Littlejohn v. Costco Wholesale Corp.

The complaint alleges in considerable detail, supported by documents issued by the Board, that during the period in question Ensure was classified as a food product exempt from sales tax, not a nutritional supplement that would have been subject to tax. For some time before 2002, it appears Ensure was considered a food product not subject to sales tax. In 2002 the labelling on Ensure was changed and, due to the labelling change, at that time the Board considered Ensure to be a nutritional supplement. But the labeling was changed again in 2006, and the Board, in an informal opinion of tax counsel, advised a taxpayer that Ensure qualified as "a food product for human consumption, the sales of which are not subject to tax." In March 2013 a letter from one of the Board's auditors, in response to an e-mail inquiry, restated the position that sales of Ensure were not taxable. This position was also restated in the Board's September 2013 Tax Information Bulletin stating that: "The products Ensure [and] Ensure Plus ... are not currently taxable because their labels meet the definition of a nontaxable food product."

But Javor arose under "unique circumstances." ( Javor, supra , 12 Cal.3d at p. 802, 117 Cal.Rptr. 305 , 527 P.2d 1153 .) There, the customer was seeking a refund of sales tax paid on a purchase price that included a repealed federal excise tax. The Board promulgated a regulation authorizing retailers who had collected and received refunds of the repealed tax to seek a refund of sales tax on the condition that they pay the refunded taxes to their customers. ( Id . at p. 794, 117 Cal.Rptr. 305 , 527 P.2d 1153 .) The process required the retailer to demonstrate to the Board that a refund had been paid in order to receive a like amount from the Board. The court observed that "[u]nder the procedure set up by the Board the retailer is the only one who can obtain a refund from the Board; yet, since the retailer cannot retain the refund himself, but must pay it over to the customer, the retailer has no particular incentive to request the refund on his own. Despite this lack of incentive, the Board has not required the retailer to refund the total excessive amount collected, but rather has merely allowed retailers to collect a refund when the retailer is compelled to pay a refund to a customer who has demanded it." ( Id . at p. 801, 117 Cal.Rptr. 305 , 527 P.2d 1153 .)

The Javor court recognized that there had been an urgency statute that arguably provided customers a cause of action against a retailer for the refund, but that statute had expired. ( Javor, supra , 12 Cal.3d at p. 802, 117 Cal.Rptr. 305 , 527 P.2d 1153 .) "Therefore, purchasers can most effectively enforce their refund right by compelling retailers to claim their own refunds from the Board. The Board has admitted that it must pay these refunds to retailers. All that plaintiffs seek in this action is to compel defendant retailers to make refund applications to the Board and in turn require the Board to respond to these applications by paying into court all sums, if any, due defendant retailers. ... [¶] We think that to require this minimal action from the Board is clearly mandated by the Board's duty to protect the integrity of the sales tax by ensuring that customers receive their refunds. ... [¶] [A]llowing the Board to be joined as a party for these purposes in the customer's action against the retailer is an appropriate remedy entirely consonant with the statutory procedures providing for a customer's recovery of overpaid sales tax." ( Ibid . )

We know of no published case since Javor that has allowed a cause of action against the Board to proceed for the purpose of directing a retailer to file a claim for a refund of sales tax. In Loeffler , our Supreme Court confirmed that the exact contours of a Javor -type claim remain undefined: "The integrity of the tax system and avoidance of unjust enrichment, possibly of the retailer, but more probably of the state, in certain circumstances may support a Javor -type remedy for consumers. Plaintiffs, however, declined to pursue such a remedy, and we need not consider the exact showing required of consumers to demonstrate their entitlement to the Javor remedy." ( Loeffler, supra , 58 Cal.4th at pp. 1133-1134, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .)

The most recent published case to reject a possible Javor cause of action is McClain v. Sav-on Drugs (2017) 9 Cal.App.5th 684 , review granted June 14, 2017, S241471 ( McClain ). McClain distilled from Decorative Carpets and Javor three factors for courts to consider in deciding whether to recognize a Javor cause of action. They are: 1) whether the plaintiff has an available statutory remedy for a tax refund; 2) whether the proposed judicial remedy would be consonant with statutory tax refund procedures; and 3) whether there has been a "precursor determination" either by the Board or as a result of legal action by a taxpayer that a tax refund is due and owing. ( Id . at p. 697.) McClain concludes that "[l]imiting a court's authority to fashion new tax remedies to situations involving all three of these requirements specifically reinforces the constitutional mandate, described above, that the Legislature have primacy in fixing the procedures by which tax refunds are obtained." ( Id . at p. 698.) We agree.

