D.R. Systems v.
Equalization
Filed 3/7/13 D.R. Systems v. Cal. State Bd. of Equalization CA4/1
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
D.R. SYSTEMS, INC.,
Plaintiff and Appellant,
v.
STATE OF CALIFORNIA;
STATE BOARD OF EQUALIZATION,
Defendant and Respondent.
D060856
(Super. Ct. No. 37-2009-00094087-
CU-MC-CTL)
APPEAL from
a judgment of the Superior Court of
Lisa Foster, Judge. Reversed.
Plaintiff
and appellant D.R. Systems, Inc. appeals from a summary judgment in favor of
defendant and respondent State Board of Equalization (Board) on plaintiff's
second amended complaint for a refund of sales and use tax. On the parties' cross-motions, the trial
court granted summary judgment in Board's favor, ruling plaintiff had not made
a timely or valid administrative claim for refund. On appeal, plaintiff contends that a January
7, 2005 letter, alone or in conjunction with other communications to Board,
constituted a timely claim for refund during the relevant time period as
defined by Revenue and Taxation Code
section 6904 and Board is equitably estopped from claiming that section 6904
was not satisfied. Alternatively,
plaintiff contends the sufficiency of its January 7, 2005 letter and other communications, as well
as application of equitable estoppel, are triable issues of material fact
precluding summary judgment.
On this
record, Board is not entitled to summary
judgment because there are triable issues of material fact as to whether
Board should be equitably estopped from raising plaintiff's failure to exhaust
administrative requirements as a defense.
Accordingly, we reverse the judgment.
FACTUAL AND
PROCEDURAL BACKGROUND
We set out
the undisputed fact from the parties' separate statements and other
unchallenged evidence presented in Board's motion for summary judgment and
plaintiff's cross motion for summary judgment/summary adjudication. (Aguilar
v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843; Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182,
197.) We state other facts and draw reasonable inferences in the light
most favorable to plaintiff. (
45 Cal.4th 1244, 1249-1250; Ragland,
at p. 197.)
Plaintiff
is a San Diego company that sells computers, software and services relating to
the computer storage of X-rays and other medical digital images. In November 2002 and March 2003, Board
notified plaintiff that it had overpaid its sales and use taxes for the second
and third quarters of 2002 (the period of April 1, 2002, to September 30, 2002)
by, respectively, $17,382 and $172,878.
Board advised plaintiff it could take credit for the overpayments
against future tax liability, and set out two ways for it to do so.
In August
2003, Board adjusted the overpayments from 2002 against tax liability in
November 2002 and January 2003, applying credits on plaintiff's fourth quarter
2002 and first quarter 2003 returns (respectively approximately $68,000 and $46,000).
In the
third quarter of 2004, plaintiff filed a return taking a $59,232.46 additional
credit for overpayments made in the second and third quarters of 2002.
plaintiff indicating a past due amount and assessing penalties and interest
based on plaintiff's third quarter 2004 return.
In December
2004, Zuckerman sent Board a memorandum with the subject line, "Self Audit
of Prior Year Revenues." (Some
capitalization omitted.) The memo states
in part, "During the first part of July 2004, we showed a balance due to
us from the state for sales tax."
Zuckerman wrote that the company had reconciled its revenue and sales
tax and had backup to show the process they went through to "clean up the
books." He asked that the penalties
and interest be waived because the company was "working in good faith to
clean up the prior years and current year accounting."
After
sending this memo, Zuckerman spoke with a Board employee, Linda Osgood, who
instructed him that the next step was for him to write a letter to Board under
penalty of perjury explaining that there was a balance owed to D.R.
Systems. Zuckerman resent the memo a few
days later, handwriting the words, "These statements are made under
penalty of perjury[.]"
At about
that time, Zuckerman told Osgood that D.R. Systems had gone through its books
from 2002 to the present and noticed errors committed by its prior controller;
it had converted its accounting system from a tax basis to generally accepted
accounting principles, which had resulted in a change in the allocation of
taxable income by each quarter and thus all of its prior returns were
inaccurate; there were significant overpayments starting in the second quarter
of 2002 that resulted in a balance due D.R. Systems, Inc. from the Board; and
the credit taken in the third quarter of 2004 was an offset of an overpayment
determined to have been made starting in the second quarter of 2002 and rolled
forward from the ensuing quarters.
In another
conversation, Osgood told Zuckerman that he needed to add the phrase, "I
declare under penalty of perjury . . . " to his memo. She did not direct him to file Board's
"Claim for Refund or Credit" form (form BOE-101).
As a result
of their conversations, on January 7, 2005, Zuckerman sent Board a memorandum
almost identical to those sent the prior month.
In its entirety, the memorandum, again captioned, "Self Audit of
Prior Year Revenues" (capitalization omitted), reads: "During the current year we have been performing
a self-audit of revenue and sales tax.
We reviewed the books from 2001 through 2003. During July 2004, we showed a large credit
balance due to us from the state for sales tax.
When we combined the prior year with the current year our credit balance
changed. We are currently completely
reconciled and we have the backup to show the process we went through to clean
up the books. We would appreciate the
consideration of the State in waiving penalties and interest since we were
working in good faith to clean up the prior years and current year
accounting. The prior Controller who
worked here since the company's inception was not very good. I have been here just over a year and have
now cleaned everything up. The actual
sales tax activity for the month of July 2004 was [$]19,268.49. I declare under penalty of perjury that the
statements I have made are true and accurate."
