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Loeffler v. Target Corp.

May 12, 2009

KIMBERLY LOEFFLER AND AZUCENA LEMUS, PLAINTIFFS AND APPELLANTS,
v.
TARGET CORPORATION, DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC360004).

The opinion of the court was delivered by: Kitching, J.

CERTIFIED FOR PUBLICATION

INTRODUCTION

In California, retailers are obligated to pay sales taxes to the state on their gross receipts, subject to certain exemptions. Retailers may, however, seek sales tax reimbursement from their customers. In this case, plaintiffs and appellants Kimberly Loeffler and Azucena Lemus contend that defendant and respondent Target Corporation (Target) was not entitled to collect sales tax reimbursement on purchases of hot coffee "to go" because sales tax was allegedly not due on such purchases.

Plaintiffs seek a refund of sales tax reimbursement from Target on their own behalf and on behalf of the class they purport to represent. They also seek an injunction prohibiting Target from collecting sales tax reimbursement on purchases of hot coffee "to go." The trial court sustained without leave to amend Target's demurrers to plaintiffs' pleadings and entered judgment in favor of Target on the ground, among others, that article XIII, section 32 of the California Constitution (article XIII, section 32) bars plaintiffs' action. We affirm.

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 Legislature has enacted a statutory scheme for sales tax and associated sales tax reimbursement refunds. The only way to litigate a sales tax refund dispute under this scheme is for the retailer, as the taxpayer, to pay the tax, exhaust its administrative remedies by filing a claim for a refund with the State Board of Equalization (Board), and if the claim is denied or not acted upon, to file a suit for a sales tax refund. Because they are not the taxpayers, plaintiffs cannot file a claim for a sales tax refund and thus cannot file a suit for a sales tax refund. In other words, plaintiffs do not have standing to commence a sales tax refund suit.

Customers like plaintiffs, however, may obtain a refund of excess sales tax reimbursement collected by a retailer. Under Revenue and Taxation Code section 6901.5*fn1 and a related regulation (Cal. Code Regs., tit. 18, § 1700), retailers must refund excess sales tax reimbursement if (1) the Board ascertains, in response to a claim filed by a retailer (§ 6904) or as a result of an audit (§ 7054) or other review (e.g., § 6481) by the Board, that excess sales tax reimbursement was collected, or (2) the retailer prevails in a suit against the Board for a refund of overpaid sales taxes (§ 6933). Neither of these circumstances exists here. Plaintiffs therefore are not entitled to a refund of alleged excess sales tax reimbursement collected by Target under the statutory scheme enacted by the Legislature.

Plaintiffs contend that they have a private right of action against Target for a refund of sales tax reimbursement pursuant to section 6901.5, without giving the Board an opportunity to resolve the sales tax issue presented here. We reject this argument. Section 6901.5 provides for a refund of sales tax reimbursement after the Board ascertains that such a refund is due. In this case, the Board has not ascertained whether or not sales tax was due on purchases of hot coffee "to go" at Target, nor has it determined that a sales tax reimbursement refund is due. Section 6901.5 therefore does not support plaintiffs' claims against Target.

The complaint also alleges causes of action under unfair business practices and consumer protection statutes and a cause of action for money had and received. Plaintiffs seek damages, restitution and injunctive relief pursuant to these causes of action. However, plaintiffs are attempting to resolve a sales tax dispute by using consumer and common law remedies rather than the procedure set forth by the Legislature. This they cannot do under article XIII, section 32.

Plaintiffs argue that they are not violating article XIII, section 32, because they do not seek to enjoin the state from collecting sales taxes. Rather, plaintiffs contend, they seek to enjoin a private company from collecting sales tax reimbursement. Plaintiffs further contend that article XIII, section 32 is not implicated because they only seek a refund of sales tax reimbursement, not a refund of sales taxes.

We reject plaintiffs' argument and find that a court may not directly or indirectly enjoin or prevent the collection of a sales tax. As we will explain, the statutory scheme for sales taxes and sales tax reimbursement is 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.

PROCEDURAL AND FACTUAL BACKGROUND

1. Procedural History

Plaintiffs commenced this action in October 2006, and in November 2006 filed a First Amended Complaint (FAC) for six causes of action. In February 2007, the trial court sustained Target's demurrer to plaintiffs' fourth cause of action for money had and received without leave to amend. In addition, the court granted plaintiffs' request to add the Board as a new defendant.

In March 2007, plaintiffs filed a second amended complaint (SAC) for (1) violation of the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.), (2) violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), and (3) violation of section 6359*fn2 and California Code of Regulations, title 18, section 1603 (regulation 1603).*fn3 The second amended complaint did not name the Board as a defendant.

In April 2007, the court sustained Target's demurrer to all causes of action of the SAC without leave to amend, and entered judgment in favor of Target. Plaintiffs filed a timely notice of appeal.

2. Allegations in Plaintiffs' Pleadings

Plaintiffs bring this action on behalf of themselves and "all persons who are California residents who paid sales tax" to Target "for the purchase of hot coffee drinks 'to go' or for 'take-out'" (the class). In their FAC and SAC, plaintiffs made the following allegations.*fn4

Target "charged and collected sales tax" on purchases of "to go" and "take-out" hot coffee. These charges were prohibited by California law, specifically section 6359 and regulation 1603. As a result, plaintiffs suffered monetary loss. For example, in May 2006, plaintiff Azucena Lemus purchased hot coffee "to go" from a Target store located in Manhattan Beach, California. On that occasion, Target unlawfully charged Ms. Lemus "$0.71 in sales taxes."

A. Allegations Regarding Money Had and Received

Target "exacted" money from plaintiffs it "had no legal right" to receive. The money was "intended to be used for the benefit" of plaintiffs but was not used for plaintiffs' benefit. Further, Target has not given the money back to plaintiffs, thereby causing plaintiffs damage.

B. Allegations Regarding Unfair Competition Law

Target is engaged in "unfair" and "unlawful" business acts or practices. By imposing sales tax on the purchase of hot coffee "to go" or for "take-out," Target "unfairly and unlawfully increased the costs to Class members in direct contradiction to law." Plaintiffs seek to enjoin Target from "improperly charging sales taxes to consumers who purchase hot coffee drinks 'to go' and for 'take-out'," and "restitution of any monies wrongfully acquired or retained" by Target as a result of its "ill-gotten gains" obtained by "unfair practices."

C. Allegations Regarding Consumers Legal Remedies Act

The coffee purchased by plaintiffs and class members constituted goods purchased primarily for personal, family or household purposes. Target violated Civil Code section 1770, subdivisions (a)(2), (a)(3), and (a)(14) by misrepresenting that it had the legal right to charge consumers "sales taxes" on coffee purchased "to go" or for "take-out." It also violated Civil Code section 1770, subdivision (a)(19) when it inserted "an unconscionable provision into contracts" by improperly charging sales tax on certain coffee purchases.

Plaintiffs notified Target of their violations of the CLRA and demanded that Target remedy its violations. Target failed to do so within 30 days. As a result of Target's violations of the CLRA, plaintiffs and class members have suffered damages in "the amount of sales taxes wrongfully collected" by Target from plaintiffs and other class members for the purchase of hot coffee "to go" or for "take-out."

D. Allegations Regarding Revenue and Taxation Code Section 6359 and Regulation 1603

Target violated section 6359 and regulation 1603 "by charging the general public sales taxes for the sale of hot coffee drinks 'to go' or for 'take-out' . . . ." Section 6901.5 "provides a private right of action for consumers to bring suit against ...


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