Appellant argues this case is the one that should recognize a Javor cause of action. According to appellant, the August 21, 2006 informal opinion of the Board's tax counsel (annotation), a March 2013 letter from one of the Board's auditors, and the Board's September 2013 Tax Information Bulletin stating that some forms of Ensure are not taxable as a food product constitute a precursor determination of refund that provide the unique circumstances warranting a Javor remedy. For the reasons that follow, we disagree.

In this case, there is no question that the first requirement identified in McClain is met. Appellant, a Costco customer, has no statutory remedy for a sales tax refund. Nor is the remedy he proposes, compelling Costco as the taxpayer to file a refund claim with the Board, in fatal conflict with the statutory scheme. But appellant has not shown that the Board made a precursor determination that sales tax paid on purchases of Ensure between May 30, 2009, and mid-2014 must be refunded.

In the most fundamental sense, the documents appellant relies upon to demonstrate the Board's position are substantively deficient for the simple reason that they say nothing of the propriety of refunds for retailers who paid taxes on sales of Ensure. The most that can be said is that for some time following a product labelling change in 2002, the Board's counsel opined that sales of specified Ensure products were subject to tax. In 2006 counsel's view changed and it concluded sale of those products were not taxable. However, none of the documents were issued in response to an inquiry about refunds or address whether tax paid by retailers on sales of Ensure products would be refunded. In sharp contrast, in Javor "[t]he Board ha[d] admitted that it must pay these refunds to retailers ." ( Javor, supra , 12 Cal.3d at p. 802, 117 Cal.Rptr. 305 , 527 P.2d 1153 , italics added.) The Board has made no such determination in this case.

account public policy and the administrative burden and expense of processing claims. In Rider v. County of San Diego (1991) 1 Cal.4th 1 , 2 Cal.Rptr.2d 490 , 820 P.2d 1000 ( Rider ), the court declared unconstitutional a supplemental sales and use tax designed to pay for construction of a county jail and youth facility because it was not approved by two-thirds of San Diego's voters as required under Article XIII A, section 4 of our state constitution. In response to Rider , the legislature crafted a refund remedy for consumers with a threshold of purchases in excess of $5,000. In affirming the legislative refund scheme and rejecting a Javor -type class remedy, the Court of Appeal observed: "[S]ince a consumer with under $5,000 in purchases would be entitled to a return of less than $25, the administrative costs associated with the court-ordered scheme of direct refunds to all consumers would likely neutralize a substantial portion of the scheme's asserted benefits. Thus, given the great latitude accorded the Legislature in tax matters, we conclude the statutory $5,000 threshold requirement for refunds is not impermissible." ( Kuykendall v. State Bd. of Equalization (1994) 22 Cal.App.4th 1194 , 1214, 27 Cal.Rptr.2d 783 .) This kind of pragmatic approach that may be employed by a legislative body counsels us not to employ a judicially created remedy when the entitlement to a refund of sales tax and the administrative burdens of a refund process are unclear.

We are aware that Loeffler cautions: "The integrity of the tax system and avoidance of unjust enrichment, possibly of the retailer, but more probably of the state, in certain circumstances may support a Javor -type remedy for consumers." ( Loeffler , supra , 58 Cal.4th at p. 1133, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) But the state is not unjustly enriched when sales taxes are overpaid due to a taxpayer's good faith misinterpretation of his or her obligation to pay tax. "One may not recover

statutory scheme that allows the Board to first take into account the timeliness of any claims for refund, the likely amounts involved and the burdens and costs implicit in its refund procedure.