On February
8, 2005, Board responded to Zuckerman's letter, informing him it would relieve
the penalties, but not the interest, for the third quarter of 2004.
In August
2005, Board sent an audit letter to plaintiff.
Though Zuckerman was prepared to begin, the auditor did not actually
contact him until November 2005. The
Board's audit began in December 2005. In
January 2006, Zuckerman filed a waiver of limitation form consenting to an
extension of the time by which the Board could make a deficiency determination
to July 31, 2006, for the period covering October 1, 2002, through March 31,
2003.
On May 12,
2006, Zuckerman filed a BOE-101 claim for refund form seeking a credit or
refund of $649,464. In it, Zuckerman
wrote: "Amended returns have been
filed for the period of 4/1/2002 through 12/31/2005. The last audit period for DR Systems was
through the period of 3/31/2002. This
prior audit period of DR Systems from 1992 through 3/31/2002 did not catch the
error of collecting sales tax on Service Contracts."
In June
2006, Zuckerman filed an extension to his original waiver extending the time by
which the Board could make a deficiency determination to October 31, 2006.
In early
2007, as a result of its audit, Board issued plaintiff a refund of over
$390,300 in taxes and interest. However,
Board advised plaintiff it had not filed a timely claim for refund with respect
to its second and third quarter 2002 overpayments, and disallowed any refund
for those overpayments. Plaintiff
unsuccessfully participated in an administrative appeals process, as well as a
hearing before the elected members of the Board.
In July
2009, plaintiff filed a complaint against Board seeking a refund of
$283,410.80 in sales
and use tax that was allegedly overpaid for the second and third quarters of
2002 (the period of April 1, 2002, to October 1, 2002). Plaintiff subsequently filed first and second
amended complaints.
Board moved
for summary judgment on grounds the court lacked jurisdiction over plaintiff's
second amended complaint because plaintiff had not filed a timely claim for a
refund under section 6932, and thus had not exhausted its administrative
remedies before filing suit. It also
argued the action was barred by the three-year statute of limitations of
section 6902. It asserted as undisputed
that the statute of limitations for the second and third quarters of 2002 ran
on July 31, 2005, and October 31, 2005, respectively. Plaintiff filed its own cross-motion for
summary judgment and alternatively summary adjudication on grounds its claims
were not barred by the statute of limitations.
It argued its letters dated December 8, 2004, and January 7, 2005,
constituted a valid and timely claim for refund, and Board should be estopped
from claiming otherwise.
In
opposition to Board's motion, plaintiff argued it had properly exhausted its
administrative remedies. It maintained
the terms "credit" and "refund" were interchangeable, and
the wording of its January 7, 2005 letter, which had requested a credit rather
than a refund, sufficiently addressed the purpose of the claims statute. Plaintiff asked the court to interpret the
claim for refund statutes equitably, and interpret its communications liberally
so that the Board would offset any time-barred tax overpayment against
plaintiff's future tax liabilities. It
filed objections to Board's evidence.
Alternatively,
plaintiff argued the court should conclude based on all of the communications
that Board was on notice of plaintiff's claim that it was entitled to a
refund. It maintained its January 7,
2005 letter, combined with Zuckerman's communications with Osgood and her later
instructions to Zuckerman, sufficed to put Board on notice of its claim; that
the wording of the January 7, 2005 letter did not determine its sufficiency,
and any ambiguity in the requirements of section 6904 must be interpreted
against the Board and in plaintiff's favor as the taxpayer. Plaintiff further argued Board should be
estopped from asserting that plaintiff did not comply with the refund
statutes.
Plaintiff
submitted an opposing declaration from Zuckerman in which he stated that in
preparing his January 7, 2005 letter he had followed Osgood's directions, and
if she had directed him to file a BOE-101 form, he would have done so. Pointing to a tax, interest and penalty
worksheet from Board, he pointed out that in July 2004, Board was still
adjusting for the second quarter 2002 overpayments. He stated, "The [Board] was clearly
aware that there were overpayments and adjustments were required." Zuckerman stated that his May 12, 2006 filing
was done at the direction of a Board employee, and was timely for the second
and third quarters of 2002.
Overruling
plaintiff's objections, the court granted summary judgment in Board's
favor. The court ruled it did not have
jurisdiction over the subject matter of plaintiff's second amended complaint;
that plaintiff had not exhausted its administrative remedies because it failed
to file a timely and valid claim for refund.
In particular, it ruled the January 7, 2005 letter did not request a tax
refund or specify grounds for a refund.
The court stated: "[T]he
January 7, 2005 letter does not provide sufficient notice to defendant [Board]
that plaintiff is making a claim for refund for the periods at issue, April 1,
2002[,] through September 30, 2002[,] (2Q02 and 3Q02[).] The January 7, 2005 letter does not state that
plaintiff is requesting a refund of taxes paid for the periods at issue. The January 7, 2005 letter does not state any
specific grounds upon which the claim was founded. Therefore, the January 7, 2005 letter is an
inadequate claim for a refund."
