Honeywell, Inc. v. State Board of Equalization

dies. (Abelleira v. District Court of Appeal, 17 Cal.2d 280 [ 109 P.2d 942 , 132 A.L.R. 715 ]; United States v. Superior Court, 19 Cal.2d 189 [ 120 P.2d 26 ]; Alexander v. State Personnel Bd., 22 Cal.2d 198 [ 137 P.2d 433 ]; Miller v. Municipal Court, 22 Cal.2d 818 [ 142 P.2d 297 ]; Scripps etc. Hospital v. Cal. Emp. Com., 24 Cal.2d 669 [ 151 P.2d 109 , 155 A.L.R. 360 ]; Triangle Ranch, Inc. v. Union Oil Co., 135 Cal.App.2d 428 , 434 [ 287 P.2d 537 ]), including tax proceedings (People v. Sonleitner, 185 Cal.App.2d 350 , 361 [ 8 Cal.Rptr. 528 ]; People v. West Publishing Co., 35 Cal.2d 80 [ 216 P.2d 441 ]). Where a statute prohibits the granting of an injunction or writ of mandamus to prevent collection of a tax (Rev. & Tax. Code, § 6931) an action for a declaration that the tax is not legally collectible would circumvent the law and, accordingly, declaratory relief will be refused. Casey v. Bonelli, 93 Cal.App.2d 253 [ 208 P.2d 723 ]; Louis Eckert B. Co. v. Unemploy. R. Com., 47 Cal.App.2d 844 , 846 [ 119 P.2d 227 ]; Valley Fair Fashions, Inc. v. Valley Fair, 245 Cal.App.2d 614 , 616 [ 54 Cal.Rptr. 306 ]; see also Estate of Schneider, 62 Cal.App.2d 463 [ 145 P.2d 90 ]; Helms Bakeries v. St. Bd. Equalization, 53 Cal.App.2d 417 [ 128 P.2d 167 ] cert. den. 318 U.S. 756 [ 87 L.Ed. 1129 , 63 S.Ct. 530 ]; however, see Lord v. Garland, 27 Cal.2d 840 [ 168 P.2d 5 ],

This brings us to a consideration of Government Code section 11440. Prior to the adoption of that section in 1947- the normal process of declaratory relief authorized by Code of Civil Procedure section 1060 was not broad enough to authorize a test of the validity or interpretative effect of a regulation adopted by any one of a myriad of state governmental agencies. Section 11440 intended to extend the scope of declaratory relief beyond deeds, wills, written instruments, contracts, or with respect to duties to persons or property, to include regulations of state governmental agencies. County of L.A. v. State Dept. Pub. Health, 158 Cal.App.2d 425 [ 322 P.2d 968 ]. “The Legislature, by enactment of section 11440, must have intended to permit persons affected by an administrative regulation to test its validity without having to enter into contracts with third persons in violation of its terms or to subject themselves to prosecution or disciplinary proceedings.” (Italics ours.) Chas. L. Harney, Inc. v. Contractors’ Bd., 39 Cal.2d 561 , 564-565 [ 247 P.2d 913 ], But that reason no longer exists after a taxpayer has entered into a transaction which the taxing authorities claim is taxable. When the taxpayer has completed a transaction, resort to declaratory relief is no longer necessary or appropriate since the tax liability, if any, has accrued and therefore normal administrative processes, subject to judicial review, are adequate and accomplish the same result. Walker v. Munro, 178 Cal.App.2d 67 [ 2 Cal.Rptr. 737 ],

In Casey v. Bonelli, 93 Cal.App.2d 253 [ 208 P.2d 723 ], plaintiff filed what in effect was an action for declaratory relief alleging that he was president and member of the board of directors of a corporation which elected to dissolve, that defendant issued notice of tax deficiency under the sales and use tax law, and plaintiff requested a declaration that he was under no duty to resist the levy of tax deficiency and that any judgment for tax deficiency which defendant obtained against the corporation would be void. The trial court sustained defendant’s demurrer without leave to amend and the Court of Appeal affirmed stating at page 254:

