APPEAL from a judgment of the Superior Court of Los Angeles County. James C. Chalfant, Judge. (Los Angeles County Super. Ct. No. BC386768)
The opinion of the court was delivered by: Zelon, J.
pub. order & mod. 7/21/11 (see end of opn.)
Appellant AvalonBay Communities, Inc. was assessed a 10 percent tax penalty after submitting a delinquent property tax payment. Avalon requested that the Los Angeles County Tax Collector cancel the penalty under Revenue and Taxation Code section 4985.2 because the late payment was the result of an inadvertent employee error. The Tax Collector denied the request.
Avalon filed a petition for writ of mandate asserting that the Tax Collector had a mandatory duty to cancel the penalty pursuant to section 4985.2. Alternatively, the petition argued that Avalon was entitled to an evidentiary hearing before a neutral arbiter to determine whether it was entitled to cancellation.
The trial court held that section 4985.2 only permits the cancellation of a tax penalty if the delinquent payment was caused by an act outside the taxpayer's control. The court further concluded that Avalon could not make such a showing because it admitted the late payment was caused by an employee error. The court also denied Avalon's request for an administrative hearing, but ordered the Tax Collector to "issue an objective, written procedure by which the Tax Collector evaluates the penalty cancellation claims under section 4985.2."
On appeal, Avalon again asserts that, pursuant to section 4985.2, the Tax Collector was required to cancel its delinquent tax penalty or, alternatively, to provide an administrative evidentiary hearing before a neutral arbiter. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Avalon's Delinquent Property Tax Payment
Under the Revenue and Taxation Code,*fn1 California taxpayers are permitted to submit property taxes to the County Tax Collector in two, semi-annual installments. The first installment is "due and payable" on November 1 of each fiscal tax year, and is considered "delinquent" if the payment is not received by 5:00 p.m. on December 10.*fn2 (§§ 2605, 2617.) The second installment is "due and payable" on February 1 of each fiscal tax year and is considered delinquent if the payment is not received after by 5:00 p.m. on April 10. (§§ 2606, 2618.) Any delinquent property tax payment is automatically subject to a 10 percent penalty. (§§ 2617, 2618.)
In November of 2005, AvalonBay Communities, Inc. received its 2005-2006 property tax bill from Los Angeles County. Avalon paid the first installment on or before December 10. On March 23, 2006, the company sent a letter notifying the County Tax Collector that it intended to wire the second installment of its property tax, which was approximately $2.1 million, on April 6, 2006. The same day the letter was sent, Avalon prepared an internal "Funds Transfer Request" (FTR) specifying that $2.1 million should be wired to the Tax Collector on April 6, 2006. Avalon's tax manager and controller approved the FTR, and then forwarded it to the Cash Management Department, which was supposed to process the request.
Avalon's Cash Management Manager, Peggy Powell, was responsible for issuing the wire payment and ensuring that the payment was made on the appropriate date. On April 2, 2006, Powell received an internal email indicating that the property tax FTR had been approved. However, due to "human error," Powell "overlooked the request for the funds" and failed to wire the payment on the scheduled date. On April 12, Powell discovered that the FTR had not been processed and immediately wired the funds to the Tax Collector.
According to Avalon, Powell's assistant, Derrick Faison, was partially responsible for the "inadvertent late payment." In late 2005 or early 2006, Faison was hired by Avalon to replace Powell's former assistant. As of April 2006, Faison, whose job title was Cash Management Analyst, was still "fairly new to the position." Other than Powell, Faison was the only employee who had access to the FTR database that showed all of the wire requests. Although it was "not [Faison's] responsibility to ensure that [the property tax] payment was made," or to "look at the system to see if it was paid," he frequently worked in the FTR database and could have notified Powell that the payment had not been processed. Avalon asserted that "a more trained and seasoned analyst would probably have noticed that there was an unprocessed wire transfer within the database" and "caught" the error.
Following its late payment, Avalon amended its accounting systems to add a "real-time display" that "reflects all requested but unprocessed electronic EFTs or wire transfers for a given day." The Cash Manager is now required to review the display "at the end of each business day to ensure that any wires that were requested to be processed that day have been." Avalon adopted theses corrective measures "to insure that the property taxes would not be paid late again."
B. Avalon's Tax Penalty and Request for Cancellation
The County Tax Collector notified Avalon that it had been assessed a 10 percent penalty totaling approximately $215,000 because its second property tax installment was submitted after April 10. On June 2, 2006, Avalon requested that the Tax Collector cancel the penalty pursuant to section 4985.2 because the "late payment was . . . inadvertent." Avalon explained that, "[d]ue to an internal glitch in our electronic funds wiring authorization process, the [property tax funds] were not released until April 11, 2006. At the same time that this authorization process failed, a new employee was being trained for a position that may have caught this mistake."
After reviewing Avalon's request, the Tax Collector determined that the delinquent payment "was solely the result of employee error," which was insufficient to support cancellation under section 4985.2(a). On September 29, 2006, the Tax Collector issued a letter informing Avalon that its cancellation request had been denied. The letter began by describing the procedures the Tax Collector's office followed when evaluating penalty cancellation requests:
Requests for cancellation of penalties assessed on delinquent property taxes . . . are typically made in writing by the assessee and initially reviewed by staff. Under some circumstances (e.g., a request based on a check lost in the mail, or a request based on hospitalization) we may require additional information and or documentation. My staff is authorized to rule on cancellation requests in certain routine cases, and a staff denial may be appealed to me for final disposition. Requests involving unusual facts are reviewed and determined by me personally.