Additionally, the court ruled that exhibits B, C, and D to the second
amended complaint (Board's November 21, 2002 letter; March 3, 2003 letter; and
Board's tax, interest, and penalty worksheet) either separately or read in
conjunction with the January 7, 2005 letter, did not constitute a claim for
refund, as none of the documents specified a grounds for refund or the period
for which a refund was being sought. The
court found the doctrine of equitable estoppel "inapplicable." It distinguished J.H. McKnight Ranch, Inc. v. Franchise Tax Board (2003) 110
Cal.App.4th 978 (McKnight)
permitting plaintiff to ignore the statute of limitations in this case would be
contrary to public policy. The court
ruled plaintiff's cross-motion for summary judgment/adjudication was
"moot."
Following
an unsuccessful motion for reconsideration, plaintiff filed this appeal.
DISCUSSION
I. Summary
Judgment Standards
A "party moving for summary
judgment bears the burden of persuasion that there is no triable issue of
material fact and that he is entitled to judgment as a matter of
law." (Aguilar v. Atlantic Richfield Co.,
omitted.)
A moving defendant has the initial burden of production
entailing it to "present[] . . . 'evidence' " (id. at p. 850,
citing Evid. Code, § 110) that would support a prima facie showing of the
nonexistence of any triable issue of material fact; that " 'one or more
elements of' the 'cause of action' in question 'cannot be established' or that
'there is a complete defense' thereto." (Aguilar, at p. 850;
Code Civ. Proc., § 437c, subd. (p)(2).) A defendant moving for summary
judgment on an affirmative defense must persuade the court there is no material
fact for a reasonable trier of fact to find as to that defense. (Aguilar,
at p. 850, fn. 11.) If this burden is met, the burden of production
shifts to the opposing party to make a prima facie showing of a triable issue
of material fact. (Id. at p. 850.)
On appeal
from a summary judgment, we review the record de novo, considering all of the
evidence presented by the parties except evidence properly excluded by the
trial court. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465,
476.) We view the evidence under the same principles applicable at the
trial level, and because Board prevailed on the motions, we view the evidence
in the light most favorable to plaintiff; we strictly construe Board's evidence
and liberally construe plaintiff's, resolving doubts concerning the evidence in
plaintiff's favor. (Conroy v. Regents of University of Cal., supra, 45 Cal.4th at pp. 1249-1250; In re Martinez (2012) 210 Cal.App.4th 800, 815.)
II. Taxpayer
Remedies for Contested Sales and Use Taxes
Article XIII, section
32 of the California Constitution provides:
"No legal or equitable process shall issue in any proceeding in any
court against this State or any officer thereof to prevent or enjoin the
collection of any tax. 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." (Italics added.)
The Legislature provides that before a taxpayer may file
an action against the State to recover a sales tax already paid, he or she must
first file a claim with the Board for a refund.
(§§ 6932, 6901-6908; see Preston
v. State Bd. of Equalization (2001) 25 Cal.4th 197, 206 (
maintained in any court for the recovery of any amount alleged to have been
erroneously or illegally determined or collected unless a claim for
(commencing with Section 6901)."
The claim "shall
be in writing and shall state the specific
Preston, 25 Cal.4th at p. 206.) In addition, a suit against the State,
following the Board's action on the claim for refund, "must be based 'on the grounds set forth in
the claim' for refund. (§
6933.) It may not include issues '
at p. 206.) Thus, the claim frames and
restricts the issues to be litigated. (
1015.) Though a court is " 'without
jurisdiction to consider grounds not set forth in the claim,' " it may
consider any contentions "intertwined with contentions expressly raised in
the refund claim . . . ." (
The policy underlying
section 6932, requiring a taxpayer to file a claim with the Board before
commencing a tax refund lawsuit, is to give the Board an opportunity to correct
any mistakes, thereby avoiding the cost of litigation and the consumption of
judicial resources. (
A taxpayer filing a
return on other than an annual basis must file for a refund within three years
from the last day of the month following the close of the quarterly period for
which the overpayment was made.
(§ 6902, subd. (a)(1).) The
time period within which to file a claim for refund is jurisdictional; thus, if
a taxpayer fails to exhaust all administrative refund procedures, the trial
court is deprived of jurisdiction to order a refund of any overpaid taxes. (Philips
v. Ober Electric Co. v. State Bd. of Equalization (1991) 231 Cal.App.3d
723, 728.)
III. Plaintiff's
Memoranda and Communications Were Insufficient as a Matter of Law to Put the
Board on Notice of A Demand for Refund or Specific Grounds for a Refund
Plaintiff contends
that Zuckerman's January 7, 2005 letter, either alone or combined with
Zuckerman's prior letters and conversation with Osgood, constitutes a timely
claim for refund that put Board on notice of its claim, satisfying section
6904. Alternatively, it argues triable
issues of material fact exist as to whether the statements in the January 7,
2005 letter constitute "specific grounds upon which the claim is
founded" within the meaning of section 6904, and whether a claim was
timely asserted. Plaintiff maintains
that the issue presented for this court is not whether the grounds stated in
the January 7, 2005 letter and others were sufficiently specific, but
"whether the sufficiency of the
specificity of the grounds stated is
a triable issue of material fact."
It argues the facts here are "highly analogous" to
January 7, 2005 letter does not determine its sufficiency.