“Under section 6931, Revenue and Taxation Code, no injunction, writ of mandate or other legal or equitable process shall issue to prevent or enjoin the collection of any sales or use tax. The decisions are explicit that this and similar provisions prevent the resort, to a declaratory judgment to determine that such tax should not be collected. (Louis Eckert Brew Co. v. Unemployment Reserves Com., 47 Cal.App.2d 844 [ 119 P.2d 227 ]; Estate of Schneider, 62 Cal.App.2d 463 [ 145 P.2d 90 ]; cf Modern Barber Col. Inc. v. California Emp. Stab. Com., 31 Cal.2d 720 [ 192 P.2d 916 ].)

“The allegation of the complaint quoted above makes it clear that plaintiff is seeking a judicial determination that he is under no fiduciary duty to take the steps provided for in sections 6561 and 6562, Revenue and Taxation Code, based on a further adjudication that ‘any judgment obtained by the defendants against said dissolved corporation would be void.’

“Appellant argues that the question is not one of tax law but of corporate law and that the adjudication is necessary for his protection. However rationalized the fact cannot be disguised that appellant seeks a binding adjudication against the Board of Equalization and its members that he need take no steps because the tax cannot be legally collected from the dissolved corporation. Faced by such an adjudication respondents would be effectively barred from collecting the tax.”

The wisdom of the foregoing principles is amply demonstrated in the case at bar. The identical issues raised herein, were raised by some of these identical litigants, by these identical counsel in Coast Elevator Co. v. State Bd. of Equalization, 44 Cal.App.3d 576 [ 118 Cal.Rptr. 818 ]; Honeywell, Inc. v. State Bd. of Equalization, supra, ante. Another case involving a plaintiff who is not a party to the case at bar and represented

by different counsel is Oliver & Williams Elevator Corp. v. State Bd. of Equalization, supra, ante. Oliver & Williams etc. v. State Bd., etc. involves an identical attack on rule 11. In each of these cases rule 11 was attacked on precisely the same ground after processing claims through the administrative process. It is clear that insofar as Coast at least is concerned, the validity of rule 11 has been adjudicated by final judgment. Coast Elevator Co. v. State Bd. of Equalization, supra. Now we have a declaratory relief case relitigating the same issues and making the identical attack and this action was prosecuted to judgment notwithstanding the fact that insofar as some of these plaintiffs are concerned (Coast and Honeywell) their individual actions were on file prior to this action. The trial court could well have refused jurisdiction of this case under the provisions of Code of Civil Procedure section 1061. However, it did not do so. Nevertheless we might well dispose of this appeal on the ground that the court’s failure to dismiss under the circumstances here presented was an abuse of discretion. K & W Pharmacy, Inc. v. State Dept. of Social Welfare, 275 Cal.App.2d 139 [ 79 Cal.Rptr. 598 ]. However, since Pacific Motor Transport Co. v. State Bd. of Equalization, 28 Cal.App.3d 230 [ 104 Cal.Rptr. 558 ], casts some doubt on the applicability of Casey v. Bonelli, supra (and similar cases), we will proceed to determine this case on its merits.

We conclude that rule 11 is valid and that the trial court was in error in declaring that rule 11 “is invalid as being unreasonable, arbitrary, ambiguous, discriminatory and being in excess of the statutory rule making powers of the Board.”

Board did not create the law of fixtures. The law of fixtures was recognized in California long prior to the enactment of the Sales Tax Act (Merritt v. Judd (1859) 14 Cal. 59 ) and it was a part of the common law long prior to the existence of California as a state.

