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City of Anaheim v. Superior Court of Los Angeles County

November 24, 2009


ORIGINAL PROCEEDING; Petition for writ of mandate. Carolyn B. Kuhl, Judge. Writ denied. (Los Angeles County Super. Ct., JCCP No. 4472).

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


Under article XIII, section 32 of the California Constitution, a taxpayer who wishes to challenge the assessment of a state tax must pay the disputed amount of tax before seeking recourse in the courts to recover the amount assessed. This constitutional provision, commonly known as the "pay first" rule, allows ‗"revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted.'" (State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638, citing Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283.)

In this case, the City of Anaheim assessed a "transient occupancy tax" (TOT) against a number of online travel companies (OTC's)*fn1 and ultimately concluded that the OTC's owed taxes, plus interest, in the collective amount of more than $21 million. Without paying the assessed amounts, the OTC's filed superior court actions seeking mandamus and declaratory relief against the City and its administrative hearing officer, Michael Miller (collectively "City"). Citing the "pay first" rule, the City demurred to the petitions on the ground that the OTC's had not paid the taxes allegedly due prior to filing suit. The superior court overruled the demurrers and we denied the City's petition for writ of mandate. The City sought review in the California Supreme Court and we issued an order to show cause at that court's direction.

We hold that the City cannot invoke article XIII, section 32 in this case because that constitutional provision applies only to actions against the state or an officer of the state. Further, there are no alternative legal grounds upon which the City can impose a "pay first" requirement upon the OTC's in this case. Accordingly, we deny the petition.


The following facts are digested from the trial court proceedings relating to Expedia, which was the lead case in the superior court. For purposes of evaluating the sufficiency of Expedia's pleading against the City's demurrer, we treat the demurrer as admitting all material facts properly pleaded, as well as matters that may be judicially noticed. (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713, 716.)

In its mandate petition in the superior court, Expedia alleged that the TOT is authorized by the City's Transient Occupancy Tax Code (Anaheim Mun. Code, Chapter 2.12 (the Ordinance).) The Ordinance requires a "transient"-one who occupies a hotel room or similar facility for less than 30 days-to pay a tax of "fifteen percent of the rent." (Anaheim Mun. Code, § "Rent" is "the consideration charged by an operator for accommodations . . ." by an "operator" of a hotel. (Anaheim Mun. Code, § An "operator" is "any person, corporation, entity, or partnership which is the proprietor of the hotel, whether in the capacity of owner, lessee, sublessee, mortgagee in possession, debtor in possession, licensee or other capacity. Where the operator performs its functions through a managing agent of any type or character other than as an employee, the managing agent shall also be deemed an operator and shall have the same duties and liabilities as its principal. . . ." (Anaheim Mun. Code, §

OTC's make available on the Internet information concerning hotel room, rental car, airline and other travel-related reservations. They facilitate the booking of hotel rooms and other travel-related reservations but do not own or operate any hotels or provide accommodations. OTC's are compensated for their services by retaining the difference between the amount they collect from a hotel guest and the amount the OTC's pay a hotel for the guest's occupancy.

The TOT has been in effect since at least 1977, and prior to 2007 it sought to collect the tax only from hotel operators and not from "intermediaries" such as travel agents, tour operators and travel consolidators. The City had never tried to impose the TOT on the amounts the OTC's retained for their online reservation services.

That changed in 2007, when the City decided that OTC's should be subject to the TOT. On October 10, 2007, the City issued a "Notice of Audit" to the OTC's regarding "unpaid" TOTs. On May 23, 2008, the City issued an "estimated assessment" to four OTC's (Expedia, Orbitz, Priceline and Travelocity) for taxes, penalties and interest for the period January 1, 2000, to December 31, 2007. The OTC's objected in writing to the assessments and requested an administrative hearing pursuant to the appeal process provided for in the Ordinance. The City appointed a hearing officer (petitioner Miller), who conducted eight days of hearings between August 25, 2008, and December 8, 2008.

On February 7, 2009, Mr. Miller issued a 55-page "Hearing Officer Decision With Findings and Notice of Amount Due." The amounts for each OTC were as follows: Expedia, $9,884,872.31;, $7,452,777.02; Hotwire, $404,554.75; Orbitz, $708,984.25; and (Orbitz affiliates), $570,699.92; Priceline, $829,780.32; Site 59, $28,070.63; and Travelocity, $1,447,147.10.

Superior Court Proceeding

On February 11, 2009, Expedia filed a petition for writ of mandate and complaint for declaratory relief in the Superior Court of Orange County. The other OTC's affected by the hearing officer's decision filed similar ...

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