under the heading

“Rights of Customers,” the final paragraph of the regulation states: “The

provisions of this regulation with respect to offsets do not necessarily limit the

rights of customers to pursue refunds from persons who collected tax

reimbursement from them in excess of the amount due.” (Cal. Code Regs., tit. 18,

§ 1700, subd. (b)(6).)12


12

Retailers who choose to refund excess reimbursement rather than remit it to

the Board must retain records to demonstrate they have or will return excess


(footnote continued on next page)

43

Contrary to plaintiffs’ claim, this provision does not support the inference

that the Board, without referring to consumer actions brought under the UCL or

CLRA, by this language endorsed consumer actions against retailers for refund of

reimbursement amounts charged on assertedly nontaxable sales. Rather, the

regulation merely acknowledges that if other remedies are available, the regulation

does not interfere with them. The regulation reasonably may be interpreted to

refer to our recognition that, when neither the Board nor the taxpayer has an

interest in “ascertaining” whether excess reimbursement has been charged, in

limited circumstances consumers may file an action to require the taxpayer to seek

a refund (see Javor, supra, 12 Cal.3d 790), leading to a refund to the taxpayer

conditioned on an appropriate refund to consumers. (See Decorative Carpets,

supra, 58 Cal.2d 252.)

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,


(footnote continued from previous page)

amounts to consumers. The regulation provides: “(A) If a person already has
refunded to each customer amounts collected as reimbursement for tax in excess
of the tax due, this may be evidenced by any type of record which can be verified
by audit
such as: [¶] 1. Receipts or cancelled checks. [¶] 2. Books of account
showing that credit has been allowed the customer as an offset against an existing
indebtedness owed by the customer to the person. [¶] (B) If a person has not
already made sales tax reimbursement refunds to each customer but desires to do
so rather than incur an obligation to the state, the person must: [¶] 1. Inform in
writing each customer from whom an excess amount was collected that the excess
amount collected will be refunded to the customer or that, at the customer’s
option, the customer will be credited with such amount, and [¶] 2. The person
must obtain and retain for verification by the board an acknowledgement from the
customer that the customer has received notice of the amount of indebtedness of
the person to the customer.” (Cal. Code Regs., tit. 18, § 1700, subd. (b)(3), italics
added.)

44

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 emails 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.

5. Summary

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”

45

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.)

For reasons we shall explain in the next part, we conclude that permitting

plaintiffs to use the UCL or CLRA to challenge Target’s collection of a sales tax

reimbursement on the ground that the sale was not taxable is inconsistent with the

tax code provisions relating to the sales tax, particularly in light of the primary

role assigned to the Board with regard to the resolution of sales tax issues and the

presumption that all sales are taxable unless the taxpayer demonstrates otherwise

to the satisfaction of the Board. When a consumer claim such as plaintiffs’ is

dependent upon the resolution of the taxability question, a UCL or CLRA lawsuit

of this sort against the retailer is inconsistent with the method established by the

Legislature as the exclusive means for ascertaining whether a transaction is subject

to the sales tax. A consumer lawsuit in this context also is inconsistent with tax

code procedures under which retailers may discharge their obligations by remitting

any excess reimbursement charge to the Board.

C. Are plaintiffs’ consumer claims inconsistent with the statutory sales
tax system?


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

(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 (Cel-

46

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 (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.

We have explained that “[t]he UCL prohibits, and provides civil remedies

for, unfair competition, which it defines as ‘any unlawful, unfair or fraudulent

business act or practice.’ ([Civ. Code,] § 17200.) Its purpose ‘is to protect both

consumers and competitors by promoting fair competition in commercial markets

for goods and services.’ [Citations.] In service of that purpose, the Legislature

framed the UCL’s substantive provisions in ‘ “broad, sweeping language . . . .” ’ ”

(Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 320 (Kwikset).) This

may “ ‘include “ ‘anything that can properly be called a business practice and that

at the same time is forbidden by law.’ ” ’ ” (Ibid.) In addition, a practice that is

unfair or fraudulent may be the basis for a UCL action even if the conduct is “not

47

specifically proscribed by some other law.” (Cel-Tech, supra, 20 Cal.4th at

p. 180; see id., at p. 184.)