If tangible personal property is a premanufactured, highly engineered and precisely controlled device normally sent to a construction job as a fabricated item which is accessorial to a structure and is removable or replaceable, it is treated by Board as a fixture under rule 11. Board by its rule 11 was simply attempting to apply the Sales Tax Act to existing legal principles which were long established. Rule 11 simply provides that a sale of a fixture is a sale of tangible personal property subject to the Sales Tax Act notwithstanding the fact that the fixture may be installed on real property, and notwithstanding the fact that the seller may provide incidental personal services in connection with its installa

tion. The trial court found fault with rule 11 because it is sometimes difficult to draw a line of demarkation between fixtures and materials which are taxed to the contractor as a consumer. Unquestionably it is sometimes difficult to draw that line. But that difficulty stems not from rule 11 but from problems inherent in the basic legal concept of fixtures. The law has frequently encountered problems in drawing a precise line between fixtures and materials in areas outside of the sales tax law. (22 Cal.Jur.2d 254-276, Fixtures, §§ 2-12.) There are admittedly many gray areas. But that very uncertainty justifies a process of initial administrative determination subject to judicial review, since it is far better to resolve the gray areas, no matter how laborious the effort, than that retail sellers of fixtures be permitted to escape their fair share of tax. As Justice Oliver Wendell Holmes pointed out in Dominion Hotel v. Arizona, 249 U.S. 265 , 269 [ 63 L.Ed. 597 , 599, 39 S.Ct. 273 ], “the constant business of the law is to draw such lines,” and as was said in Gen. Elec. Co. v. State Bd. of Equalization, 111 Cal.App.2d 180 [ 244 P.2d 427 ], “That difficulty is inherent in the application of any classification and does not render the classification invalid.” See also Mission Pak Co. v. State Bd. of Equalization, 23 Cal.App.3d 120 [ 100 Cal..Rptr. 69 ]; Henry’s Restaurants of Pomona, .Inc. v. State Bd. of Equalization, 30 Cal.App.3d 1009 [ 106 Cal.Rptr. 867 ]. We hold that rule II is a proper exercise of Board’s rule-making authority. Gen. Elec. Co. v. State Bd. of Equalization, supra; Coast Elevator Co. v. State Bd. of Equalization, supra.

Taxpayers claim that rule 11 is discriminatory because as applied to construction contractors, they are classified as consumers and the Sales and Use Tax Act is applied at the point at which contractors acquire materials. That is a proper basis for a distinction since contractors engaged in the construction of buildings are engaged primarily in the rendering of personal services and the supplying of materials is incidental to the rendition of such services. Whereas in the case of a sale of fixtures the transaction is primarily the sale of tangible personal property and the services of installation, if any, are merely incidental to such sale. Furthermore, normally speaking, a general contractor engaged in the construction of a building does not engage in any off-site manufacturing process, or if so it is merely incidental. On the other hand, the sellers of fixtures, as tangible personal property (as in the case of the Taxpayers at bar) generally speaking engage in off-site manufacturing processes which are the primary contribution to the value of his product. A general building contractor is therefore properly classified as a consumer of tangible personal property and the last prior sale thereof is at the point at which said consumer acquired the tangible personal

property. Such rationale is not applicable to the seller of fixtures since the seller of fixtures is primarily engaged in a sale of tangible personal property. Such distinction is based upon an appropriate factual basis justifying such classification. Ladd v. State Bd. of Equalization, 31 Cal.App.3d 35 [ 106 Cal.Rptr. 885 ],

Taxpayer also claims that rule 11 is discriminatory because it distinguishes between contractors generally and United States government contractors. In view of the unique taxable status of the United States government (it may not be taxed without its consent (C. R. Fedrick, Inc. v. State Bd. of Equalization, 38 Cal.App.3d 385 [ 112 Cal.Rptr. 598 ])), such contracts are a proper basis for classification. Revenue and Taxation Code sections 6381, 6384; Gen. Elec. Co. v. State Bd. of Equalization, supra, 111 Cal.App.2d 180 .

We conclude that the trial court was in error in declaring rule 11 invalid. Gen. Elec. Co. v. State Bd. of Equalization, supra; Coast Elevator Co. v. State Bd. of Equalization, supra.

The judgment is reversed with directions to the trial court to enter a declaratoiy judgment in favor of Board declaring that rule 11 as applied to plain tiffs is not invalid.

Stephens, Acting P. J., and Ashby, J., concurred.

A petition for a rehearing was denied July 2, 1975, and respondents’ petition for a hearing by the Supreme Court was denied July 30, 1975.