2. The claims against Abbott

Plaintiff's second amended complaint also contains two causes of action against Abbott, the manufacturer of Ensure. It alleges the existence of an unspecified agreement under which Costco purchases Ensure from Abbott that is "in force regardless of who actually sells the product to Costco." The pleading alleges, "Although Abbott does or may also use distributors or middlemen to sell the product it remains liable for all promises made in the chain of distribution to Costco to induce it to stock and sell Ensure." The agreement allegedly contains an "implied and/or express" provision that Abbott would "alert Costco of a potential tax consequence of all material ingredient and label changes of Ensure and ... take all reasonable steps to alert Costco of changes that do, or are reasonably likely to, affect sales tax consequences and of the fact that any such changes do or are likely to affect sales tax status." Plaintiff and all persons who purchased Ensure from Costco allegedly are third party beneficiaries of the agreement. The second amended complaint alleges one cause of action for breach of the alleged agreement and another cause of action alleging that Abbott's conduct violated Business and Professions Code, sections 17200 and 17500"by failing to adequately notify retailers, including Costco, that the sales tax status of Ensure had changed, was likely to change, and/or that the label or ingredients had changed."

The trial court sustained Abbott's demurrer to both causes of action without leave to amend. The court explained, among other things, that "the complaint makes it plain that Abbott had nothing to do with the collection or payment of the taxes. ... [T]here is no suggestion that Abbott was under a duty to notify the retailers of [the fact that the tax status of the product had changed], or how plaintiff would in some way be the beneficiary of that duty." We agree with the trial court. From the pleading it is far from clear that there was ever any agreement between Abbott and Costco, much less one that contains either an express or implied provision such as plaintiff describes or with respect to which all Costco customers would be third party beneficiaries. Moreover, no facts are alleged that would give rise to a duty on Abbott's part to advise retailers of the sales taxability of its products in the various jurisdictions in which

recognized, however, that "[t]he integrity of the tax system and avoidance of unjust enrichment, possibly of the retailer, but more probably of the state, in

retailers that sell Ensure and Ensure Plus should report tax on their sales of those products. " (Italics added.)

However, the label on Ensure was again changed in 2006. According to an informal opinion letter from the Board's tax counsel issued on August 21, 2006: "As you know, Regulation 1602(a)(5)(A) places its focus on the contents of the product's label. Thus, if the label changes, the tax consequences may also change. Based upon our examination of the current label for Ensure provided by the Taxpayer, we note ... [the description of label contents]. [T]hus, Ensure is not excluded as a food product under Regulation 1602(a)(4) (step two). [¶] Notwithstanding the above conclusion, because Ensure comes in liquid form, we must next determine whether either Exclusion

The trial court sustained the defendants' demurrer to the third cause of action, holding that "[t]he judicially noticed record shows that [the Board] has not resolved that Ensure was untaxable during the period relevant to this lawsuit." The court rejected plaintiff's argument that "the various positions taken by the [Board] in e.g., 2006 were ... tantamount to the type of determination made by the taxing authorities in Javor ."

For the reasons stated in the majority opinion, I agree that the trial court properly sustained demurrers to the first two causes of action of the complaint and to the causes of action alleged in a prior complaint against Abbott Laboratories, Inc. and Abbott Laboratories Sales, Marketing & Distribution Co. However, I disagree that the demurrers were properly sustained as to the complaint's third cause of action.

The Supreme Court's opinion in Loeffler contains a thorough history of the development of California law on the issues before us. In a brief overview the court summarized: "under California's sales tax law, the taxpayer is the retailer, not the consumer. In addition, the taxability question, whether a particular sale is subject to or is exempt from sales tax, is exceedingly closely regulated, complex, and highly technical. A comprehensive administrative scheme is provided to resolve these and other tax questions and to govern disputes between the taxpayer and the Board. Under these administrative procedures, it is for the Board in the first instance to interpret and administer an intensely detailed

