Kay v. Pacific Telephone & Telegraph Co.

Opinion

Gene Kay appeals from an order denying a preliminary injunction to restrain continuation of allegedly unlawful exemptions from a telephone users tax imposed by an ordinance of the City and County of San Francisco. While Kay’s appeal was pending, the cause was tried upon stipulated facts; the court rendered judgment determining that it was a denial of equal protection for the ordinance to tax intrastate use of telephone service without also taxing interstate use of such service. The judgment directed the city to amend the ordinance “to eliminate the exemption for interstate . . . services, or . . . repeal [the] ordinance entirely, ...” The court awarded fees to counsel for plaintiff of “five percent (5%) of the amounts collected from reaching interstate telephone communications services during each of the first five (5) calendar years after the tax first is imposed, . . .” The court estimated that the fee would amount to approximately $750,000. The city and Pacific Telephone and Telegraph Company have appealed from the judgment.

The stipulation of facts upon which the cause was submitted for decision establishes that Kay is a resident and property owner of the City and County of San Francisco, and subscribes to telephone service at his residence. Because Kay’s telephone is located in San Francisco, he is subject to the city’s telephone users tax for intrastate calls.^[1]

It is not clear on what basis the court certified the case as a class action; telephone subscribers constituting members of the designated class

The city and Pacific Telephone correctly point out that an attack upon a tax classification based upon a claim that equal protection has been violated is a most difficult enterprise. “[I]t has long been the 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 [ 138 Cal.Rptr. 293 , 563 P.2d 849 ].) The burden of making that showing rests upon the party who challenges the classification. (Ganschow v. Ganschow (1975) 14 Cal.3d 150 , 158 [ 120 Cal.Rptr. 865 , 534 P.2d 705 ], app. dism. 423 U.S. 887 [ 46 L.Ed.2d 118 , 96 S.Ct. 181 ].) Here, Kay entirely failed to show that “hostile and oppressive discrimination” resulted from the legislative decision of the board of supervisors to exempt from taxation interstate service provided to telephone subscribers within the city. On the contrary, the record contains strong indications that the classification had a rational relationship to a reasonable municipal purpose. (Cf. Helton v. City of Long Beach (1976) 55 Cal.App.3d 840 [ 127 Cal.Rptr. 737 ].) The administrative burden of making arrangements to tax interstate calls was not shown by Kay to be negligible. Thus, that factor is by itself sufficient to justify the exemption. (See City of San Jose v. Donohue (1975) 51 Cal.App.3d 40 , 45 [ 123 Cal.Rptr. 804 ], app. dism. 423 U.S. 1069 [ 47 L.Ed.2d 80 , 96 S.Ct. 851 ].) There is a substantial possibility that taxation of interstate calls would be permissible under the commerce clause of the Constitution of the United States^[2] only if subjected to some scheme of apportionment. (See City of Oceanside v. Pacific Tel. & Tel. Co. (1955) 134 Cal.App.2d 361 [ 285 P.2d 704 ].) Reasonable fear of constitutional restrictions, or desire to avoid a reasonably apprehended constitutional confrontation with an