A. McKnight and Newman
In
audited the 1990 return of J.H. McKnight Ranch (Ranch), and assessed over
$97,000 in additional state taxes after determining that a certain discharged
debt was taxable income. (
contending the discharged amount was not taxable income under a legal doctrine
known as the "contested liability doctrine." (Id.
at p. 983.) After Ranch unsuccessfully
attempted to resolve the dispute with the FTB's settlement bureau, it paid the
disputed amount and filed an amended 1990 return and claim for a refund. (Ibid.) It then filed an action in superior court,
after which the trial court reached a decision and entered a judgment in its
favor awarding the overpaid taxes plus interest. (Ibid.)
On the FTB's appeal
from the judgment, the FTB conceded the discharged debt was not taxable under
the contested liability doctrine, and that Ranch did not owe the over $97,000
in taxes it had paid when it filed its amended 1990 return. (McKnight,
supra, 110 Cal.App.4th at p.
985.) Rather, the FTB contended Ranch
was procedurally barred from a refund because it failed to exhaust its
administrative remedies under sections 19382 and 19322, the latter of which
provides: "Every [administrative]
claim for refund shall be in writing, shall be signed by the taxpayer or the
taxpayer's authorized representative, and shall state the specific grounds upon
which it is founded." (
statutes set forth a pleading requirement, requiring the taxpayer to plead a
particular ground within the four corners of its filed refund claim. (Ibid.)
The Court of Appeal
disagreed. It agreed with Ranch that the
exhaustion statutes set out a notice requirement. (McKnight,
supra, 110 Cal.App.4th at p.
986.) Addressing the Legislature's
intent, it stated: " 'The purpose
of these statutory [exhaustion] requirements is to ensure that the Board receives
sufficient notice of the claim and its basis.
[Citation.] The Board then has an
opportunity to correct any mistakes, thereby conserving judicial
resources. [Citation.]' [Citation.]
Section 19322 'requires no particular form; the claim only must be in
writing and state the grounds therefor.
Indeed, the purpose of the statute is to put the board on notice of a
claim . . . .' [Citation.] [¶]
Satisfaction of this goal—notice to the Board so that it may rectify
mistakes and conserve judicial resources—does not hinge on whether a particular
issue is recited expressly in the initial claim for refund. If the Board has notice of the taxpayer's
argument from whatever source during the course of resolving the claim for
refund, it has the opportunity to reevaluate
position, reach the correct result, and obviate the need for a subsequent
lawsuit. We see no basis for construing
the statutes setting out the administrative exhaustion requirement so as to
ignore actual notice the Board may have had from sources other than the four
corners of the initial claim." (
McKnight suggested that these principles were applied by the
California Supreme Court in Wallace
Berrie & Co. v. State Bd. of Equalization (1985) 40 Cal.3d 60, as well
as the Court of Appeal in Jimmy Swaggart
Ministries v. State Bd. of Equalization (1988) 204 Cal.App.3d 1269. In Wallace
Berrie, the high court held that the exhaustion of administrative remedies
doctrine did not prevent a taxpayer's challenge to the validity of a State
Board of Equalization regulation in its refund claim. Because the Board of Equalization in that
case was aware of the issue as evidenced by the fact it addressed it on the
merits at trial, the plaintiff had not failed to exhaust its administrative
remedies, whether or not the particular challenge was actually raised in the
refund claim. (McKnight, supra, 110
Cal.App.4th at p. 987, discussing Wallace
Berrie, 40 Cal.3d at p. 66, fn. 2.)
In Jimmy Swaggart, the Court
of Appeal looked beyond just the initial claim and considered the entire record
before the Board, including the Board's denial that any exemption applied and
its staff analysis of the plaintiff's petition for redetermination, to hold the
taxpayer in that case had not raised various constitutional claims in its claim
for refund, in which it had asserted only a First Amendment argument. (Jimmy
Swaggart, 204 Cal.App.3d at pp. 1291-1292; see McKnight, at p. 987.) The
taxpayer's refund claim had read simply:
" 'California cannot constitutionally impose a sales tax.'
" (Jimmy Swaggart, at p. 1291.)
McKnight applied "longstanding policy" concerning refund
claims: " 'It has long been the
policy of California courts to liberally construe claims for refund of
taxes. "In recognition of the
reality that many, if not most, applicants are laymen who would be denied
hearings if formalized technical rules were followed, it has been the judicial
policy of this state to construe such applications liberally in favor of the
applicant. It has been stated that an
application is adequate and 'the purpose of the statutory requirement is served
if the board may know from said application "or have some reasonable means
of ascertaining" therefrom what the claim of the applicant is, to the end
that such claims may be investigated by the assessing authorities prior to the
hearing.' " ' " (
In
the evidence before the trial court revealed that the Board was aware of
Ranch's contested liability argument; the court observed Ranch's initial claim
for refund did not recite the doctrine as an express basis for refund of the
tax, but indicated that it was challenging the denial of its original
protest. (McKnight, supra, 110
Cal.App.4th at p. 988.) It pointed out a
Board auditor had reviewed the protest hearing report that included Ranch's
assertion of the contested liability doctrine (id. at pp. 988-989) and there was other evidence suggesting the
auditor knew or soon learned that the contested liability doctrine was still at
issue, including the testimony of one of Ranch's attorneys that he had
discussed the " 'same things I discussed at the lower level' " with
the auditor. (Id. at p. 989.) The claim
for refund also indicated that Ranch was " 'protesting the [Board's]
disallowance' " of its exclusion from income, "a statement which
could be interpreted to incorporate by reference the panoply of arguments
raised and rejected in the protest proceeding." (Id.
at pp. 989-990.) According to the
the auditor was not dispositive; the Board had received "notice of the
relevant facts surrounding the claim and notice of a legal doctrine under
which, indisputably, [Ranch] owed no tax.
