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City of Palmdale et al v. State Board of Equalization

May 23, 2012

CITY OF PALMDALE ET AL., PLAINTIFFS AND RESPONDENTS,
v.
STATE BOARD OF EQUALIZATION, DEFENDANT AND APPELLANT; CITY OF POMONA, REAL PARTY IN INTEREST AND APPELLANT. CITY OF LOS ANGELES, PLAINTIFF AND RESPONDENT,
v.
STATE BOARD OF EQUALIZATION, DEFENDANT AND APPELLANT; CITY OF POMONA, REAL PARTY IN INTEREST AND APPELLANT. CITY OF ALHAMBRA ET AL., PLAINTIFFS AND RESPONDENTS,
v.
STATE BOARD OF EQUALIZATION, DEFENDANT AND APPELLANT; CITY OF POMONA, REAL PARTY IN INTEREST AND APPELLANT.



(Los Angeles County Super. Ct. No. BS124919) (Los Angeles County Super. Ct. No. BS124950) (Los Angeles County Super. Ct. No. BS124978)

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

CERTIFIED FOR PUBLICATION

MOTION to vacate a judgment of the Superior Court of Los Angeles County pursuant to stipulation upon settlement, David P. Yaffe and Ann I. Jones, Judges. Motion denied.

In this appeal from the granting of a petition for a writ of administrative mandate, the parties have filed a motion to settle the case pursuant to a stipulation requiring that we vacate the trial court's judgment and reinstate the agency's decision. We deny the motion for vacatur because the interests of the public would be adversely affected if the judgment were vacated.

In particular, the judgment faults a state agency -- which allocates local sales tax revenues among cities and hears taxpayer appeals concerning corporate and personal income taxes -- for rendering a decision without due regard for the statutory and constitutional laws that govern its decisionmaking. The agency's decisions affect the fiscal condition of California and its subdivisions and the finances of state taxpayers. To vacate the judgment and reinstate the agency's decision would not only imply the agency acted properly, it would also undermine the effectiveness of the judgment in exposing the agency's deficiencies in handling the administrative appeal. Unless and until reversal on appeal, the judgment should remain intact as a reminder to the agency that it must comply with the laws that restrict its decisionmaking authority.

I

BACKGROUND

The pertinent evidence and allegations are taken from the complaint, the exhibits to the motion to vacate the judgment, the parties' stipulated facts, and the underlying record.

As the trial court explained: "California cities and counties are authorized to impose a local sales tax and a local use tax by adopting . . . ordinances. . . . [Local taxes are] administered by the [State Board of Equalization (Board)], which collects the local taxes and remits the revenues to participating local jurisdictions. . .

"Local sales tax revenues are distributed to the place of sale. The place of sale is the city where the retailers have a business location that, under rules and regulations adopted by the [Board], is identified as the place where the sales in question occur. That location, however, does not have to be the same place as the location where title transfers. . . .

"Local sales tax revenues are distributed . . . in one of two ways. About ninety percent of all local tax revenue is distributed directly to each city at the end of each tax quarter. The remaining ten percent is distributed to the cities indirectly through the pool systems." (Citations omitted, italics added.)

In the motion to vacate the judgment, the parties describe the "warehouse rule" and the pool system: "[T]he so-called 'warehouse rule' [was] used for many years by the [Board] to allocate sales tax revenues among cities, redevelopment agencies, and other local entities in a county. For many years, the [Board] followed a rule providing that sales tax revenues generated by sales from a warehouse were allocated according to whether the warehouse held its own resale permit. If the warehouse held such a resale permit, sales were considered to be local and all such sales tax revenues were allocated to the city or governmental agency where the warehouse was situated. If the warehouse did not hold such a resale permit (and it was not required to [have one] under past rules) then all sales tax revenues derived from sales from such a warehouse were distributed to all cities and agencies in the county (the 'countywide pool')." (Italics added.)

As the trial court stated: "The sales at issue in this case involve transactions where the tangible personal property sold was ordered from an out-of-state retailer but fulfilled from an in-state stock-of-goods belonging to the retailer. Specifically, a retailer of telecommunications hardware maintained a warehouse in [the City of] Pomona. The [retailer] sold products through an 800-number located in Atlanta, Georgia, and merchandise was delivered to the customer from the Pomona warehouse location. [¶] . .

"Historically, local tax revenue derived from transactions subject to the warehouse rule could only be distributed through the county-wide pool system. [Cal. Code Regs., tit. 18, former §] 1802(b)(5). On November 15, 2005 and effective December 16, 2006, the [Board] amended Regulation 1802 to provide that sales tax revenue derived from 'warehouse-rule' sales could be allocated directly to the location of the warehouse as long as an in-state sales office did not participate in the transactions. [Cal. Code Regs, tit. 18, §] 1802(c). Thus, the 2006 amendment changed the method of allocation from a pooled allocation to a direct one.

"[Also in 2006,] the [Board] amended a corollary regulation, Regulation 1699 [Cal. Code Regs., tit. 18, § 1699], which interprets and implements the statutes addressing when permits may be issued. Before its amendment, Regulation 1699 did not require a warehouse not customarily visited by customers to purchase goods to obtain a seller's permit. A warehouse was only required to hold a seller's permit if the retailer had no other location in California holding a permit. The rule was changed to require a permit for warehouses at which merchandise is stored and from which retail sales of such merchandise negotiated out-of-state are delivered and fulfilled." (Fn. omitted.)

The Board discusses the history of the warehouse rule: "Since the inception of the location tax system in 1956, the Board has concluded that when the retailer had no sales offices in the state (i.e., the sales where negotiated out of state) but shipped its goods from a stock of merchandise stored in the state, the location of the warehouse stock was regarded as the place of sale as to all items shipped from that location even if the retailer did not own the warehouse (the 'warehouse rule'). The local sales tax revenue was distributed to that location through the medium of the county-wide pool system. Operative October 1, 1993, the Board amended [California Code of Regulations, title 18, section 1802, former] subdivision (b)(5) to provide that local sales tax revenues derived from sales subject to the warehouse rule should be distributed directly to the location of the stock of goods[, the city or redevelopment agency,] rather than through the county-wide pool system [to all cities and redevelopment agencies in the county]. The amendment did not address what happened when the retailer did have sales offices in this state in addition to the stocks of goods. [¶ ] . .

"On August 31, 2005, the Board concluded that it should be clarified that local sales tax revenue derived from sales subject to the warehouse rule should be distributed to the location of the stock of goods from which delivery is made in all cases[, namely, to the city or redevelopment agency where the warehouse is found]. The Board has also concluded that placing the regulatory provisions governing such sales in [California Code of Regulations, title 18, section 1802,] subdivision (b), which generally addressed the issue of sales negotiated in this [state] by specified types of sellers, caused confusion as to the basis for asserting local sales tax on sales subject to the warehouse rule. In that [situation], the participating jurisdiction where the stock[] of goods is located asserts its jurisdiction based not on where the sales were negotiated but on the fact that the retailer's property is located in the jurisdiction. As a result, the Board concluded that [California Code of Regulations, title 18, section 1802, former] subdivision (b)(5) should be deleted and its current ...

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