Park 'N Fly of San Francisco, Inc. v. City of South San Francisco

parking facility located in South San Francisco. For a fee, appellant’s customers are permitted to park their cars in the parking facility and are escorted by way of appellant’s “courtesy shuttle” to San Francisco International Airport. Appellant also provides a free shuttle service from the airport back to its parking facility. Fees are assessed according to the length of time the customer’s car has been left with appellant. No separate fee is charged by appellant for the shuttle service, although after this suit commenced, appellant posted a sign stating that “[e]ach dollar of parking charge is broken down as follows [II] Transportation service .65 [11] Parking service .35 [H] Total 1.00.”

While appellant’s parking facility is located in South San Francisco, 4.6 miles of the 6.9 mile round-trip from there to San Francisco International Airport takes place outside the city limits of respondent. Appellant also introduced evidence showing that nearly 63 percent of its business expenses are incurred for the transportation service it provides.

According to the ordinance, appellant is classified as a “commercial parking facility,” and subjected to a tax of 4 percent of its gross receipts. For the calendar year 1983, appellant was assessed a tax of $78,988.67 under the ordinance. Only one other business in the City, Parking Company of America, was initially similarly classified under the ordinance. A third business was subsequently included by respondent within the classification “commercial parking facility” and taxed accordingly.

The evidence shows that respondent adopted the ordinance to increase its business tax revenue. Rather than exacting needed additional revenues from all businesses in the city, it was considered politically expedient to direct the tax only at commercial parking facilities such as that operated by appellant. The ordinance was intended as a “revenue equalizing” measure justified on the theory that commercial parking operations involve unimproved land which generates comparatively little property tax. According to City Manager C. Walter Birkelo, even after enactment of the ordinance, many other businesses located in the city pay greater taxes per acre than appellant. Mr. Birkelo testified: “My prime motivation was based on the fact that the Park ’N Fly type of operation yields significantly lower municipal revenues per acre for the type of zone property they occupy.” As a result of the adoption of the ordinance, however, appellant has the highest business license tax assessment in the city, paying to the City approximately 16 percent of the total municipal business license tax revenues in 1983.

In October of 1982, appellant objected to its classification as a commercial parking facility and sought an exemption from the tax imposed under the

ordinance, raising many of the arguments presented in this appeal. Barry Lipton, respondent’s director of finance, rejected appellant’s objections to the ordinance, and this action ensued.

Appellant argues that the ordinance is constitutionally flawed, and also claims that it was incorrectly classified thereunder as a “commercial parking facility.” Respondent submits that by failing to exhaust administrative remedies appellant is precluded from challenging its classification in this court. Respondent relies upon the well established rule that “the courts of the state are not available to a taxpayer prior to the exhaustion of administrative remedies before the administrative tribunals responsible for the administration of the tax . . . .” (Aronoff v. Franchise Tax Board (1963) 60 Cal.2d 177 , 181 [ 32 Cal.Rptr. 1 , 383 P.2d 409 ]; see also United States Steel Corp. v. Franchise Tax Board (1983) 144 Cal.App.3d 473 , 479-480 [ 192 Cal.Rptr. 677 ].) Failure to exhaust administrative remedies is a jurisdictional procedural defect which bars court action. (Id., at p. 480; Barnes v. State Bd. of Equalization (1981) 118 Cal.App.3d 994 , 1001 [ 173 Cal.Rptr. 742 ].)

Appellant seeks to avoid application of the exhaustion of administrative remedies doctrine by arguing that respondent has not provided an administrative mechanism for raising constitutional challenges to the ordinance. The ordinance states that “a licensee or an applicant for a license” aggrieved by a classification assignment “may apply to the collector for reclassification.” (Ord., § 6.04.110.) The collector then must investigate the application for reclassification and thereafter “notify the applicant of the action taken on the [such] application . . . .” (Ibid.) An appellate process is also provided: the applicant may, within 15 days, request a hearing on the collector’s decision before the city manager. (Ord., § 6.04.120.)