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.)

As for the CLRA, it “makes unlawful . . . various ‘unfair methods of

competition and unfair or deceptive acts or practices undertaken by any person in

a transaction intended to result or which results in the sale or lease of goods or

services to any consumer.’ These include . . . ‘[r]epresenting that a transaction

confers or involves rights, remedies, or obligations which it does not have or

involve, or which are prohibited by law’ . . . .” (Meyer v. Sprint Spectrum L.P.

(2009) 45 Cal.4th 634, 639 (Meyer); see Civ. Code, § 1770.) Like the UCL,

CLRA remedies are not exclusive, but are “in addition to any other procedures or

remedies for any violation or conduct provided for in any other law.” (Civ. Code,

§ 1752.)

On the other hand, the reach of the UCL is broad, but it is not without limit

and may not be used to invade “safe harbors” provided by other statutes. (Cel-

Tech, supra, 20 Cal.4th at p. 182.) “Courts may not simply impose their own

notions . . . as to what is fair or unfair. Specific legislation may limit the

judiciary’s power to declare conduct unfair. If the Legislature has permitted

certain conduct or considered a situation and concluded no action should lie,

courts may not override that determination. When specific legislation provides a

safe harbor,’ plaintiffs may not use the general unfair competition law to assault

that harbor.” (Ibid., italics added.) When a statute such as that defining the

litigation privilege, for example, renders the conduct complained of immune from

48

tort liability, a plaintiff cannot use the UCL to “ ‘ “plead around” ’ ” that

immunity. (Ibid.) “To forestall an action under the unfair competition law,

another provision must actually ‘bar’ the action or clearly permit the conduct.”

(Id. at p. 183, italics added.) As we further explained: “If, in the Unfair Practices

Act (or some other provision), the Legislature considered certain activity in certain

circumstances and determined it to be lawful, courts may not override that

determination under the guise of the unfair competition law.” (Ibid.)

These comments on statutory safe harbors are directly relevant in the

present case. In express conflict with plaintiffs’ contention that defendant acted

“unlawfully” within the meaning of the UCL when it represented that it properly

was collecting and in fact collected reimbursement on assertedly nontaxable sales

and failed to return the reimbursement charges to consumers, under the tax code

retailers have an option either to refund to consumers any reimbursement charges

the Board has ascertained are excessive or to remit the excess amounts to the

Board. (§ 6901.5.) Retailers reach a safe harbor once they remit any excess

reimbursement amount to the state — and of course follow any ensuing orders by

the Board with respect to consumer refunds. Yet plaintiffs contend that their

consumer action should lie whether or not the retailer has remitted the disputed

amounts to the Board. Plaintiffs’ UCL claim is premised on a hypothetical system

under which the retailer/taxpayer must refund excess amounts directly to

consumers — without any effort on the part of the Board to “ascertain[]” whether

there was indeed excess reimbursement collected. This is not the system currently

established by the tax code. The UCL cannot properly be interpreted to impose on

retailers a duty with respect to sales tax that is contradicted by the statutory

scheme governing the sales tax. (See, e.g., In re Tobacco Cases II (2007) 41

Cal.4th 1257, 1273 [the plaintiffs’ UCL claim sought to impose on tobacco

49

companies a duty not to advertise in a way that could encourage minors to smoke,

but such a duty is preempted by federal authority].)

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 (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 may not bring a UCL

action for restitution that “trespasses directly on the core function of the

[Insurance] Commissioner”]; id. at pp. 1304-1305 [Insurance Commissioner has

exclusive authority under the relevant statute to exercise power as trustee to

protect policyholders and creditors when an insurance company is insolvent;

irrelevant that UCL plaintiff was Attorney General rather than policy holder];

MacKay v. Superior Court (2010) 188 Cal.App.4th 1427, 1434, 1441-1443 [a

UCL action will not lie to challenge an insurance rate previously approved by the

Dept. of Insurance].)

