Brown v. County of Los Angeles

Opinion

This is a case about documentary transfer taxes and the manner in which they are to be calculated when a purchaser at a trustee’s sale is neither a beneficiary nor a mortgagee of the foreclosed deed of trust. We hold that, under those circumstances, the tax must be based upon the purchase price, without regard to the amount of indebtedness attached to the property and assumed by the purchaser.

Facts

In 1994, Minnie Brown purchased real property at a trustee’s sale for $255,859.42, subject to an unpaid debt of $480,691.18. When Brown (who was not a beneficiary of the foreclosed trust deed or otherwise affiliated with the property) presented the trustee’s deed to the Registrar-Recorder of Los Angeles County for recording, the County assessed documentary transfer taxes of $529.10 ($1.10 per thousand dollars on the $480,691.18 unpaid debt), and the City of Los Angeles assessed documentary transfer taxes of $2,164.50 ($4.50 per thousand dollars on the $480,691.18).

In Brown’s view, the documentary transfer taxes should have been based on the price she paid to purchase the property, not on the amount of the unpaid debt (in which event she would have owed the County only $281.60 and the City only $1,152). Brown paid the assessed documentary taxes under protest and then filed claims for refunds. When the claims were denied, Brown filed this action to recover the difference between the amounts she paid and the amounts she thought she ought to pay ($247.50 from the County and $1,012.50 from the City, a total of $1,260).

Brown prevailed at trial. A judgment was entered against the County for $247.50 (plus interest) and against the City for $1,012.50 (plus interest), plus attorneys’ fees ($22,694.75) and costs ($675.71).^[1] The City and County both appeal.

The County contends the documentary transfer taxes were properly based on the amount of the unpaid debt. We disagree.

A.

As relevant, subdivision (a) of section 11911 of the Revenue and Taxation Code gives the County the right to impose a documentary transfer tax (at specified rates) for real property transferred within the County “when the consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale)” exceeds $100.^[2] (Italics added; see City of Cathedral City v. County of Riverside (1985) 163 Cal.App.3d 960 , 962 [ 210 Cal.Rptr. 60 ] [a “documentary transfer tax is the fee paid in connection with the recordation of deeds or other documents evidencing transfers of ownership of real property”].)^[3]

B. •

By an unwritten policy, the County determines “value” and computes the transfer tax based upon either the actual purchase price or the amount of the unpaid debt, whichever is greater. The County says this is a proper method for the determination of “value” as that term is used in section 11911. The trial court disagreed and so do we.

Section 11911 was enacted “to replace and was patterned after the Federal Stamp Act on conveyances which expired on that same date. (Former 26 U.S.C. §§ 4361 , 4363. . . .) Because section 11911 was patterned after the former federal act and employs virtually identical language as that act, we must infer that the Legislature intended to perpetuate the federal administrative interpretations of that federal act.” (Thrifty Corp. v. County of Los Angeles (1989) 210 Cal.App.3d 881 , 884 [ 258 Cal.Rptr. 585 ].) Under the pertinent federal regulations, the documentary transfer tax must be “based upon the net consideration where it is definite in amount, or may be definitely determined.” (Former Fed. Tax Regs., set forth at former 26 C.F.R. § 47.4361-1 , subd. (b) (1968), italics added.) More specifically, when a deed

Whatever merit there may be to an argument that the calculation is or ought to be different when the purchaser is associated with the property or the foreclosed deed, it is clear that where, as here, the purchaser is not the beneficiary or the borrower, the reference in section 11911 to “consideration” means the purchase price paid at the foreclosure sale. (Railroad Federal Sav. & Loan Ass’n v. United States (2d Cir. 1943) 135 F.2d 290 , 292.) Since section 11911 refers in the disjunctive to “consideration or value,” it follows that the “value” of the property (whether higher or lower than, or coincidentally the same as, the purchase price) is legally irrelevant where, as here, the documentary tax is based on the purchase price (consideration) paid at the foreclosure sale.^[4]

To avoid this conclusion, the County contends the “assessment of the documentary transfer tax in a non-judicial foreclosure sale on the unpaid debt rather than the purchase price is a sound tax policy.” Leaving to one side the County’s concession “that there may be situations in which the purchase price -is more indicative of value than the unpaid debt remaining,” the policy issue is one that must be argued to the Legislature, not to us. Our role is to construe the statute as it is written, not as it might have been or ought to be written.

C.

We agree with the trial court that this is not a “close case.” As it was to the trial court, it is clear to us that, in assessing the documentary transfer tax

We summarily reject the County’s contention that the declaratory relief judgment entered by the trial court improperly “prevents” or “enjoins” a tax. First, the constitutional prohibition cited by the County (Cal. Const., art. XIII, § 32) applies to actions against the State of California, not those involving assessments by local governments. (A&M Records, Inc. v. State Bd. of Equalization (1988) 204 Cal.App.3d 358 , 369 [ 250 Cal.Rptr. 915 ]; Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277 , 281, fn. 6 [ 165 Cal.Rptr. 122 , 611 P.2d 463 ].) Second, the statute cited by the County (§ 4807) applies to actions in which a taxpayer attacks a property tax, not to actions involving an excise tax (which is what the documentary transfer tax is). (Fielder v. City of Los Angeles, supra, 14 Cal.App.4th at p. 145.) Third, the availability to Brown of an action at law for a refund is not a bar to a declaratory judgment in her favor where, as here, the County has stipulated that Brown “frequently purchases property at trustee’s sales.” Without a declaratory judgment, the County could continue to tax her at the wrong rate. (Alameda County Land Use Assn. v. City of Hayward (1995) 38 Cal.App.4th 1716 , 1723 [ 45 Cal.Rptr.2d 752 ]; Cardellini v. Casey (1986) 181 Cal.App.3d 389 , 397 [ 226 Cal.Rptr. 659 ].)^[5]