The Board's auditor thus had the opportunity to rectify the Board's
mistakes in issuing the initial assessment and denying the subsequent
protest." (Id. at p. 990.)
Newman, supra, 208
Cal.App.3d 972, involved an actor's claim for a refund of state income tax for
three years (1975, 1976 and 1977) on the ground the tax on his income for a
particular film was determined under an inappropriate formula. (Id.
at pp. 975-976.) After a court trial on
stipulated facts, the trial court determined the plaintiffs had given legally
sufficient notice of their claim for refund for a portion of their 1975 taxes,
rejecting the Board's position that no claim was properly filed or that the
Board did not have statutory notice. (
On the Board's appeal,
plaintiff's May 14, 1982 letter constituted a claim for refund for the year
1975. (Newman, supra, 208
Cal.App.3d at p. 979-980.) It was
undisputed that the date by which the plaintiffs were to file their claim for
refund was June 15, 1982. (
nominally entitled "protest."
In part, the letter stated:
" 'The notice of proposed assessment resulted from a recent
Franchise Tax Board Examination. The
Franchise Tax Board auditor raised questions regarding the California
apportionment of the Newmans' film income but did not discuss many of the
proposed adjustments prior to the issuance of his report. . . .
[¶] "The Sting" Our position on income derived from "The
Sting" is unchanged from prior years.
The proper percentage of California income is 55.56 %. This is based on California work days over
total contract days. [¶] The 1976 and 1977 returns reported the proper
amounts, however, the allowable portion of "Sting" income was
overreported on the 1975 California tax return.
The return reflected 83.30 % when only 55.56 % should have been
reported.' " (Newman, at p. 979.)
Explaining that
"[t]he sufficiency of a claim does not turn on the nomenclature
used," the Newman court on these
facts held the letter "clearly satisfie[d]" the requirements of the
statutory requirement that the claim be in writing and state the grounds
therefor, because it apprised the Board that the plaintiffs contended they had
overreported their income in 1975. (
statement regarding their position on the overpayment, and the Board's
knowledge of their proposed allocation, qualified the May 14, 1982 document as
a claim for refund. (
B. Plaintiff's Representation That a Credit Balance was Due from the
State, and Board's Awareness of the Background Circumstances, is Insufficient
to Put the Board on Notice that Plaintiff Was Seeking a Refund for the Periods
in Question
Plaintiff argues that
like the circumstances in McKnight,
the dispute here arose over the legitimacy of the credit taken on plaintiff's
third quarter 2004 return, after which its principal Zuckerman contacted the
Board to explain the credit, received input from the Board employee on the
contents of the claim letter, and resubmitted it. It asserts the wording Zuckerman used in the
January 7, 2005 letter is not determinative, nor is the fact his memo omitted
the words "claim for refund."
Rather, plaintiff contends that under Newman, supra, 208
Cal.App.3d 972, it need only " 'put [the Board] on notice that a right is
being asserted with respect to an overpayment of tax.' "
McKnight and Newman are
inapposite. The plaintiffs in
proposed assessment and described an apportionment formula they proposed should
apply, which would permit the FTB to make a meaningful investigation and
determination of the issues presented, so as to possibly rectify the situation. And unlike McKnight, in which the Ranch timely protested an assessment based
on a specific legal doctrine which (the FTB conceded) eliminated its tax
liability and then filed a refund claim, plaintiff's January 7, 2005 report of
a credit balance for overpayments made in the second and third quarters of 2002
did not provide any specific factual or legal basis to recover its overpayments
other than a vague claim of "errors" committed by its prior
controller. Indeed, the main thrust of
plaintiff's January 7, 2005 memo was a request that the Board waive interest
and penalties assessed for plaintiff's past due payment in connection with its
third quarter 2004 return. It is
undisputed that Board had already notified plaintiff of overpayments during the
second and third quarters of 2002, for which plaintiff took credits in
subsequent quarters. There is no
evidence suggesting, or from which a reasonable trier of fact may infer, that
Board should have known or suspected that the overpayments plaintiff reported from
2002 in its January 7, 2005 memo were additional or any different from those
already addressed by the Board.
We are not precluded
from reaching this determination on motion for summary judgment, because when a
question involves the interpretation of a statute and the legal meaning of a
novo review. (Varshock v. California Dept. of Forestry and Fire Protection (2011)
194 Cal.App.4th 635, 641 [interpretation of statutory language presents a pure
question of law on which reviewing court exercises independent judgment];
47 Cal.App.4th 1612, 1616 ["Because the issue is one of law and
exclusively dependent on an interpretation of writings, on appeal from an order
granting summary judgment, we exercise de novo review"].)
Shiseido Cosmetics (America) Ltd. v. Franchise Tax Bd. (1991) 235
Cal.App.3d 478 and Mercury Casualty Co.
v. State Bd. of Equalization (1986) 179 Cal.App.3d 34 compel our
conclusion. In Mercury Casualty, the appellate court held that checks were not
valid claims for refund even though they contained the phrase, "Paid Under
Protest Subject to Claim for Refund Not Subject to Gross Premiums
Tax." (Mercury Casualty, 179 Cal.App.3d at pp. 37, 38, some capitalization
omitted.) This language did not meet the
provisions of the tax statute requiring such a claim to be " 'in writing
and . . . state the specific grounds upon which it is founded.' " (Id.
at p. 39, quoting section 12979.) The
court further held, relying on City of
San Jose v. Superior Court (1974) 12 Cal.3d 447, that a governmental
entities' actual knowledge of the circumstances surrounding the claim was
"no basis for dispensing with the claim." (Mercury
Casualty, at p. 40.)