50

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. Co. of San Benito (1999) 72 Cal.App.4th 1,

23.) 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

51

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 transaction is

subject to the sales tax or is exempt. (See Chiatello v. City and County of San

Francisco (2010) 189 Cal.App.4th 472, 476, 496-497 [making a similar point in

denying standing to a local taxpayer to challenge amendment to a payroll tax to

which he was not subject].) Taxpayers themselves cannot circumvent the

administrative procedures the tax code provides for ascertaining the application of

the tax to their transactions. (§ 6932; see also § 6931.) They cannot obtain a

declaratory judgment on such questions in advance of paying the tax, nor can they

go to court for declaratory relief concerning the application of the law to their

transactions without first exhausting administrative remedies by making a claim

for refund. (§§ 6931, 6932; Woosley, supra, 3 Cal.4th at p. 785, fn. 20; State Bd.

of Equalization v. Superior Court, supra, 39 Cal.3d at pp. 639-640; Pacific Gas &

Electric Co., supra, 27 Cal.3d at p. 280; Modern Barber Col. v. Cal. Emp. Stab.

Com. (1948) 31 Cal.2d 720, 726 [“The power of a state to provide the remedy of

suit to recover alleged overpayments as the exclusive means of judicial review of

tax proceedings has long been unquestioned”]; 9 Witkin, Summary of Cal. Law,

supra, Taxation, § 375, pp. 548-549; but see Agnew v. State Bd. of Equalization

(1999) 21 Cal.4th 310, 320 [under certain circumstances not involving a claim for

refund, a taxpayer may challenge the facial statutory or constitutional validity of a

settled Board policy or a regulation by means of a declaratory relief action under

Gov. Code, § 11350].)

The tax code does not permit consumers to require the Board to ascertain

whether excess reimbursement charges have been made. Rather, with respect to

52

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 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”].) (Italics added.)

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)

586 Cal.App.4th 906, 912.) The retailer, as taxpayer, bears the burden of

53

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; Paine, supra, 137 Cal.App.3d at p. 443; see also 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 addition, to permit plaintiffs’ action to determine

54

the taxability question in advance or separate from any claim by the taxpayer

could produce inconsistent judgments on that point. A judgment in a quickly

litigated consumer action could occur in advance of the Board’s resolution of the

same question, or in advance of a judgment reviewing the Board’s determination.

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.

We also note that the tax code imposes various time limits for Board and

taxpayer claims that differ from limitations periods for consumer claims. For

example, taxpayers generally must seek a refund within three years after the end of

the reporting period in which the alleged overpayment was made or six months

after the date of a deficiency determination. (§ 6902; Cal. Code Regs., tit. 18,

§ 5231; see also § 6487 [ordinarily the Board’s notice of deficiency determination

must be mailed within three years of the filing of the return].) A UCL action, by

contrast, may be brought within four years after the cause of action accrued (see

Bus. & Prof. Code, § 17208; Cortez v. Purolator Air Filtration Products Co.

(2000) 23 Cal.4th 163, 178-179 [UCL limitations period applies even to claims

based on violation of statutes bearing shorter limitations periods].)

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,

55

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.)

We also observe that permitting plaintiffs’ action to go forward as currently

framed would raise the constitutional questions identified by the Court of Appeal.

A UCL or CLRA action requiring a court to determine the taxability of a sale

would produce practical consequences that could threaten revenue collection and

the ability of government to plan for expenditures. In an administrative claim or

lawsuit brought under tax code procedures, the retailer/taxpayer necessarily will

already have paid the tax — including an amount reflecting any reimbursement

charges the retailer has declined to return to consumers. In a consumer action, by

contrast, a judgment on the question of taxability could be entered in a consumer

suit without any requirement that the tax have been paid — a result that would at

least strain the constitutional principle that taxes should be paid first and litigated

second in order to ensure that the state is able to plan its budget. Plaintiffs’ claim

that they should not be required to allege whether or not the Board has received

the disputed tax payments from the retailer because such facts are not available to

them simply highlights the threat to the integrity of the tax system that an

independent consumer lawsuit such as theirs presents.