It is clear to us that appellant failed to take advantage of the administrative procedure provided by the ordinance. While appellant sent a letter to respondent objecting to its reclassification as a commercial parking facility and raising the constitutional issues presented to this court, it neither filed a formal application for reclassification nor availed itself of the right to appeal to the city manager.

The doctrine of exhaustion of administrative remedies requires a party to use all available administrative procedures for relief and to proceed to a final decision on the merits before the appropriate agency before resorting to the courts. (People v. West Publishing Co. (1950) 35 Cal.2d 80 , 88 [ 216 P.2d 441 ]; Barnes v. State Bd. of Equalization, supra, 118 Cal.App.3d 994 , 1001.) If provided, appellate procedures must be pursued or court

raising constitutional questions. Where no forum or administrative remedy is afforded for the issues raised, recourse to the local administrative agency is not required before initiation of court action. (Star-Kist Foods, Inc. v. Quinn (1960) 54 Cal.2d 507 , 511 [ 6 Cal.Rptr. 545 , 354 P.2d 1 ]; TRIM, Inc. v. County of Monterey (1978) 86 Cal.App.3d 539 , 544 [ 150 Cal.Rptr. 351 ]; Pacific Motor Transport Co. v. State Bd. of Equalization (1972) 28 Cal.App.3d 230 , 237 [ 104 Cal.Rptr. 558 ].) Where, as here, the administrative agency is not empowered to correct the situation from which judicial relief is sought, resort to the courts need not be preceded by an administrative action. (Knoff v. City etc. of San Francisco (1969) 1 Cal.App.3d 184 , 199 [ 81 Cal.Rptr. 683 ].) Hence, only appellant’s claim of improper reclassification is barred by the exhaustion doctrine.

The first of appellant’s constitutional challenges to the ordinance is that it improperly fails to “apportion the gross receipts upon which the tax is imposed to reflect only the proportion of the taxed activity actually carried on within the taxing jurisdiction.” Appellant submits that respondent “has no mechanism or procedure for any apportionment,” and for that reason asks us to “declare the Ordinance unconstitutional and mandate that [respondent] refund” to it all tax payments made in accordance with the dictates of the ordinance.

Our high court has declared that “[t]he requirements of due process and equal protection compel an apportionment of receipts attributable to the business carried on within and without the city. [Citations.]” (Volkswagen Pacific, Inc. v. City of Los Angeles (1972) 7 Cal.3d 48 , 58 [ 101 Cal.Rptr. 869 , 496 P.2d 1237 ].) In the seminal case of City of Los Angeles v. Shell Oil Co. (1971) 4 Cal.3d 108 , 124 [ 93 Cal.Rptr. 1 , 480 P.2d 953 ] (hereafter sometimes referred to as Shell Oil), the court declared: “[I]n spite of the absence of a specific ‘commerce clause’ in our state Constitution, other provisions in that Constitution—notably those provisions forbidding extraterritorial application of laws and guaranteeing equal protection of the laws...—combine with the equal protection clause of the federal Constitution to proscribe local taxes which operate to unfairly discriminate against intercity businesses by subjecting such businesses to a measure of taxation which is not fairly apportioned to the quantum of business actually done in the taxing jurisdiction. On the other hand, those constitutional principles do not prohibit local license taxes upon businesses ‘doing business’ both within and outside the taxing jurisdiction; as long as such taxes are apportioned in a manner by which the measure of tax fairly reflects that proportion of the taxed activity which is actually carried on within the taxing jurisdiction, no constitutional objection appears. However, and conversely, no measure of apportionment

can satisfy the constitutional standard if the measure of tax is made to depend upon a factor which bears no fair relationship to the proportion of the taxed activity actually taking place within the taxing jurisdiction.”

