Monday, January 9, 2023

California Court of Appeal, Grosz v. California Dept. of Tax and Fee Administration, Docket No. B309418


Sales and Use Taxes

 

Amazon

 

Taxpayer Action Under Code of Civil Procedure Section 526a

 

Tax Law

 

Standing

 

California Law

 

 

 

 

In addition to its own products, Amazon fulfills orders for products sold by third-party merchants through a program it calls “Fulfillment by Amazon” (FBA). The trial court in this action described the program as alleged in the First Amended Complaint (FAC): “To support this program, Amazon contracts with merchants (‘FBA Merchants’) who supply the products ordered by consumers through Amazon’s website. Amazon provides advertising, packaging, and delivery of the products supplied by the FBA Merchants. [Citation.] Amazon also processes payments for sales on behalf of the FBA Merchants.” According to the FAC, the state agency responsible for collecting sales and use tax (currently the California Department of Tax and Fee Administration (DTFA)) has historically not collected from Amazon sales and use taxes for products sold through the FBA program. Stanley Grosz filed a taxpayer actionunder Code of Civil Procedure section 526a (Section 526a) seeking a declaration that the DTFA “has a mandatory duty to assess and collect” sales and use tax specifically from Amazon for products sold through the FBA program, and an injunction requiring the DTFAto do so. The DTFA and its Director, Nicolas Maduro, and the Amazon entities that Grosz named in his FAC as Real Parties in Interest all demurred to the FAC. The trial court sustained the respondents’ demurrers without leave to amend. The trial court reasoned that the Revenue and Taxation Code vests the DTFA with discretion to determine whether the FBA Merchant or Amazon is the “retailer” in any given FBA transaction for purposes of collecting sales and use tax. Because the determination is discretionary and not ministerial, the trial court reasoned that Grosz had no standing to pursue his action. (See Silver v. Watson (1972) 26 Cal.App.3d 905, 909 (Silver).) We agree with the trial court, and will affirm the trial court’s order sustaining the respondents’ demurrers without leave to amend.

 

 

(Before July 1, 2017, the agency responsible for collecting sales and use taxes was the State Board of Equalization. The Taxpayer Transparency and Fairness Act of 2017 created the DTFA and transferred the Board of Equalization’s authority and responsibility for sales and use taxes (among other things) to the DTFA. (Stats. 2017, ch. 16, §§ 5, 14, 15; Gov. Code, §§ 15570, 15570.20, 15570.22; Rev. & Tax. Code, § 20.) (Fn. 3).

 

 

In his opening brief, Stanley Grosz—the taxpayer who filed suit against the DTFA—explains that this appeal is limited to DTFA’s “failure to collect tax from Amazon on FBA sales transacted prior to October 1, 2019. . . .” In 2019, the Legislature passed and the Governor signed Assembly Bill No. 147, which the Legislature called the Marketplace Facilitator Act (MFA). (Stats. 2019, ch. 5, § 2.) The bill made the MFA operative on October 1, 2019. (Stats. 2019, ch. 5, § 2; Rev. & Tax. Code, § 6049.5, subd. (a).) The MFA appears on its face to relate to transactions like the FBA transactions alleged in the FAC. We do not construe any part of the MFA here, but note only that it appears that Grosz has attempted to expressly exclude from his lawsuit any transactions occurring after the MFA’s operative date. (Fn. 4).

 

 

(…) The trial court (…) explaining: “The determination of which party—FBA Merchants or Amazon—was the retailer necessarily entailed consideration of all sections of the vast statutory scheme and required discretion especially considering ‘the “highly technical,” “intensely detailed and fact-specific sales tax system governing an enormous universe of transactions.”’”

 

 

Code of Civil Procedure Section 526a: “The purpose of Section 526a, ‘which applies to citizen and corporate taxpayers alike, is to permit a large body of persons to challenge wasteful government action that otherwise would go unchallenged because of the standing requirement. [Citation.]  . . . Although by its terms the statute applies to local governments, it has been judicially extended to all state and local agencies and officials. [Citations.]’ [Citation.] ‘ “The individual citizen must be able to take the initiative through taxpayers’ suits to keep government accountable on the state as well as on the local level.” ’ ” (Vasquez v. State of California (2003) 105 Cal.App.4th 849, 854, fn. omitted.) “It is established that an action lies under Section 526a not only to enjoin wasteful expenditures, but also to enforce the government’s duty to collect funds due the State. ‘ “A taxpayer may sue a governmental body in a representative capacity in cases involving its . . . failure . . . to perform a duty specifically enjoined.” [Citation.] This well-established rule ensures that the California courts, by entertaining only those taxpayers’ suits that seek to measure governmental performance against a legal standard, do not trespass into the domain of legislative or executive discretion. [Citations.] This rule similarly serves to prevent the courts from hearing complaints which seek relief that the courts cannot effectively render; the courts cannot formulate decrees that involve the exercise of indefinable discretion; their decrees can only restrict conduct that can be tested against legal standards. [Citations.]’ ” (Vasquez v. State of California, supra, 105 Cal.App.4th at pp. 854-855, italics added.) “The cases have . . . been careful to note that Section 526a has its limits. In particular, the courts have stressed that the statute should not be applied to principally ‘political’ issues or issues involving the exercise of the discretion of either the legislative or executive branches of government.” (Humane Society of the United States v. State Bd. of Equalization (2007) 152 Cal.App.4th 349, 356, italics added; see Silver, supra, 26 Cal.App.3d at p. 909 [“if the governing body has discretion in the matter, the taxpayer may not interfere”].)