Further impact on revenue collection would follow an injunction

prohibiting retailers from collecting the reimbursement, because the injunction

56

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.13 It is a troubling prospect that this effect could occur totally outside

the regulatory system established in the tax code, without any litigation between

the state and the taxpayer concerning the latter’s duties. Again, these

consequences present at least a potential for the conflict with article XIII, section

32 that was envisioned by the Court of Appeal, and of course statutes should be

interpreted to avoid potential constitutional concerns.

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 be faced with a final

judgment — arising from prior consumer litigation in which it was not involved

— purporting to determine the taxability question. In this sense, an action for a

tax refund would be brought, or at least would be processed, not entirely “in the


13

The sales and use tax produced 20 percent of state tax revenues in the 2012-

2013 fiscal year. (Cal. State Controller’s Office, State Finances 101
<http://www.sco.ca.gov/state_finances_101_state_taxes.html> [as of May 1,
2014].)

57

manner prescribed by the Legislature.” (Woosley, supra, 3 Cal.4th at p. 789,

italics added.)

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 Rev. &

Tax., Analysis of Sen. Bill No. 1449 (2005-2006 Reg. Sess.) for hearing on 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. 2 [it was difficult for the Board to demonstrate the

58

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’ ”].)

We note, too, that criminal penalties have been increased since Javor and

Decorative Carpets were decided. Although tax code violations that are subject to

criminal penalty ordinarily are misdemeanors (see §§ 7152-7153), in 1987 the

Legislature designated as a felony those tax code violations in which the taxpayer

intentionally evades the tax when the omitted payments amount to $25,000 or

more a year. (§ 7153.5; see also former § 7153.5, added by Stats. 1987, ch. 1064,

§ 1, p. 3599.)

In addition, we have seen that, with the adoption of section 6901.5 in 1982,

the Legislature made it plainer that the retailer may not retain any amount it has

represented to the consumer as sales tax reimbursement. Rather than simply

saying, as under former section 6054.5, that the amount collected in error “shall

constitute an obligation due from him [the retailer] to this State” and that “[s]uch

obligation may be determined and collected by the Board” (former section 6054.5;

Stats. 1961, ch. 872, § 1, p. 2289), section 6901.5 currently directly states that any

amount collected on a nontaxable sale or in excess of the proper amount that is not

returned to consumers “shall be remitted by that person [the taxpayer] to this

state.” Because reimbursement charges that are not returned to customers now

must flow to the Board in the form of tax payments, it is clear that a remedy that is

directed at requiring the taxpayer to make a claim for refund from the Board,

rather than one involving a direct claim by the consumer against the retailer, is the

remedy that is consistent with the current governing statutory scheme.

59

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, declined to

pursue such a remedy, and we need not consider the exact showing required of

consumers to demonstrate their entitlement to the Javor remedy.

Plaintiffs argue that in a number of past cases courts have “considered the

merits of [consumer] actions against private companies for wrongful sales tax

reimbursement.” None of the decisions they cite, however, discuss the

appropriateness of the UCL as a vehicle for a consumer to raise such a claim

against a retailer/taxpayer. In Dell, Inc. v. Superior Court (2008) 159 Cal.App.4th

911, for example, although the court decided a taxability question — whether

service contracts included in the sale of a computer were subject to sales or use tax

or were exempt — in the context of a UCL action brought by consumers against

the seller of consumer goods, there was no dispute regarding, or discussion by the