vehicles that had decreased the gross sales price on which the state sales tax on car purchases had been calculated, giving rise to excess sales tax payments. This caused the Board to issue a notification and operations memo to automobile dealers and other interested parties and a press release announcing that the excess was subject to refund provided that the dealer returned the amount of the refund to the customer that had paid the sales tax reimbursement. The court held that "purchasers can most effectively enforce their refund right by compelling retailers to claim their own refunds from the Board. The Board has admitted that it must pay these refunds to retailers. All that plaintiffs seek in this action is to compel defendant retailers to make refund applications to the Board and in turn to require the Board to respond to these applications by paying into court all sums, if any, due defendant retailers. [¶] We think that to require this minimal action from the Board is clearly mandated by the Board's duty to protect the integrity of the sales tax by ensuring that the customers receive their refunds. The integrity of the sales tax requires not only that the retailers not be unjustly enriched [citation], but also that the state not be similarly unjustly enriched. [¶] We hold that under the unique circumstances of this case a customer, who has erroneously paid an excessive sales tax reimbursement to his retailer who has in turn paid this money to the Board, may join the Board as a party to his suit for recovery against the retailer in order to require the Board in response to the refund application from the retailers to pay the refund owed the retailers into court or provide proof to the court that the retailer had already claimed and received a refund from the Board. We think that allowing the Board to be joined as a party for these purposes in the customer's action against the retailer is an appropriate remedy entirely consonant with the statutory procedures providing for a customer's recovery of erroneously overpaid sales tax." ( Javor, supra , 12 Cal.3d at p. 802, 117 Cal.Rptr. 305 , 527 P.2d 1153 .)

In McClain, in which numerous pharmacies had collected sales tax reimbursement and paid sales tax on purchases that the plaintiffs alleged were not subject to sales tax, the Court of Appeal sought to define the circumstances under which the pharmacies could be compelled to seek refunds as in Javor. The court held that "Although Decorative Carpets dealt with a 'greedy' retailer and Javor dealt with unmotivated retailers, both cases share three commonalities that, in our view, define the 'unique

unjustly enrich either the taxpayer/retailer or the Board." ( Id. at p. 700.) The court held that none of the three prerequisites were present in that case.

Although I believe that the three criteria articulated by the court in McClain are consistent with the rulings of our Supreme Court and may fairly be taken as the conditions under which such equitable relief may be granted, I differ as to that court's application of these criteria.

As to the first prerequisite, the court held the plaintiffs were "not remedy-less" because they "may urge the Board to initiate an audit of the retail pharmacies' practices in collecting the sales tax or to conduct a deficiency determination of the retail pharmacies' sales tax payments. [Citations.] They can, as 'interested person[s],' petition the Board under the Administrative Procedures Act ( Gov. Code, § 11340 et seq. ) to compel the Board to 'adopt[ ], amend[ ], or repeal' Regulation 159.1, subdivision (b)(5) and the collection of sales tax under that regulation. [Citations.] And they can as 'interested person[s]' sue the Board under the Administrative Procedure Act for declaratory relief 'as to the validity of' Regulation 1591.1." ( McClain, supra, 9 Cal.App.5th at pp. 700-701.) The majority in the present case and I agree that the right to request relief is not the same as a right to the relief itself. The ability to ask a retailer to submit a refund application is hardly a remedy if the retailer refuses to do so. Of course customers may ask retailers to submit refund applications, and citizens may ask public agencies to conduct audits of other entities or to modify their regulations, and they may ask a court for declaratory relief, but they are not entitled to demand any such relief. Treating the mere ability to exercise the rights of any citizen as precluding the right to compel a retailer to submit a refund application is tantamount to saying that there is never a right to compel submission of a refund application. Indeed, applying the condition in this manner would have precluded the remedy afforded in Javor.

The majority here and I also disagree with the McClain court's analysis of the second factor. Relying in part on observations in the Loeffler opinion, the court in McClain held that "judicial recognition of a right of customers to sue retailers and the Board for a sales tax refund when the Board has yet to determine whether any refund is due is inconsistent with at least two provisions of the Revenue and Taxation Code." ( McClain, supra, 9 Cal.App.5th at p. 701.) The import of this statement in part turns on what is required to establish a Board determination, addressed below. However, the asserted inconsistency between recognizing a customer's right to compel a retailer to submit a refund application and the statutory waiver

conclusions of recent opinion letters. Obviously, a tax bulletin cannot carry more weight than the opinion letters on which they are based." The majority opinion here, with which I respectfully disagree, accepts the Board's contention, pointing out that "the Board's regulations and case law make clear that the documents plaintiff relies upon do not have the force of law and are not binding on the Board." (Maj. opn. , ante , p. 615.)