 

 

Sales and Use Tax “Retailer”: “The California Sales and Use Tax Law (Rev. & Tax. Code, § 6001 et seq.) 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. [Citation.] 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. . . a use tax is a tax on the enjoyment of that which was purchased.’ ” Citations. The use tax supplements the sales tax by imposing on those subject to it the same tax burden as would otherwise be assessed under the sales tax.” (Wallace Berrie & Co. v. State Bd. of Equalization (1985) 40 Cal.3d 60, 66-67, fns. omitted.) Specifically, California law imposes a tax on “the gross receipts of any retailer from the sale of all tangible personal property sold at retail in this state. . . .” (Rev. & Tax. Code, § 6051.) The sales tax is imposed on and collected from “retailers.” (Ibid.) California law also imposes a tax on the “storage, use, or other consumption in this state of tangible personal property purchased from any retailer. . . .” (Rev. & Tax. Code, § 6201.) This tax is imposed on the retail purchaser, but is collected from the purchaser by the “retailer” and remitted to the state. (Rev. & Tax. Code, §§ 6202, 6203.) Pertinent to this appeal, the Sales and Use Tax Law states that “ ‘retailer’ includes,” among other things, “every seller who makes any retail sale or sales of tangible personal property . . .” and “every person engaged in the business of making sales for storage, use, or other consumption . . . .” (Rev. & Tax. Code, § 6015, subd. (a)(1) & (2).) A “ ‘seller’ includes every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax.” (Rev. & Tax. Code, § 6014.) “A ‘retail sale’ . . . means a sale for a purpose other than resale in the regular course of business in the form of tangible personal property.” (Rev. & Tax. Code, § 6007.) And a “ ‘sale’ ” means, among other things, “any 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. ‘Transfer of possession’ includes only transactions found by the DTFA to be in lieu of a transfer of title, exchange, or barter.” (Rev. & Tax. Code, § 6006, subd. (a).)

 

 

(…) Pawnbrokers, storage men, mechanics, artisans, or others selling the property to enforce a lien thereon, are retailers with respect to sales of the property to consumers and tax applies to the receipts from such sales.

 

 

(…) Grosz concedes that a sales or use tax can only be applied once to a retail transaction—that Amazon and any particular FBA Merchant “cannot both be held liable for tax on the same . . . sale.” (Fn. 8).

 

 

(…) On the statutory interpretation question, we conclude, as did the trial court, that the determination of who is a “retailer” under the Sales and Use Tax Law and relevant regulations is one that invokes the discretion of the DTFA; making that designation is not a ministerial task (…) as opposed to a discretionary action.

 

 

(…) Here, by contrast, the question is not whether the law imposes a tax, but rather on whom, based on language in several interrelated statutes. The question here, as the trial court pointed out, is not whether the DTFA has discretion, but rather how it must exercise that discretion. That is the critical distinction between this case and Sonoma (195 Cal.App.3d 982).

 

 

(…) In addition to expressly giving the DTFA discretion to determine who “may be regarded . . . as retailers” for purposes of the Sales and Use Tax Law under the circumstances outlined in Revenue and Taxation Code section 6015, subdivision (b), we note the broad discretion the Legislature has given the DTFA generally. (Gov. Code, §§ 15570 et seq.).

 

 

The statutory framework of the Sales and Use Tax Law and the statutes vesting the DTFA with authority to administer that statutory framework also generally lead us to conclude that whether a taxpayer is a retailer for purposes of the Sales and Use Tax Law is a discretionary determination and not a ministerial task. Consistent with those conclusions, we agree with the trial court that Grosz’s lawsuit may not proceed under Section 526a.

 

 

We affirm the trial court’s order sustaining the DTFA’s and Amazon’s demurrers and dismissing the lawsuit.

 

 

 

 

(California Court of Appeal, Jan. 9, 2023, Grosz v. California Dept. of Tax and Fee Administration, Docket No. B309418, Certified for Publication)

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