60

appellate court concerning, the appropriateness of the UCL as a vehicle to raise

such an issue. The same omission deprives the other decisions cited by plaintiffs

of any weight in the present case. (Botney v. Sperry & Hutchinson Co. (1976) 55

Cal.App.3d 49 [in suit by class of consumers who had redeemed S & H Green

stamps against the stamp issuer, issue was whether sales tax based on an average

amount paid by retailers for the stamps was appropriate];14 Livingston Rock &

Gravel Co. v. De Salvo, supra, 136 Cal.App.2d 156 [a lease agreement did not

require the lessee to indemnify the owner for sales tax the owner had paid to the

Board].) It is well established, of course, that “ ‘cases are not authority for

propositions not considered.’ ” (In re Marriage of Cornejo (1996) 13 Cal.4th 381,

388.)

The sales tax scheme contemplates that the question of the propriety of a

reimbursement charge that turns on the taxability of a transaction must be resolved

in the first instance by the Board in the context of a procedure recognized in the

tax code and applying the safe harbor measures contained in that code.

Accordingly, plaintiffs’ consumer action based on the assertion that defendant

collected reimbursement on a nontaxable sale may not be maintained.15


14

Plaintiffs’ “see also” citation to Sav-On Drugs, Inc. v. Superior Court

(1975) 15 Cal.3d 1 is unhelpful, because the action before us in that case was a
petition for peremptory writ challenging a trial court’s discovery order. We
decided that the petitioner’s tax returns were privileged, but we had no occasion to
consider the appropriateness of the underlying consumer action challenging a
Board regulation concerning sales involving trading stamps, and contending that
defendant seller had charged excessive “sales tax” to its customers in connection
with such sales.

15

We express no view on a question not presented by the complaint in this

case, namely whether consumers may bring a UCL or CLRA claim against
retailers for representing that they will remit, but in fact failing to remit amounts
represented as reimbursement charges to the Board. As noted, in their


(footnote continued on next page)

61

III. CONCLUSION

For the reasons discussed above, the judgment of the Court of Appeal is

affirmed.

CANTIL-SAKAUYE, C. J.

WE CONCUR:

BAXTER, J.
CORRIGAN, J.
CHIN, J.


(footnote continued from previous page)

supplemental briefing plaintiffs have acknowledged that their current action is not
based on such a claim.

62












DISSENTING OPINION BY LIU, J.




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.

I.

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

1



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 Consumer Legal Remedies Act

(CLRA) (Civ. Code, § 1750 et seq.).

Target has not sought a determination by the Board of Equalization (the

Board) as to whether hot coffee to go is subject to sales tax. Instead, Target says it

has paid to the Board all sales tax reimbursement collected on sales of hot coffee

to go and that plaintiffs are statutorily and constitutionally barred from bringing

this suit. In response, plaintiffs argue that there is no record of whether Target has

paid to the Board the sales tax reimbursement it collected on hot coffee to go and

that even if Target has done so, the suit may still go forward.

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.”

2



(§ 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 brief, “the overhead expenses Target

would incur in order to differentiate ‘to go’ sales from in-store sales could be quite

large. . . . Target would have to distinguish sales of coffee where the customer

bought the coffee and immediately left the store from those where the customer

3



bought the coffee but continued to shop in the same store or drank the coffee at

tables and chairs in the coffee sales area. In addition, since the analysis must be

made on a location-by-location basis, Target would need to conduct investigations

in each of its California locations. [Citation.] The amount of administrative

expense incurred to obtain such figures and maintain proper records would likely

be passed on to Target’s customers in the form of higher prices.”

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. 22, 53–54). 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. 41, 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 (post-tax) price with a sign that says “all

4



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 (pre-tax) price and then adding sales tax to each

sale, whether or not each sale is actually subject to sales tax.

II.

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

5



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. 40.) 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. 51.) Any other process, the

court says, would undermine the orderly administration of the tax laws. (Id. at

p. 56.) Neither claim is persuasive.

A.

