California Court of Appeals, First District, Second Division
San Francisco City and County Super. Ct. Nos. CPF-09-509231, CPF-09-509234, Hon. James Robertson, II Trial Judge
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Pearson, Simon, Warshaw & Penny, George S. Trevor, William J. Newsom, Holland & Knight, Charles L. Coleman, III, Adanna M. Love and Albin C. Koch for Plaintiff and Appellant.
Kamala D. Harris, Attorney General, Paul D. Gifford, Assistant Attorney General, Joyce E. Hee, Kristian D. Whitten and Karen Y. Yiu, Deputy Attorneys General, for Defendant and Appellant.
Trombadore Gonden Law Group, J. Thomas Trombadore, David M. Gonden, Wendel, Rosen, Black & Dean, Leslie A. Hausrath R. Zachary Wasserman and Thiele R. Dunaway for Interveners and Appellants.
Under the Board of Equalization’s (SBE) interpretation of the Revenue and Taxation Code, all retail sales of tangible personal property stored, used, or consumed in California are subject, with limited exceptions, to either a state sales or use tax. SBE applies a state sales tax when a California business is involved in the sale and title to the property passes to the customer in California. (See Rev. & Tax Code, §§ 6006, subd. (a); 6010.5, 6051; Cal. U. Com. Code, § 2401, subd. (2).) If these two conditions are not satisfied, the sale is subject to a use tax. (See Rev. & Tax Code, §§ 6201, 6202, 6203, 6401.)
For over 50 years SBE has interpreted the local sales and use tax law (the Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns Act); § 7200 et seq.) as being consistent with section 6001 et seq., part of California's Sales and Use Tax Law (the State Tax Law). Accordingly, it subjects the retail sale of personal property to a local sales tax whenever the state sales tax applies and subjects such a sale to a local use tax whenever the state use tax applies. (See Cal. Code Regs., tit. 18, § 1803.) Whether SBE administers a local sales or use tax has significant consequences for cities and counties: all local sales tax revenue goes to the city where the sale was consummated while local use tax revenue is allocated to the county and distributed by the county to its cities out of a county wide pool. The city in which the sale was transacted will usually receive less revenue when a local use tax rather than a local sales tax is imposed.
Seven California cities (City Petitioners) filed for writ of mandate objecting to SBE’s determination that the Bradley-Burns Act and the State Tax Law are identical when determining whether to apply a sales or use tax. Unlike SBE, City Petitioners claimed that under section 7205, subdivision (a), part of the Bradley-Burns Act, all sales negotiated in a business in their city should be subject to a local sales tax—not a local use tax. Under their construction of the statutes, a local sales tax applies to all transactions consummated at a retail store in California even when the purchased item is shipped from an out-of-state warehouse to the California consumer and the transaction is therefore subject to a state use tax. The trial court agreed with City Petitioners’ interpretation of section 7205, subdivision (a), but denied City Petitioners’ request to have the relief apply retroactively.
This appeal presents two principal questions: Did the trial court correctly interpret section 7205, subdivision (a) and did SBE abuse its discretion by using the California Uniform Commercial Code to determine when title to the goods passed? We conclude SBE has been applying the law correctly. Accordingly, we reverse the portion of the judgments granting the petitions for writ of mandate.
State Tax Law
California “entered the field of sales and use taxes... with the enactment of the Retail Sales Tax Act of 1933 (Stats. 1933, ch. 1020, § 1, p. 2599), and
the Use Tax Act of 1935 (Stats. 1935, ch. 361, § 1, p. 1297.)” (Rivera v. City of Fresno (1971) 6 Cal.3d 132, 135 [98 Cal.Rptr. 281, 490 P.2d 793], disapproved on other grounds in Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 15 [78 Cal.Rptr.2d 1, 960 P.2d 1031].) Since 1943, these two acts have been codified in Division 2, Part 1 in the Revenue and Taxation Code as the Sales and Use Tax Law (§ 6001 et seq.). The State Tax Law “embodies a comprehensive tax system created to impose an excise tax, for the support of state and local government, on the sale, use, storage or consumption of tangible personal property within the state. [Citations.] The two taxes, sales and use, are mutually exclusive but complementary, and are designed to exact an equal tax based on a percentage of the purchase price of the property in question. In essence, ‘ “[a] sales tax is a tax on the freedom of purchase [and a] use tax is a tax on the enjoyment of that which was purchased. [Citations.]” ’ ” (Wallace Berrie & Co. v. State Bd. of Equalization (1985) 40 Cal.3d 60, 66-67 [219 Cal.Rptr. 142, 707 P.2d 204], fn. omitted.)