Although the letter opinions of Board counsel and the Board's tax bulletins do not have the force of law and are not binding on the Board, I submit they may not be so readily disregarded. Unlike the

Recognizing a customer's right to compel submission of a refund application undoubtedly would present some practical issues. As the Supreme Court pointed out in Loeffler , the taxpayer bears the burden of proving the right to a refund and "may recognize that it has failed to retain records adequate to carry its burden of establishing it is entitled to an exemption or has overpaid." ( Loeffler , supra , 58 Cal.4th at p. 1129, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) Submitting a refund claim may entail considerable cost in collecting data and engaging in proceedings before the Board. In some cases it may be unreasonable to compel a seller to incur substantial costs to obtain a de minimis recovery for the benefit of the customer who paid the tax reimbursement. Such problems, however, are not insurmountable. An order compelling the submission of a refund application would be equitable and therefore could include such conditions as equity demands. The court might condition its order on the customer performing much of the work necessary to prepare the refund application, or reimbursing the taxpayer for costs necessarily incurred in submitting the application. If the action proceeds as a class action, the refund application might seek a refund only for the excess tax paid on sales to class members who submit evidence of their purchase and a refund request. If not a class action, it might be sufficient to apply for a refund of the excess tax paid on the sale to the individual requesting the refund. Appropriate factors for the court to consider in fashioning appropriate conditions would seem to include the amount of the excess tax involved, the effort that will be required to collect data and submit the application, and the reasonableness of the taxpayer having paid the excess tax given any notice of which the taxpayer was or should have been aware.

In all events, the remedy would not likely be utilized with undue frequency. It

I would reverse the dismissal of the third cause of action and otherwise affirm the judgments.

The complaint asserted two causes of action against Costco, and a third cause of action against Costco and the Board. The first alleged that Costco breached an implied contract with its customers by charging sales tax reimbursement on products not actually subject to tax. The second alleged that Costco engaged in unfair business practices by representing to customers that sales of Ensure were taxable and collecting sales tax reimbursement on such sales. The third cause of action presents the issue before us. It is predicated on Javor, and alleges the Board is a constructive trustee of the sales tax erroneously collected and paid to the state by Costco on its sales of Ensure. Accordingly, that sales tax should be refunded to Costco and in turn refunded to the Costco customers who paid the sales tax reimbursement. This cause of action seeks to require the court to "[o]rder Costco to immediately apply to the full extent it legally can do so to the [Board] for reimbursement of all sales tax it paid to the [Board] due to sales of Ensure in order to immediately return to the class the sales tax reimbursement it paid to Costco for Ensure and to pay interest on said sums from the date they were paid to Costco to the full extent allowed by law."

Defendants demurred. Littlejohn opposed the demurrers and moved to compel Costco to file a refund claim with the Board. The court sustained the demurrers without leave to amend and denied the motion to compel. The court concluded that the judicially noticed documents in the record showed the Board had not resolved the question of whether Ensure was nontaxable during the relevant period. Specifically, it ruled that the opinion of counsel and other documents said to support the third cause of action were not the functional equivalent of the Board's determination in Javor . The court held that the documents were entitled to deference, but they did not have the same force of law as regulations adopted by the Board and were not binding.

business practice claims against a retailer based on the allegation that the retailer had collected a sales tax reimbursement on take-out sales of coffee allegedly not subject to a sales tax, because resolution of the claims would require the court to determine the taxability of the transactions. For the same reason, the trial court clearly was correct in this case to sustain the demurrers to plaintiff's first and second causes of action. Both are based on the premise that the sale of Ensure is not taxable, which fact the court would have to determine to sustain the claim.

b. Claim Premised on Javor

Article XIII, section 32 of our state constitution provides in part: "After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature."