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. 48; see Cel-Tech Communications, Inc. v. Los Angeles Cellular

Telephone Co. (1999) 20 Cal.4th 163, 181 (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

fertility of man’s invention would contrive’ ” ’ ”]; Broughton v. Cigna

Healthplans of California (1999) 21 Cal.4th 1066, 1077 [“The CLRA was enacted

in an attempt to alleviate social and economic problems stemming from deceptive

business practices . . . .”]; Civ. Code, § 1760 [CLRA “shall be liberally construed

and applied to promote its underlying purposes”].) In her amicus brief, the

Attorney General notes that she “receives thousands of complaints each year and

is not in a position to investigate and prosecute all of them. Legitimate actions by

private litigants are necessary to supplement law enforcement efforts and to

vindicate consumers’ rights.”

6



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. 39.) 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

7



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 that certain charges are

sales taxes when in fact they are not. I do not see how section 6901.5 permits,

much less “clearly permit[s]” (Cel-Tech, supra, 20 Cal.4th at p. 183), this conduct.

Indeed, among the many arguments the Board makes in its amicus brief urging

dismissal of this suit, the Board nowhere contends that section 6901.5 provides an

all-purpose safe harbor of the sort that today’s decision invents.

B.

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. 56), “could produce

8



inconsistent judgments” between courts or between a court and the Board (id. at

p. 55), and “could threaten revenue collection and the ability of government to

plan for expenditures” (id. at p. 56). 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. 54.)

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 acknowledges that the Board

is “a party considered by the Legislature to be necessary” in “a proceeding that

would produce a binding interpretation of tax law.” (Maj. opn., ante, at p. 54.)

Why isn’t joinder of the Board an adequate response to the concerns that the court

has identified?

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 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.

9



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 (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. 13, 60.)

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.

10



Finally, the court says that “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.” (Maj. opn., ante, at p. 56.) This

would be true only if consumers often had cause to suspect retailers of

misrepresenting the applicability of the sales tax to particular items. But there is

no reason to believe this is so. Before today’s decision, no authority foreclosed

suits like this one, yet there is no indication that such suits are common. This case

seems unusual because some sales of hot coffee are taxable while others are not.

Neither the court, the Board, nor Target contends that a similar ambiguity affects

the taxability of many other items. With no evident basis for concern, the court’s

warning of a flood of litigation is a mere makeweight.

III.

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

11



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. Nothing in the tax laws or our

precedents authorizes such a questionable arrangement, and our robust consumer

protection statutes are not so easily defeated.

I respectfully dissent.

LIU, J.

WE CONCUR: WERDEGAR, J.


MOORE, J.*


* Associate Justice of the Court of Appeal, Fourth Appellate District, Division
Three, assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

12



See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Loeffler v. Target Corporation
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted
XXX 173 Cal.App.4th 1229
Rehearing Granted

__________________________________________________________________________________

Opinion No.
S173972
Date Filed: May 1, 2014
__________________________________________________________________________________

Court:
Superior
County: Los Angeles
Judge: Michael L. Stern

__________________________________________________________________________________

Counsel:

Law Office of Joseph J. M. Lange, Joseph J. M. Lange Law Corporation, Joseph J. M. Lange; Public
Justice, Leslie A. Bailey, Victoria W. Ni, Arthur H. Bryant; Lange & Koncius, Kiesel Boucher & Larson,
Kiesel + Larson and Jeffrey A. Koncius for Plaintiffs and Appellants.

Mastroianni Law Firm and A. Douglas Mastroianni for Jason Frisch as Amicus Curiae on behalf of
Plaintiffs and Appellants.

Edmund G. Brown, Jr., Attorney General, Frances T. Grunder, Assistant Attorney General, Gordon Burns,
Deputy State Solicitor General, Kathrin Sears and Alexandra Robert Gordon, Deputy Attorneys General,
for Attorney General of State of California as Amicus Curiae on behalf of Plaintiffs and Appellants.

Barry D. Keene; Nossaman and William T. Bagley as Amici Curiae on behalf of Plaintiffs and Appellants.