Likewise, in
Franchise Tax Bd., supra, 235
Cal.App.3d 478, the words "paid under protest" written on a payment
did not constitute a valid or timely request for refund. There, the plaintiff cosmetics company
(Shiseido), like plaintiff here, argued its refund claim could be pieced
together by considering its prepayment protest and appeal, its having written
"paid under protest" on its payment, and its filing of the first
lawsuit within the one-year limitations period for filing an administrative
claim. (Id. at p. 491.) It relied on
Newman, supra, 208 Cal.App.3d 972.
The Court of Appeal rejected Shiseido's arguments, explaining the words, "paid under protest" do not
constitute a valid refund claim, "since they do not demand a refund or
specify grounds for a refund." (
relied upon Mercury Casualty Co. v. State
Bd. of Equalization, supra, 179
Cal.App.3d 34 to hold the FTB's knowledge of circumstances surrounding the
claim did not excuse compliance with the refund claim requirement. The Shiseido
court explained: " ' "It
is well-settled that claims statutes
must be satisfied even in face of the public entity's actual knowledge of the
circumstances surrounding the claim.
Such knowledge—standing alone—constitutes neither substantial compliance
nor basis for estoppel." ' "
235 Cal.App.3d at p. 492, quoting Mercury Casualty Co., supra, at p. 40.)
The
tax authorities, observing that California's claim statutes are clear and
straightforward and the filing of a refund claim was a simple and unburdensome
act. (Shiseido Cosmetics (America) Ltd. v. Franchise Tax Bd.,
494-495.) The court was "unwilling
to construe the simple, straightforward statutory requirements in ways that
would leave tax authorities in doubt as to whether refund claims have been
filed and promote undesirable litigation."
(Id. at p. 495.)
In short, we conclude
that neither plaintiff's December 2004 or January 2005 communications set out
sufficiently specific legal or
factual bases for a claim for a refund as a matter of law, and those
communications, combined with Zuckerman's conversation with Osgood which gave
Osgood general information about the circumstances (i.e., plaintiff's
self-audit, and its controller's errors) did not put Board on notice of, and
permit it to reasonably investigate or rectify a claim for refund within the
meaning of section 6904.
IV. Triable
Issues of Material Fact Exist as to Equitable Estoppel
Despite the
foregoing conclusion, we nevertheless conclude the summary judgment should be
reversed because plaintiff's evidence raises triable issues of material fact as
to whether Board should be equitably estopped from relying on the
administrative exhaustion requirements.
Plaintiff argues application of the
doctrine of equitable estoppel is appropriate.
It asserts the Board was "aware of the facts as relayed to the
[Board]" via Zuckerman's December 8, 2004 and January 7, 2005 memoranda,
plaintiff's third quarter 2004 tax return, and Zuckerman's conversations with
Osgood. According to plaintiff: "The direction of Osgood that Zuckerman
write a letter laying out the facts that lead [sic] to the taking of the
credit and the existence of a credit due to DR Systems, and nothing more are,
without dispute, direction that was relied upon and acted upon by
Zuckerman. At the time, as it attends to
procedural requirements surrounding the assertion of a claim for refund,
Zuckerman was not aware of any other method for asserting a claim for
refund. Zuckerman relied to his injury
on the direction of Osgood."
On review
of a summary judgment, we are to find issues requiring a trial, not resolve
them. (Millard v. Biosources, Inc. (2007)
156 Cal.App.4th 1338, 1345.) The
determination of equitable estoppel ordinarily is a question of fact. (Platt
Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 319.) But when the relevant facts are undisputed
and can support only one reasonable conclusion, the existence of an estoppel is
a question of law. (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1315 (
other grounds in Belair v. Riverside
County Flood Control Dist. (1988) 47 Cal.3d 550, 558.)
"Equitable
estoppel is a principle grounded in fundamental fairness, and ' " '
. . from the equitable
principle that no
man [may] profit
from his own
" ' " (
Cal.App.4th 1336, 1348, quoting Lantzy v. Centex Homes (2003) 31 Cal.4th
363, 383; see also Steinhart,
equity and fair dealing].) It is based
on the theory that a party who by his declarations or conduct misleads another
to his prejudice should be estopped from obtaining the benefits of his
misconduct. (Cotta v. City and County of San Francisco (2007) 157
Cal.App.4th 1550, 1567.) A
valid claim for equitable estoppel generally requires four elements:
" ' " '(1) the party to be estopped must be
apprised of the facts; (2) he must intend that his conduct shall be acted upon,
or must so act that the party asserting the estoppel had a right to believe it
was so intended; (3) the other party must be ignorant of the true state of
facts; and (4) he must rely upon the conduct to his injury.' " '
" (Honeywell v. Workers' Comp.
Appeals Bd. (2005) 35 Cal.4th 24, 37.)