As Loeffler described, sales tax is imposed on retailers for the privilege of selling tangible personal property, and it is the retailers, not the

for a refund of sales tax. In rejecting a direct action, the court observed that "to give customers a direct cause of action against the Board for all erroneously collected sales tax reimbursements which have already been paid to the Board by the retailer would neither be consonant with existing statutory procedures nor with the import of Decorative Carpets ." ( Id . at p. 800, 117 Cal.Rptr. 305 , 527 P.2d 1153 .) Nonetheless, the court recognized that the Board had a duty 'to see that the customer obtains any refund made to the retailer.' " ( Ibid . )

on the Board's letterhead and considered to be the opinions of the Board's counsel. But when the Board determines to issue a decision with binding effect, it does so in the form of a "precedential decision" of the Board. ( Cal. Code Regs., tit. 18, § 5551, subd. (b)(4).)

In contrast, the purpose of advice letters of counsel is to provide the requesting taxpayer a safe harbor from tax liability. By inquiring of the taxability of a transaction or item for sale, the taxpayer can use the Board's reply as a defense to any claim. To that end, Revenue and Taxation Code section 6596 provides that if a person's "failure to make a timely return or payment is due to the person's reasonable reliance on written advice from the board, the person may be relieved of the [sales and use] taxes imposed ... and any penalty or interest added thereto." There appear to be many such letters issued each year. (See generally, Board of Equalization, Business Taxes Law Guide, Volume 2.) We are therefore concerned that holding counsels' replies to specific taxpayer inquiries to be a precursor determination sufficient to support a Javor cause of action will have a perverse effect on the integrity of our sales tax system. "[I]t is presumed that all "gross receipts" are subject to the sales tax unless the contrary is established by the retailer. (§ 6091.) This presumption exists in order to ensure 'the proper administration of [the sales tax law] and to prevent evasion of the sales tax. ...' [Citation.] Taxpayers' exemption claims must be supported by adequate records. [Citation.] The burden of proof is on the taxpayer." ( Loeffler , supra , 58 Cal.4th at p. 1107, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) Moreover, the willingness of taxpayer retailers to seek safe harbor written advice from the Board could be stifled if doing so would expose them to potential litigation under a Javor scenario and the burdens of preparing an

The Tax Information Bulletin provides general information to inform taxpayers and interested parties "in simplified terms the most common areas of noncompliance" they are likely to encounter. (See Rev. and Tax. Code, § 7084.) There is no basis to give this document legal effect.

Appellant in oral argument said the decision most favorable to his position is Loeffler . Presumably, he is referring to the court's suggestion that a Javor remedy lies "when neither the Board nor the taxpayer has an interest in 'ascertaining' whether excess reimbursement has been charged." ( Loeffler , supra , 58 Cal.4th at p. 1122, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) However, in light of the Board's vital interest in the integrity of our state's tax laws, we decline to infer, absent some particular allegation, that the Board has no interest in ascertaining whether excess sales tax reimbursement has been charged to a California consumer.

Loeffler acknowledged informal remedies available to consumers who believe they have been charged excess sales tax reimbursement. The Board fields a large number of telephone calls and e-mails from the public; tips from informants can lead to taxpayer audits; complaints can lead to deficiency determinations; and interested persons may petition for the Board to adopt, amend or repeal regulations, or file declaratory relief actions challenging the imposition of a tax. ( Loeffler , supra , 58 Cal.4th at p. 1123, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .)

Finally, Loeffler 's suggested remedy of declaratory relief actions to challenge the imposition of sales tax as inconsistent with statute or constitution (see ibid . ) is not toothless. To the contrary, such actions can lead to a legislatively crafted refund remedy that takes into

under a theory of unjust enrichment a payment made to a unit of government unless it was made under coercion. A person who, at the time of payment misinterprets the law to his detriment does not thereby gain a right of recovery; he must have paid as a result of compulsion." ( Reynolds v. City and County of San Francisco (1975) 53 Cal.App.3d 99 , 101, 125 Cal.Rptr. 673 .) There is no allegation here that Costco paid sales tax on Ensure under protest or as a result of any threatened enforcement action or other government coercion.