The sales tax is imposed on retailers “[f]or the privilege of selling tangible personal property at retail... in this state....” (§ 6051.) “The retailer is the taxpayer, not the consumer.” (Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1104 [171 Cal.Rptr.3d 189, 324 P.3d 50], italics and fn. omitted.) 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.) 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).)
In contrast, “the use tax falls on the purchaser, although the retailer may collect the tax as an agent. (§§ 6202, 6203....)” (Loeffler v. Target Corp., supra, 58 Cal.4th at p. 1104, fn. 5.) California imposes a use tax on tangible personal property that is (1) purchased from a retailer, (2) stored, used, or consumed in this state, and (3) for which no California sales tax was paid at the time of purchase. (§§ 6201, 6202, 6401; Regs., § 1620, subd. (b); Searles Valley Minerals Operations, Inc. v. State Bd. of Equalization (2008) 160 Cal.App.4th 514, 520 [72 Cal.Rptr.3d 857].) The law presumes that tangible personal property brought into California is purchased for storage, use or other consumption here. (§ 6246.)
The use tax complements the sales tax by preventing the sales tax from resulting in an “ ‘unfair burden being placed upon the local retailer engaged solely in intrastate commerce as compared with the case where the property is purchased [out of state] for use or storage in California and is used or stored in this state. The two taxes are complemental to each other with the
aim of placing the local retailers and their out-of-state competitors on an equal footing.’ ” (Union Oil Co. v. State Bd. of Equalization (1963) 60 Cal.2d 441, 449 [34 Cal.Rptr. 872, 386 P.2d 496].) A credit against the use tax is allowed for sales taxes paid to another state with respect to the property. (§ 6406.) A transaction is exempt from the use tax if it is subject to the sales tax. (§ 6401.)
In 1956, SBE promulgated SBE Ruling 2203, the predecessor of present Regulation section 1803 (Regulation 1803). This ruling stated: “(a) In any case in which state sales tax is applicable..., state-administered local sales tax is also applicable, if the place of sale... is in a county having a state-administered local tax, or is in a city within such a county. In any case in which the state sales tax is inapplicable..., state-administered local sales tax is also inapplicable. Thus, if title to the property sold passes to the purchaser at a point outside this State, state-administered local sales tax does not apply regardless of participation in the transaction by a California retailer....”
In 1970, SBE promulgated Regulation 1803, which amended and renumbered SBE's former ruling 2203. Regulation 1803 provides in relevant part: “(a) Sales Tax. [¶] (1) In General. Except as stated below, in any case in which state sales tax is applicable, state-administered Bradley-Burns uniform local sales tax is also applicable, if the place of sale is in a county imposing a state-administered local tax. In any case in which state sales tax is inapplicable, state-administered local sales tax is also inapplicable. Thus, if title to the property sold passes to the purchaser at a point outside this state, state-administered local sales tax does not apply regardless of participation in the transaction by a California retailer....”
Seven years earlier, in 1963, the California Legislature adopted the California version of the national Uniform Commercial Code. Section 2401, subdivision (2), of the California Uniform Commercial Code states in pertinent part: “Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading. [¶] (a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but [¶] (b) If the contract requires delivery at destination, title passes on tender there.” (Cal. U. Com. Code, § 2401, subd. (2); see Regs., §1620, subd. (a)(2)(A).)
In 1965, the Legislature enacted section 6010.5 (Assem. Bill No. 1086 (1965 Reg. Sess.)). It states: “For the purposes of this part, the place of the sale or purchase of tangible personal property is the place where the property is physically located at the time the act constituting the sale or purchase, as defined in this part, takes place.” (§ 6010.5.) A Memorandum dated July 8, 1965, written by Hale Champion, Director of Finance, to Governor Edmund G. Brown, stated that this statute “would maintain the status quo and prevent complications which might result from recent changes in the Uniform Commercial Code.” According to a letter dated June 10, 1965, to the Governor from Assemblyman Alfred E. Alquist, this statute was necessary “because of a provision in the Commercial Code which provides that the place of sale can be where the ...