J. Bruce Henderson for the Association of Concerned Taxpayers as Amicus Curiae on behalf of Plaintiffs
and Appellants.

The Kick Law Firm, Taras Kick, Thomas A. Segal, Matthew E. Hess, Graig Woodburn and G. James
Strenio for Michael McClain, Avi Feigenblatt and Gregory Fisher as Amici Curiae on behalf of Plaintiffs
and Appellants.

Harvey Rosenfield, Pamela Pressley and Todd M. Foreman for Consumer Watchdog, Public Good,
Consumeraffairs.com and National Association of Consumer Advocates as Amici Curiae on behalf of
Plaintiffs and Appellants.

Thorsnes Bartolotta McGuire and Benjamin I. Siminou for Carmen Herr, Heidi Spurgin, Mark Hegarty and
Joseph Thompson as Amici Curiae on behalf of Plaintiffs and Appellants.











Page 2 – counsel continued – S173972

Counsel:

Morrison & Foerster, Miriam A. Vogel, David F. McDowell and Samantha P. Goodman for Defendant and
Respondent.

Reed Smith, Margaret M. Grignon, Douglas C. Rawles and Judith E. Posner for Rite Aid Corp. and
Walgreen Co. as Amici Curiae on behalf of Defendant and Respondent.

Holland & Knight and Richard T. Williams for CVS Caremark Corp. and CVS Pharmacy, Inc., as Amici
Curiae on behalf of Defendant and Respondent.

Hunton & Williams and Phillip J. Eskenazi for Albertson’s Inc., as Amicus Curiae on behalf of Defendant
and Respondent.

Wilson Turner Kosmo, Frederick W. Kosmo, Jr., and Theresa Osterman Stevenson for PETCO Animal
Supplies Stores, Inc., as Amicus Curiae on behalf of Defendant and Respondent.

Kristine Cazadd, Robert W. Lambert and John L. Waid for California State Board of Equalization as
Amicus Curiae on behalf of Defendant and Respondent.

Alston & Bird, Andrew E. Paris, Ethan D. Millar and Joann M. Wakana for DIRECTV Inc., as Amicus
Curiae on behalf of Defendant and Respondent.

Edmund G. Brown, Jr., Attorney General, David S. Chaney and Matt Rodriquez, Chief Assistant Attorneys
General, and Al Shelden, Deputy Attorney General, as Amici Curiae.

Letwak & Bennett and Stephen H. Bennett as Amici Curiae.












Counsel who argued in Supreme Court (not intended for publication with opinion):

Leslie A. Bailey
Public Justice
555 Twelfth Street, Suite 1230
Oakland, CA 94607
(510) 622-8150

David F. McDowell
Morrison & Foerster
707 Wilshire Boulevard, Suite 6000
Los Angeles, CA 90017-3543
(213) 892-5200


Petition for review after the Court of Appeal affirmed the judgment in a civil action. This case presents the following issue: Does article XIII, section 32 of the California Constitution or Revenue and Taxation Code section 6932 bar a consumer from filing a lawsuit against a retailer under the Unfair Competition Law (Bus. & Prof. Code sections 17200 et seq.) or the Consumers Legal Remedies Act (Civ. Code, section 1750 et seq.) alleging that the retailer charged sales tax on transactions that were not taxable?

Opinion Information
Date:Citation:Docket Number:
Thu, 05/01/2014Loeffler v. Target Corp., 58 Cal.4th 1081, 324 P.3d 50, 171 Cal. Rptr.3d 189, 14 Cal. Daily Op. Serv. 4736S173972

Opinion Authors
OpinionChief Justice Tani Cantil-Sakauye
DissentJustice Goodwin Liu

Jun 29, 2014
Annotated by Gaelle Tribie

Facts:

Plaintiffs are consumers and customers of Target Corporation. They brought suit against Target Corporation in 2006 in California trial court, alleging that Target improperly charged consumers sales tax reimbursements on “to go” coffee sales. Plaintiffs alleged that Target committed an unfair business practice in violation of the Consumer Legal Remedies Act and Unfair Competition Law. Plaintiffs also alleged violation of section 6359 of the California Tax Code, which exempt certain food sales from sales tax. Plaintiffs also claimed a private right of action under section 6901.5 of the California Constitution.