“The taxpayer who challenges a method of apportionment of a local tax bears the burden of showing that extraterritorial values are being taxed.” (Volkswagen Pacific, Inc. v. City of Los Angeles, supra, 1 Cal.3d 48 , 58.) “ ‘One who attacks a formula of apportionment carries a distinct burden of showing by “clear and cogent evidence” that it results in extraterritorial values being taxed.’ ” (City of Los Angeles v. Shell Oil Co., supra, 4 Cal.3d 108 , 126.)

Appellant directs our attention to the following factors in arguing that the ordinance has an impermissible extraterritorial effect: “Fully sixty-six percent (66%) of the transportation phase of Park ’N Fly’s business activity takes place outside the limits of the City. Sixty-three percent (63%) of the expenses incurred by Park ’N Fly are directly attributable to the transportation phase of its business.” Appellant complains that a “substantial portion” of its business activities necessary for the production of revenue “take place wholly outside the limits of the City,” yet its gross receipts are taxed by the ordinance without apportionment for such activities.

To support its claim that the ordinance lacks the requisite mechanism for apportionment, appellant relies primarily upon Shell Oil, supra, 4 Cal.3d 108 , where the court found invalid a municipal business license tax imposed upon total gross receipts derived from wholesale sales of gasoline delivered from the oil company’s in-city bulk terminal to retailers outside the city. The City’s apportionment formula, under which all receipts from sales of goods “which are in any manner attributable” to in-city business functions and which are shipped from or into the City are subject to tax, even if “a substantial...—or even the greater portion of—the selling activities which produced that receipt took place outside the City,” was found to have “ ‘no relation to the taxable event occurring in [the City] or the quantum of business there carried ón.’ ” (Id., at p. 125.) The court concluded that the tax was “violative of... constitutional principles ... because it renders the measure of tax dependent on a factor (i.e., the situs of the goods upon shipment) which bears no relationship to the proportion of the taxed activity (i.e., the business of selling) which actually takes place within the taxing jurisdiction and, under the facts of this case, operates to reach gross receipts other than those which

That appellant provides free transportation service to its customers, that a part, at least, of such service takes place outside the City, and that appellant incurs expenses in doing so, does not alter the essential character of the taxable event. No activity subject to tax occurs beyond the City limits. Only gross receipts from operation of a commercial parking facility within the City are taxed. Multiple taxation is thus avoided: appellant does not earn income from an intercity transportation service upon which another municipality might impose a tax.

Hospital Medical Collections, Inc. v. City of Los Angeles (1976) 65 Cal.App.3d 46 [ 135 Cal.Rptr. 147 ], illustrates the distinction between the case before us and those in which taxes were found invalid. There, the city sought to tax the gross receipts of corporate collection agencies without recognizing a deduction for commissions retained by independent collection agencies located outside the city to whom the debt had been assigned. While acknowledging the rule stated in Shell Oil that business taxes must be “fairly apportioned to the quantum of business actually done in the taxing jurisdiction,” the court concluded: “In the instant case, however, we are dealing neither with manufacture nor sale, but with the providing of a service. The contract of assignment—which generates the subsequent activity—occurs in the City of Los Angeles, and the ultimate conclusion of the collection transaction also occurs in the city. The presence of intervening extraterritorial elements between the beginning and concluding activities, does not make for nontaxability under those circumstances, nor are the extraterritorial elements so substantial as to require apportionment. [Citation.]” (Id., at pp. 54-55.)

And in City of Los Angeles v. London Towne Livery Service, Ltd. (1979) 97 Cal.App.3d 814 [ 159 Cal.Rptr. 94 ], a municipal tax was imposed upon “persons engaged in the business of transporting of passengers for hire at the rate of 90 cents per day for each vehicle used,” whether the transporting occurred “entirely within the City or on trips originating or terminating within the City.” (Id., at p. 816.) The court found no discrimination against intercity carriers and no unconstitutional tax on intercity activity. (Id., at pp. 819-820.)

Nor does the subject ordinance impose an extraterritorial tax upon intercity businesses. Instead, the challenged tax applies only to businesses which provide parking within the city for consideration, and is calculated according to a percentage of gross receipts rather than a fixed rate. We find no constitutional flaw in the failure of the ordinance to apportion the tax in the manner proposed by appellant.