The letter did not explain why Avalon's cancellation request had been denied, stating only that "a 10% delinquency penalty attached by operation of law and your request for penalty cancellation under [section] 4985.2 is denied." The Tax Collector informed Avalon that if it wanted to challenge the penalty, it was required to file a refund claim with the Los Angeles County Board of Supervisors.
On June 29, 2007, Avalon submitted a tax refund claim to the Board of Supervisors. Although Avalon acknowledged that a "change in company personnel" had contributed to the late tax payment, it also argued that the error was a result of Los Angeles County's imposition of the "EFT [Electronic Funds Transfer] payment method," which Avalon described as "relatively new to the company and . . . very complex." Avalon contended that "[a]s the taxpayer has no say or control over the payment method required by the County, the penalty should be abated in this instance."
The Board denied the request and notified Avalon that it had six months to seek judicial review of its decision. (See § 5141.)
C. Avalon's Petition for Writ of Mandate
On March 7, 2008, Avalon filed a petition for writ of mandate under Code of Civil Procedure section 1085 alleging that the Tax Collector "failed in the mandatory ministerial duty described in Section 4985.2 to cancel the [delinquent tax] Penalty."*fn3 The petition acknowledged that the late payment was the result of an "inadvertent" employee error, but argued that the company was "prepared to establish that" the error was due to "circumstances beyond Avalon's control." The petition also asserted that the Tax Collector was required to issue "written policy and procedures" describing the manner in which it evaluates tax cancellation requests and provide an administrative evidentiary hearing before a "neutral arbiter" to determine whether cancellation was appropriate under section 4985.2.
In May 2009, Avalon filed a memorandum in support of its petition for writ of mandate. Although Avalon admitted that its late payment was the result of "ordinary neglect and mistaken inadvertence," it argued that section 4985.2 required cancellation unless the evidence showed the taxpayer had acted with "willful neglect," which Avalon described as "something more than mere 'negligence.'"
Alternatively, Avalon argued that regardless of what standard of negligence applied, the company could not be held responsible for errors committed by its employees, explaining:
Avalon, not its . . . manager or its employees, is the taxpayer who incurred the [penalty] . . . . Plainly Avalon . . . cannot possibly prevent ordinary negligence on the part of its employees.
Avalon contended that requiring an employer to pay a tax penalty where the delinquency was the result of an employee's mistake would "amount to an absurdity" because it would "impose . . . an unattainable standard of care"
The trial court heard the petition on June 19, 2009, and rejected Avalon's interpretation of the statute. The court explained that although the language of section 4985.2 was redundant, the statute clearly required "a lack of negligence, ordinary negligence by the taxpayer in order for the penalty cancellation to occur." The court further explained that the statute was intended to apply where "some independent force or reason" caused the tax payment to be late, adding that "negligent conduct - oops, forgot to make a payment, is categorically not going to meet the test."
In a subsequently issued written order, the court held that section "4985.2 must be interpreted to mean that a penalty cancellation for a late payment must be supported by reasonable cause, meaning the late payment was caused by circumstances beyond the taxpayer's control, and not due to its own negligence." Because "Avalon was clearly negligent," it was "not entitled to the penalty cancellation."
The trial court also ruled that the Due Process Clause did not require the Tax Collector to provide an administrative hearing on every tax penalty cancellation request:
The Tax Collector assesses more than 2.3 million parcels of land in the County, and mailed 2.3 million property tax bills in 2005-06. . . . [¶] . . . In light of the volume of property tax bills he handles, the burden on the Tax Collector of a formal hearing would be considerable. The Tax Collector must be able to review a taxpayer's section 4985.2 claim informally. This can occur through the process of a taxpayer making a written request supported by evidence and the Tax Collector making an informal decision. To satisfy due process, however, the Tax Collector's finding must be supported by an explanation so that the taxpayer may determine whether, and upon what basis, to review the decision.
The court concluded that although the Tax Collector's letter denying Avalon's cancellation request did not provide a sufficient explanation for its decision, the undisputed evidence showed Avalon was not entitled to cancellation under the statute. Therefore, there was no reason to order the Tax Collector to provide an explanation.
The court also ruled that the Tax Collector was not required to issue "a formal policy" explaining how his staff made tax cancellation decisions. According to the court, "[i]t is enough that section 4985.2 sets the standard for the Tax Collector's decision, the taxpayer can determine from the decision what the analytical route was for denial of his or her claim, and the Tax Collector makes all final decisions where the taxpayer is not satisfied."
However, the trial court further concluded that the Tax Collector was required to make available to the public "objective, written procedures" explaining the appeal process "by which a taxpayer not satisfied with a staff ruling may have the issue reviewed by the Tax Collector personally."
The court issued an order granting the writ to require the Tax Collector to issue a written policy describing its appeal procedure, but denied the petition "[i]n all other respects." Avalon filed a timely appeal.
On appeal, Avalon argues that: (1) the trial court erred in concluding that section 4985.2 precludes cancellation if a delinquent tax payment was caused by the negligent acts of the taxpayer's employees, and (2) the judgment must be reversed because Avalon was entitled to ...