Institute in Basic Youth Conflicts, Inc. v. State Board of Equalization

Opinion

Defendant California State Board of Equalization (Board) appeals from a judgment after trial by court refunding sales and use taxes paid by plaintiff under protest. The judgment was for the refund, plus interest, of taxes assessed for the period 1975 through 1978, and 1979 through September 30, 1981.

After trial but prior to entry of judgment plaintiff moved to amend its complaint to include additional taxes allegedly self-assessed and paid, but as to which no claim had ever been filed with the Board, and for attorneys’ fees. The court denied both motions after hearing and plaintiff cross-appeals from these rulings.

Plaintiff is a nonprofit religious corporation exempt from federal and state income taxation. Plaintiff’s religious mission is to introduce youth and parents to God through Jesus Christ and to give instruction through seminars and publications on how to apply God’s basic principles of life as revealed in the Scriptures. Plaintiff conducts seminars throughout the United States which are attended by both laypersons and religious leaders. These seminars consist of four evening sessions, Monday through Thursday, and two all-day sessions on Friday and Saturday, for a total of approximately thirty-two hours.

The registration fee for a person attending a seminar for the first time is $45. If an attendee is indigent or has attended a prior seminar the program

While the action was pending a second audit was conducted for the period January 1, 1979 to September 30, 1981 and the Board assessed additional tax liability against the plaintiff in the amount of $11,952.12 for the sale of syllabus notebooks from January 1, 1979 to January 31, 1980. After January 1980 the plaintiff discontinued its practice of stating a separate charge for its syllabus notebooks at its seminars and, accordingly, the Board did not compute sales tax on the distribution of the notebooks after January 1980. However, since the materials in the notebooks were purchased outside the state and there was no indication that sales tax was paid or due at the time of purchase, the Board assessed a use tax on the cost of syllabus notebooks used between February 1, 1980 and September 30, 1981, in the amount of $818.18. The Board also assessed a sales tax on the sale at seminars of religious literature other than the syllabus notebooks, in the amount of $6,517.52, and on the sale of religious literature by mail order, in the amount of $2,031.

Plaintiff paid the second assessment and filed a claim for refund on the identical grounds used in its first claim for refund. The claim was denied by the Board and the plaintiff amended its complaint in the superior court to include a prayer for the taxes paid in connection with the second audit.

The Sales and Use Tax Law imposes upon all retailers a sales tax “[f]or the privilege of selling tangible personal property at retail . . . .” (Rev. & Tax. Code, § 6051.) A “sale” includes any transfer of title of tangible personal property in any manner (Rev. & Tax. Code, § 6006) and the fact that the billing rendered the customer does not show the sales price separately is immaterial. (Kamp v. Johnson (1940) 15 Cal.2d 187 , 190 [ 99 P.2d 274 ].) To be a “retailer” the particular individual need not be otherwise engaged in any commercial activity and the primary activity may be the rendering of services. (Hotel del Coronado Corp. v. State Board of Equalization (1971) 15 Cal.App.3d 612 , 618-620 [ 92 Cal.Rptr. 456 ].)

The use tax is complementary to the sales tax. Revenue and Taxation Code section 6201 provides that “[a]n excise tax is hereby imposed on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer ... for storage, use, or other consumption,” at the same rate as the sales tax. Although the incidence of the use tax is on the purchaser (Rev. & Tax. Code, § 6202), as a general proposition the

In Follett v. McCormick (1944) 321 U.S. 573 [ 88 L.Ed. 938 , 64 S.Ct. 717 , 152 A.L.R. 317 ], appellant was again a Jehovah’s Witness who was a resident of McCormick, South Carolina, where he went from house-to-house selling religious books. He refused to obtain a license and was convicted of violating the local ordinance. The Supreme Court of South Carolina upheld the conviction and distinguished Murdock and Opelika by pointing out that appellant was not an itinerant but was a resident of the town where the canvassing took place, and that the Murdock decision was applicable only to itinerant preachers. The United States Supreme Court reversed. In answer to the argument that it was imposing a religious subsidy on the Town of McCormick the court stated at pages 577-578 [88 L.Ed. at page 941]: “This does not mean that religious undertakings must be subsidized. The exemption from a license tax of a preacher who preaches or a parishioner who listens does not mean that either is free from all financial burdens of government, including taxes on income or property. We said as