Under these
principles, "A defendant may be equitably estopped from asserting a
statutory or contractual limitations period as a defense if the defendant's act
or omission caused the plaintiff to refrain from filing a timely suit and the
plaintiff's reliance on the defendant's conduct was reasonable. [Citations.]
The act or omission must constitute a misrepresentation or nondisclosure
of a material fact, rather than
law. [Citation.] The defendant need not intend to deceive the
plaintiff to give rise to an equitable estoppel." (Superior
Dispatch, Inc. v. Insurance Corporation of New York (2010) 181 Cal.App.4th
175, 186; see also Steinhart,
the plaintiff would have acted so as to avoid injury had the plaintiff known
the concealed fact." (
plaintiff's reliance is reasonable is a question of fact unless reasonable
minds can reach only one conclusion based on the evidence. (Ibid.) The fact a plaintiff is represented by counsel,
as well as the scope and timing of the representation, are relevant to the
question of the reasonableness of the plaintiff's reliance. (Id.
at pp. 187-188.)
As Board
points out, equitable estoppel " 'ordinarily will not apply against a
governmental body except in unusual instances when necessary to avoid grave
injustice and when the result will not defeat a strong public policy.'
" (Steinhart, supra, 47
Cal.4th at p. 1315.)
For
purposes of its motion, Board accepts, as it must, that Zuckerman spoke with
Osgood in December 2004, telling her he had found errors committed by
plaintiff's prior controller and "[t]here had been significant
overpayments made starting in [the second quarter of 2002] which resulted in a
balance due to DR Systems from the [Board]." It accepts that in response, Osgood
"indicated [to Zuckerman] that the next step was for [him] to write a
letter to the SBE, under penalty of perjury explaining that there was a balance
owed to DR Systems, Inc." This was
not a conclusion of law, but a representation of fact as to what Zuckerman
should do to call the Board's attention to plaintiff's overpayments, or at
least an omission as to how best to alert the Board of the overpayments. (Accord, Superior
Dispatch, Inc. v. Insurance Corporation of New York, supra, 181 Cal.App.4th at pp. 190-191 [nondisclosure of policy
terms stated in a contract was a nondisclosure of facts rather than legal
conclusions, and reasonableness of plaintiff's reliance—its failure to discover
the provision by other means—was likewise a question of fact].)
Under the
circumstances, estoppel may apply if plaintiff can show Zuckerman reasonably
relied on Osgood's statements to plaintiff's detriment. This again is a question of fact that is not
amenable on summary judgment. (See
Corporation of New York, supra,
181 Cal.App.4th at pp. 187-188; Vu v.
Prudential Property & Casualty Inc. Co. (2001) 26 Cal.4th 1142, 1152
[insurer's inspector's representation that total cost of repairs was less than
an insurance policy's deductible was a communication of specific facts
describing the nature and amount of damage that might estop the insurer from
raising a statute of limitations defense where plaintiff could show he
reasonably relied on the representation; whether the plaintiff's reliance was
reasonable "depend[ed] on a myriad of factual questions . . . includ[ing]:
whether [plaintiff] was qualified to evaluate the damage or had to rely on an
expert [citation]; what [he] told the inspector about his damage; whether the
inspector was qualified and, if not, whether [the plaintiff] knew of his lack
of qualification; whether the inspector examined the entire property and, if
not, whether [the plaintiff] knew the inspection was more limited; what lead [the
plaintiff] to suspect his damage was greater than the policy's deductible
amount, and whether [the plaintiff] then acted diligently after he so
suspected"].) The reasonableness of
Zuckerman's reliance requires additional inquiry as to issues such as Zuckerman's
qualifications, knowledge and experience in similar tax matters, Osgood's
qualifications, and Zuckerman's knowledge of her qualifications.
Board
maintains that under Steinhart,
claim of equitable estoppel fails as a matter of law. But Steinhart
involved a plaintiff represented by counsel who had confirmed he had read
the applicable statutory scheme governing tax refunds. (Steinhart,
supra, 47 Cal.4th at p. 1317, fn.
13.) The California Supreme Court
observed the plaintiff's legal representation was a "significant"
circumstance: "In general, the law
'particularly' disfavors estoppels 'where the party attempting to raise the
estoppel is represented by an attorney at law,' " who is " 'charged
with knowledge of the law in California.' " (Id.
at p. 1316; see also Advanced Network,
Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054, 1068;
Cal.App.4th 1487, 1497.) Here, there is no evidence Zuckerman was
represented by counsel, or other facts indicating that as a matter of law he
should be charged with the knowledge of the legal requirements for, or steps
leading to, a valid claim for a refund under section 6904.
Equitable
estoppel nevertheless will not apply if doing so would "effectively
nullify 'a strong rule of policy, adopted for the benefit of the public.'
" (City of Long Beach v. Mansell (1970) 3 Cal.3d 462, 493.) In McKnight,
the appellate court held the Board was precluded under principles of equitable
estoppel from separately arguing that plaintiff could not recover its unowed
tax for its failure to pursue the refund claim to a merits-based denial. (McKnight,
supra, 110 Cal.App.4th at p.
990.) McKnight observed it was the Board that had introduced the possibility
of an early termination of the plaintiff's claim as a way to expedite
resolution in the courts, and plaintiff had accepted the offer of termination
and filed suit. (Id. at p. 992.) It found the
equities favored estoppel: "On the
one hand, denial of an estoppel would permit the Board to retain approximately
$97,000 that was never owed by the taxpayer.