(9a) Appellant also argues that the ordinance violates equal protection principles by exacting from commercial parking facilities an “unconscionably high share of the City’s business license taxes ....” In so arguing, appellant observes that the ordinance was drafted to apply to only two enterprises, and increased respondent’s business tax revenues by approximately 50 percent from only two local commercial parking facilities operating in the City. In the aftermath of the ordinance, appellant paid 16 percent of the total business license tax revenues collected by respondent.

Our consideration of the claim that the tax is confiscatory and discriminatory proceeds from the established rule that “ ‘ “tax classifications carry a presumption of constitutionality which can be overcome only by the most explicit demonstration that the classification fosters hostile and oppressive discrimination against particular persons or groups.” (Arp v. Workers’ Comp. Appeals Bd. (1977) 19 Cal.3d 395 , 403 . . . .)’ ” (National Independent Business Alliance v. City of Beverly Hills (1982) 128 Cal.App.3d 13 , 26 [ 180 Cal.Rptr. 59 ].) “[T]he party who challenges the constitutionality of a legislative classification scheme in a tax statute bears a very heavy burden.... ‘Tax statutes are generally not subjected to close scrutiny, and distinctions can be justified on the basis of administrative convenience and promotion of legitimate state interests. [Citation.]”’ (Cohan v. Alvord (1984) 162 Cal.App.3d 176 , 181-182 [ 208 Cal.Rptr. 421 ].) Moreover, “a municipality may impose license fees at differing rates upon different classes provided the classification created is reasonable.” (United Business Com. v. City of San Diego (1979) 91 Cal.App.3d 156 , 178 [ 154 Cal.Rptr. 263 ].)) “No constitutional rights are violated if the burden of the license tax falls equally upon all members of a class, though other classes have lighter burdens or are wholly exempt, provided that the classification is reasonable, based on substantial differences between the pursuits separately grouped, and is not arbitrary.” (Fox etc. Corp. v. City of Bakersfield (1950) 36 Cal.2d 136 , 142 [222 P.2d]; City of Berkeley v. Oakland Raiders (1983) 143 Cal.App.3d 636 , 640 [ 192 Cal.Rptr. 66 ], cert. den. 464 U.S. 939 [ 78 L.Ed.2d 316 , 104 S.Ct. 351 ].) Generally, a business license tax comports with equal protection standards “ ‘if the distinction rests upon a rational basis, and it must be presumed to rest on that basis if there is any conceivable state of facts which would support it.’” (United Business Com. v. City of San Diego, supra, 91 Cal.App.3d 156 , 178; City of San Jose v. Donohue (1975) 51 Cal.App.3d 40 , 45 [ 123 Cal.Rptr. 804 ].)

Undebatably, the challenged ordinance resulted in a dramatic increase in its business license tax rates. But “[s]uch evidence alone of tax increases, even enormous increases, is not evidence of a lack of equal

discriminate against interstate commerce, and is reasonably related to services provided by the taxing jurisdiction. (See also Commonwealth Edison Co. v. Montana (1981) 453 U.S. 609 , 617 [ 69 L.Ed.2d 884 , 894, 101 S.Ct. 2946 ].) We have already observed that the tax imposed by the ordinance meets the substantial nexus and fair apportionment standards. It is also fairly related to the privilege of doing business in the City, and, finally, the burden it imposes upon interstate commerce is so indirect and insubstantial that it cannot be characterized as discriminatory. (Barker Bros., Inc. v. Los Angeles (1938) 10 Cal.2d 603 , 609 [ 76 P.2d 97 ].) No impermissible burden upon interstate commerce has been established.

The judgment is affirmed. Costs on appeal are awarded to respondent.

Racanelli, P. J., and Elkington, J., concurred.

Appellants’ petition for review by the Supreme Court was denied April 15, 1987.