In State v. Van Daalan (1943) 69 S.D. 466 [ 11 N.W.2d 523 ], appellants were again Jehovah’s Witnesses who sold or gave away books and pamphlets explanatory of their beliefs to whomever would take them. They refused to comply with the South Dakota Retail Sales Tax Act which required them to obtain a permit as retailers and make a return on the sale of the books and pamphlets. The Supreme Court of South Dakota reversed their convictions stating at pages 526-527 that “appellants are informed against in the first count in the failure of paying the fee and obtaining the license to transact business. In the second count, with the failure to make a return of sales made by them during a certain period. Both of the counts are brought and predicated upon the theory that the appellants were engaged in and pursuing an occupation without procuring a license and without reporting and paying a tax on sales made by them. This amounts to a tax upon an occupation, vocation or calling. . . . Under its holding [Murdock], the state is without authority to require the payment of the tax and impose the duty and obligation upon the appellants.”

In Watchtower B. & T Soc. v. County of L. A. (1947) 30 Cal.2d 426 [ 182 P.2d 178 ], books and other literature used by the Jehovah’s Witnesses in the exercise of their religion were stored in the County of Los Angeles and were assessed by the county as personal property subject to taxation. The plaintiff contended that religious literature used by a religious organization in the exercise of its religion or worship may not be taxed by reason of the constitutional guarantees of freedom of religion, speech and press. The California Supreme Court held that a general, uniform, nondiscriminatory ad valorem property tax for revenue purposes may be levied and that neither Murdock nor Follett held otherwise, the court quoting from Follett the same language that we have set forth above.

State v. Toolen (1964) 277 Ala. 120 [ 167 So.2d 546 ], arose under the Sales and Use Tax Law of Alabama. As a result of an audit, St. Mary’s Catholic Church in Mobile was charged with use taxes and interest amounting to $328.95. The assessment was paid under protest and appealed. Appellant did not question its liability for either sales or use tax on “normal parish supplies such as pencils, stationery and business supplies” but contested the tax on items used exclusively in connection with religious worship, such as the purchase and use of sacramental wine, candles, chalices and missals. The court held that the items in question were not exempt from

In 1980 in connection with a regulation then under consideration by the State Board of Equalization to make specific the application of the California Sales and Use Tax Law to transactions in which educational materials are furnished to students by institutions, organizations, or persons providing instructional services, the Attorney General of the State of California was requested to give his opinion as to whether the proposed regulation would be constitutional as applied to church-related schools. Although the opinion is expressly limited to primary and secondary schools, it was the conclusion of the California Attorney General “that neither a sales tax nor a use tax may be constitutionally imposed upon textbooks or other educational materials ‘sold’ to its students by church related schools.” (63 Ops.Cal.Atty.Gen. 69, 85 (1980).) The Attorney General distinguished State v. Toolen, supra, and described the “taxable moment” found to exist in Toolen as “tenuous at best.” In discussing Van Daalan the Attorney General reasoned at page 82: “In California, as in North [sz'c] Dakota, the sales tax is a privilege or occupation tax. Section 6051 states that the tax is imposed ‘upon all retailers’ ‘[f]or the privilege of selling tangible personal property at retail. ’ Or as characterized in Roth Drug, Inc. v. Johnson (1936) 13 Cal.App.2d 720 , 736 [ 57 P.2d 1022 ], which upheld the constitutionality of the Retail Sales Act: ‘[t]he system of imposing an excise tax for the privilege of conducting a business which is based on a percentage of the gross receipts therefrom has long been recognized as valid.’ (Emphasis added.) And as the United States Supreme Court has held, a tax may not be imposed or exacted for the privilege of engaging in the exercise of one’s religion under the Free Exercise Clause. (Murdock v. Pennsylvania, supra, 319 U.S. 105 .)”

In United States v. Lee (1982) 455 U.S. 252 [ 71 L.Ed.2d 127 , 102 S.Ct. 1051 ], appellee was a member of the Old Order Amish and employed several other Amish to work on his farm and in his carpentry shop. He did not file quarterly Social Security tax returns required of employers, withhold Social Security tax from his employees, or pay the employer’s share of Social Security taxes on the ground that the Amish believe it is sinful not to provide for their own elderly and needy and therefore are religiously opposed to the national Social Security system. The United States Supreme Court accepted appellee’s contention that payment of the taxes or receipt of benefits violates Amish religious beliefs and, therefore, that compulsory participation in the Social Security system interfered with appellee’s free exercise rights. The Supreme Court went on to say, however, that not all burdens on religion are unconstitutional and that the state may justify a