Our review of the foregoing authorities lead us to conclude that a Javor remedy should be limited to the unique circumstances where the plaintiff's allegations show that the state has been unjustly enriched by the overpayment of sales tax, and the Board concurs that the circumstances warrant refunds to consumers. Requiring such allegations ensures that courts will be faithful to our state constitution's delegation of authority to craft a remedy for the overpayment of sales tax to the Legislature, and to the

the products are sold, or that would create a duty to customers paying sales tax reimbursement on their purchases of the product. Plaintiff has cited no authority supporting these claims, nor has he suggested any facts he might add to the complaint were leave to amend granted that would establish a right to relief against Abbott. Abbott's demurrer was properly sustained without leave to amend.

under Regulation 1602(a)(5)) applies (step three). If so, we must then determine whether Ensure qualifies as a complete dietary food (step four). In this regard, we note ... [further description of label contents]. Accordingly, we conclude that Ensure now qualifies as a food product for human consumption, the sales of which are not subject to tax. (Reg. 1602(a)(4 & 5). However, if the assumptions made herein are inaccurate ... then this opinion may be different." (Italics added.)

In a March 14, 2013 response to an inquiry from an individual who "explain[ed] that it is [his] understanding that Ensure nutritional drinks are not taxable and ... need[s] confirmation to show [his] retailer," Board counsel responded, " The [ Board ] has determined that Ensure products such as Ensure, Ensure Plus and Ensure Clinical Strength are classified as food products and not food supplements. Therefore, the sales of Ensure products would be exempt from sales tax. " (Italics added.) This opinion was repeated in the Board's September 2013 tax information bulletin, stating " The products Ensure™ [ and ] Ensure Plus™ ... are not currently taxable because their labels meet the definition of a nontaxable food product. " (Italics added.)

The third cause of action of plaintiff's complaint, which presents the significant legal issue before us, alleges that the Board is a constructive trustee holding sales tax erroneously collected on Costco's sale of Ensure that should be refunded to Costco and in turn refunded to the customers who paid the sales tax reimbursement. The prayer requests, inter alia, "to the full extent allowed by [ Javor and Loeffler ] pursuant to the equitable powers of this court, ... plaintiff prays that the court order Costco to immediately apply to [the] full extent it legally can do so to the [Board] for reimbursement of all sales tax it paid to the [Board] due to sales of Ensure in order to immediately return to the class the sales tax reimbursement it paid to Costco for Ensure and to pay interest on said sums from the date they were paid to Costco to the full extent allowed by law."

and fact-specific sales tax system governing an enormous universe of transactions. Administrative procedures must be exhausted before the taxpayer may resort to court. ... [T]his comprehensive statutory scheme is inconsistent with consumer claims such as plaintiffs' by which a party other than the taxpayer would seek to litigate whether a sale is taxable or exempt." ( Loeffler, supra, 58 Cal.4th at p. 1103, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) For that reason the court rejected unfair business practice claims against a retailer based on the allegation that the retailer had collected a sales tax reimbursement on take-out sales of coffee allegedly not subject to a sales tax, because resolution of the claims would require the court to determine the taxability of the transactions. For the same reason, the trial court in the present case was correct in sustaining the demurrers to plaintiff's first and second causes of action, which both proceed on the premise that the sale of Ensure is not taxable, which fact the court would have to determine to sustain the claim.

Loeffler also reaffirmed, however, the recognition in a line of Supreme Court cases that "the Board bears some responsibility to consumers when excess sales tax has been remitted to it, given its 'vital interest in the integrity of the sales tax.' " ( Loeffler , supra , 58 Cal.4th 1081 , 171 Cal.Rptr.3d 189 , 324 P.3d 50 , citing Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 252 , 255, 23 Cal.Rptr. 589 , 373 P.2d 637 ( Decorative Carpets ).) In Decorative Carpets,

sales taxes. Thus it was left to the courts to define the rights of the parties in this respect and to adopt appropriate remedies. It is still left to the courts to adopt appropriate remedies when excessive reimbursements have been collected by mistake and paid to the state." ( Id. at p. 256, 23 Cal.Rptr. 589 , 373 P.2d 637 .) The court held that "orderly administration of the tax laws requires adherence to the statutory procedures and precludes imposing on [the Board] the burden of making refunds to the taxpayer's customers" ( id. at p. 255, 23 Cal.Rptr. 589 , 373 P.2d 637 ) but the court prohibited the taxpayer from obtaining a refund unless the funds were returned to the customers that had paid the reimbursement.