On the other hand, a ruling in favor of the taxpayer would not impair
the public policy in favor of exhaustion of remedies
exhaustion of remedies doctrine exists to allow an agency to apply its
expertise before court resources are called upon, with the expectation that
some lawsuits will be rendered unnecessary (because the agency corrects a
mistake) and the remainder will proceed on a better-developed record. [Citations.]
Here, the Board was alerted to the relevant legal principle and had
facts before it showing that that legal principle entitled [plaintiff] to a
refund. Over the course of years of
proceedings, it had the opportunity to change its mind and obviate the need for
a lawsuit. It nevertheless adhered to
its position that the tax was owed up until this appeal. Ruling for the Board on exhaustion grounds
would do little to encourage administrative resolutions in the future." (Id.
at p. 992.) Because as a matter of
substantive tax law no tax was due, equity would allow application of estoppel,
and " 'justice and right require it.' " (Id.
at p. 993, quoting Lentz v. McMahon (1989)
49 Cal.3d 393, 399.)
The Board
may be bound by equitable estoppel where the "injustice which would result
from a failure to uphold an estoppel is of sufficient dimension to justify any
effect upon public interest or policy which would result from the raising of an
estoppel." (City of Long Beach v. Mansell, supra,
3 Cal.3d at pp. 496-497; West Washington
Properties, LLC v. California Dept. of Transp. (2012) 210 Cal.App.4th 1136,
1146.) Indeed, these facts present the
sort of case in which estoppel against a governmental agency may be appropriate,
that is, it is a situation where the claim is that a government agent has
negligently or intentionally caused a claimant to fail to comply with a
procedural precondition, and the failure to invoke estoppel would cause an
injustice to the claimant. (See
would not seriously undermine the interests represented by the statute of
limitations to encourage the timely presentation of claim and prevent windfall
benefits; "Estoppel against a county's assertion of purely
on benefits, when the county itself is responsible for the procedural default,
will not defeat the underlying statutory policy of safeguarding accurate and
orderly administration of the welfare system"]; McKnight, supra, 110
Cal.App.4th at pp. 992-993.)
V. "Self-Help"
Credit Taken in Plaintiff's Third Quarter 2004 Return
Lastly,
plaintiff challenges the trial court's ruling as to the $59,232.46 credit taken
in its third quarter 2004 return for second and third quarter 2002
overpayments. Plaintiff maintains the
credit was pushed outside the statute of limitations by Board's 2006 audit;
that the $59,232.46 amount taken as a credit is within the period of the waiver
letters and it should be allowed a refund of that amount based on its claim
filed on May 12, 2006. It compares the
circumstances to those in Sprint
Communications Co. v. State Bd. of Equalization (1995) 40 Cal.App.4th 1254,
in which the court held a taxing authority may raise as a set off against a
taxpayer's refund action a tax deficiency that is otherwise barred from the
taxing authorities assessment by the statute of limitations.
Sprint held that " '[a]
refund case throws open the taxpayer's
entire tax liability for the period in
question [citation], and the Board may
raise issues unrelated to the basis or theory on which the taxpayer is seeking
a refund in order to defeat the claim.'
. . . In other words, while a
taxpayer's refund claim might be proper, there might be other items which the
taxpayer omitted from its return for that year, which if included would show
that the taxpayer had underpaid its tax."
(Sprint Communications Co. v. State Bd. of
Equalization, supra,
40 Cal.App.4th at p. 1260.) The proposition flows from the principle that
a suit to recover a tax refund is an action in equity
governed by equitable principles that " 'limit recovery to the difference
between the tax actually paid and that which properly should be exacted, and . . . prevent recovery if the taxpayer paid
only his fair and just proportion of taxes.' " (Id.
at p. 1259, quoting Simms v. County of
Los Angeles (1950) 35 Cal.2d 303, 316.)
We
conclude, as Board argues, that Sprint does
not stand for the proposition that a taxpayer
may offset overpaid sales and use taxes that are otherwise time-barred from a
refund action against future taxes owed.
However, because the $59,232.46 is encompassed within the overpayments
assertedly paid in the second and third quarters of 2002 that Zuckerman
addressed with Osgood in his December 2004 and January 2005 communications, it
is subject to the trier of fact's determination of equitable estoppel.
Though
plaintiff sought summary adjudication "on the issue of whether a letter
sent to the [Board] on January 7, 2005 constitutes a Claim for Refund,"
Board did not seek summary adjudication of that issue. Accordingly, in view of the existence of
triable issues of material fact as to the application of equitable estoppel, we
reverse the summary judgment.
DISPOSITION
The
judgment is reversed. The parties shall
bear their own costs on appeal.
O'ROURKE, J.
WE CONCUR:
BENKE, Acting P. J.
McINTYRE, J.
name="_ftn1" title="">[1] Statutory references are to the Revenue and Taxation Code
unless otherwise indicated.
name="_ftn2" title="">[2] Plaintiff's third quarter 2004 return does not reflect the
$59,232 figure. According to plaintiff's
chief financial officer Charles Zuckerman, plaintiff filed this return with a
"blank space on line 22 . . . where a prepayment amount would usually be
placed." Arguments of counsel below
confirmed plaintiff took its credit of $59,232.46 by omitting a prepayment in
the third quarter of 2004.