We come finally to Minneapolis Star v. Minnesota Comm ’n of Rev. (1983) 460 U.S. 575 [ 75 L.Ed.2d 295 , 103 S.Ct. 1365 ]. In that case Minnesota had assessed a special use tax against publications for the cost of ink and paper used in producing the publications. The statute exempted the first $100,000 of such costs in any calendar year from the use tax and also exempted the publications from the state’s general sales tax. The Minneapolis Star challenged the imposition of the use tax on ink and paper used in publications as a violation of the guarantees of freedom of the press and equal protection. The special use tax was held by the United States Supreme Court to violate the First Amendment because it singled out the press and also because it targeted a small group of newspapers. The court stated 460 U.S. at page 586 [75 L.Ed.2d at page 305]: “The main interest asserted by Minnesota in this case is the raising of revenue. Of course that interest is critical to any government. Standing alone, however, it cannot justify the special treatment of the press, for an alternative means of achieving the same interest without raising concerns under the First Amendment is clearly available: the State could raise the revenue by taxing businesses generally, avoiding the censorial threat implicit in a tax that singles out the press.”

Of particular interest to us here is footnote 9 to the Minneapolis Star opinion concerning the constitutionality of a generally applicable sales tax: “ 9Star Tribune insists that the premise of the State’s argument—that a generally applicable sales tax would be constitutional—is incorrect, citing Follett v. McCormick, 321 U.S. 573 [ 88 L. Ed. 938 , 64 S. Ct. 717 ] (1944), Murdock v. Pennsylvania, 319 U.S. 105 [ 87 L. Ed. 1292 , 63 S. Ct. 870 ] (1943), and Jones v. Opelika, 319 U.S. 103 [ 87 L. Ed. 1290 , 63 S. Ct. 890 ] (1943). We think that Breard v. Alexandria, 341 U.S. 622 [ 95 L. Ed. 1233 , 71 S. Ct. 920 , 46 Ohio Ops. 74 , 62 Ohio L. Abs. 210 , 35 A.L.R.2d 335 ] (1951), is more relevant and rebuts Star Tribune’s argument. There, we upheld an ordinance prohibiting door-to-door solicitation, even though it applied to prevent the door-to-door sale of subscriptions to magazines, an activity covered by the First Amendment. Although Martin v. Struthers,

The tax in this case is not a flat tax and it is related to the receipts or income of the plaintiff (hereafter respondent). However, as the opinion of the California Attorney General makes clear, the California Sales and Use Tax Law is drafted as a privilege or occupation tax imposed upon the privilege of selling tangible personal property at retail. The trial court found and the California State Board of Equalization does not dispute that respon

The alleged acknowledgment by the Board’s employees that the treatment of respondent by the Board is inconsistent with its own policies and practices is again simply a “retailer” versus “consumer” dispute. A hearing officer on the first audit stated in his report: “Were the petitioner to make no breakdown of the $45 seminar fee, the petitioner would be held to be the consumer of the syllabuses. Only when a person wished to buy a syllabus separately would a taxable retail sale occur.” Subsequently, respondent ceased breaking down the $45 seminar fee but the Board in its second audit refused to follow the first audit report. Even if the Board had done so, as noted above, respondent would be liable as a consumer for the California Use Tax. The dispute within the Board was simply whether respondent was a “retailer” for sales tax purposes or a “consumer.”

The finding by the trial court that the Board imposed the Sales and Use Tax Law on the respondent while not imposing the same law on other similar organizations distributing syllabus materials at their seminars or classes appears again to be a “retailer” versus “consumer” dispute. For example, respondent contended that there was a difference in treatment by the Board between respondent and the Continuing Education of the Bar and Bar Review courses where syllabus materials were distributed. The Board acknowledged that where there is classroom instruction and materials are not furnished for a separate charge, the organization putting on the program is treated as the consumer of the materials distributed and that this included the Continuing Education of the Bar and Bar Review courses. As pointed out above, however, the argument misses the mark where the question is whether the Sales or Use Tax Law will be applied at all, as here.

Conversely, when the question is the measure of the use tax and not its applicability, the arguments of respondent are relevant. The Board would classify respondent as a retailer of the syllabus notebooks when a separate charge is made for them and contends the correct measure of the use tax to be the separately stated price of $15 per syllabus notebook. The trial court found respondent to be a consumer of the syllabus notebooks. Since respondent published its own notebooks the measure of the use tax would be