Javor is the only case of which we are aware recognizing and enforcing the right of a customer who paid an excessive sales tax reimbursement to compel the retailer to whom it was paid and who paid the excess sales tax to the Board to apply to the Board for a refund that would be passed back to the customer. As the court recognized, the circumstances in Javor were unique. Congress had retroactively repealed a federal excise tax on the sale of motor

circumstances' to which Javor alludes and that are prerequisites to the judicial recognition of any new tax refund remedy." ( McClain, supra, 9 Cal.App.5th at p. 697.) A court "may create a new tax refund remedy-and accordingly, Javor' s 'unique circumstances' exist-only if (1) the person seeking the new tax refund remedy has no statutory tax refund remedy available; (2) the tax refund remedy sought is not inconsistent with existing tax refund remedies; and (3) the Board has already determined that the person seeking the new tax refund is entitled to a refund, such that the refusal to create that remedy will

Supreme Court in Loeffler held it would be inconsistent with those provisions to hold retailers civilly liable to their customers for failing to request a refund from the Board. ( Loeffler, supra, 58 Cal.4th at p. 1129, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) Remitting the excess sales tax to the Board provides the retailer with a "safe harbor" from customer claims seeking to impose liability on the retailer for having collected excessive sales tax reimbursement. But, as the court long ago stated in Decorative Carpets and quoted in Loeffler, " 'the Legislature never provided that customers are not entitled to recover from retailers amounts erroneously charged to cover sales taxes.' " ( Loeffler, p. 1112, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .) And as the court reaffirmed in Javor, also repeated in Loeffler , " 'the Board is clearly mandated by the Board's duty to protect the integrity of the sales tax by ensuring that the customer received their refunds. The integrity of the sales tax requires not only that the retailers not be unjustly enriched [citation], but also that the state not be similarly unjustly enriched.' " ( Loeffler, p. 1116, 171 Cal.Rptr.3d 189 , 324 P.3d 50 .)

Fundamental principles embedded in the Revenue and Taxation Code are that payment of the sales tax is an obligation of the party selling an item subject to the tax, and that the taxability of a transaction is to be determined (or "ascertained") by the Board in the first instance. The inconsistency with the statutory scheme that the entire line of Supreme Court cases recognizes and precludes would arise from permitting the purchaser of a product-not the payer of the sales tax-to seek to recover directly from the Board an amount that it claims in judicial proceedings did not constitute reimbursement of a lawful sales tax. No such inconsistency arises, however, if a seller either voluntarily or under compulsion seeks a refund from the Board. While sections 6905 and 6901.5 confirm that a seller who does not request a refund waives the right to a refund and to the recoupment of any excess sales tax it may have paid, those provisions do not address whether a seller may be compelled to make that request by one who is the true party in interest bearing the financial impact of the payment of a tax that was not owing. While a retailer incurs no civil liability for waiving its right to a refund, that is not to say that as a matter of the equities also recognized in the line of Supreme Court cases, the retailer may not be prohibited from making such a waiver, to the detriment of those who have borne the cost of the erroneous tax payment. (See Decorative Carpets, supra, 58 Cal.2d at p. 255, 23 Cal.Rptr. 589 , 373 P.2d 637 .) Indeed, in Loeffler the

would be available only when opinion letters or Board publications have unqualifiedly indicated that no sales tax, or a lesser sales tax, is payable on the sale of a specific item. The disregard of opinion letters and tax information bulletins with the clarity and specificity of those in this case in all likelihood is a unique circumstance. Moreover, because such a remedy is available, retailers and others would be encouraged to carefully determine whether tax is due upon sale of the products they sell and to avoid overpayments that come out of the pockets of their customers. And, consistent with the majority's reference to the possibility of legislative action, the Legislature would retain the ability to enact facilitating procedures or to qualify taxpayers' rights should experience indicate that the burdens of enforcement outweigh the benefits of providing redress to aggrieved taxpayers. Absent further legislation, however, the Supreme Court has said it is for the court to fashion an appropriate remedy. The conclusion reached by the majority effectively precludes any such relief.