Plaintiffs alleged that Target illegally charged consumers sales tax on “to go” coffee sales and that Target falsely represented to consumers that it was legally permitted to do so. Plaintiffs sought an injunction barring the continued taxation, as well as restitution of profits wrongfully acquired or retained or disgorgement of gains from unfair practices. Defendant demurred, arguing that the California Constitution, article XIII section 32 barred this proceeding, and that the Board of Equalization had jurisdiction over this matter.

Procedural History:

After hearing both claims, and after plaintiff’s second amended complaint had been filed, the trial court sustained defendant’s demurrer (pleading for dismissal of the case) without leave to amend.

On appeal, the California Court of Appeal affirmed the trial court’s holding. The Court of Appeal found that the action was unauthorized under the California Tax Code and was barred by the California Constitution, limiting the cause of actions available for consumers to seek tax refunds from the taxing entity. Plaintiffs again appealed in this current motion.

Issues:

Plaintiffs contended that the issue should still be dealt with under the Consumer Legal Remedies Act and the Unfair Competition Law, because there is no such private cause of action for consumers under the California Tax Code.

The court had to resolve who had jurisdiction over this claim. Whether plaintiffs had a private right of action, or whether the taxation of “to go” coffee sales was for the Board of Equalization to decide.

Holding:

A majority of the Court, in an opinion by Chief Justice Cantil-Sakauye, affirmed the Court of Appeal’s decision, but on different grounds.

The Court held that any alternative cause of action not arising from the Tax Code (which plaintiff admitted did not allow a private cause of action in this case) would be irreconcilable with the California Tax Code. Therefore, there was no cause of action under the Consumer Legal Remedies Act or the Unfair Competition Law. The question of whether Target had the right to tax consumers for “to go” coffee sales falls under the jurisdiction of the Board of Equalization. Justice Baxter, Justice Corrigan, and Justice Chin concurred in the judgment.

Justice Liu, Justice Werdegar, and Justice Moore dissented, reasoning that the Unfair Competition Law and California Legal Remedies Act are designed to provide relief for this type of situation, in which a corporation commits an unlawful business practice and misleads consumers. Furthermore, the cause of action contemplated in this case is not expressly barred.

Analysis:

The Court found that this case could only be resolved by the Board of Equalization, and any cause of action for such taxation fell under the California Tax Code. It therefore declined to address the issue under the California Constitution, as well as the Unfair Competition Law and California Legal Remedies Act

In its analysis of the Tax Code, the Court found that regulation and application of the Tax Code fell under the jurisdiction of the Board of Equalization. The Court also noted that, according to the California Tax Code, Target is the taxpayer, not the consumers bringing the suit. Target has the legal right to charge its customers a reimbursement amount, in order to reimburse itself for the sales tax it has paid. As long as this reimbursement is paid in full to the State, and customers are not overcharged, the corporation receives “safe harbor.” The Court reasoned, therefore, that the Board of Equalization is ultimately responsible for regulating the California Tax Regime as such, and determining what commodities are taxable.

Due to this extensive regulatory regime, any question as to the taxability of a certain good, in this case “to go” coffee, is one for the Board of Equalization and did not fall under the jurisdiction of the Unfair Competition Law and California Legal Remedies Act. This is therefore an issue between the retailer and the Board.

Therefore, providing an alternative cause of action for consumers would be inconsistent with the Tax Code. The Court also added that there are alternative remedies, for example if a corporation improperly taxes consumers and does not pass those on to the Board of Equalization.

Tags:

California Tax Code, Consumer Legal Remedies Act, Unfair Competition Law, California Board of Equalization, Consumer Protection, Sales Tax, Taxpayer Refund Claim, section 6901.5 of the California Constitution

By Gaëlle Tribié