48 Cal.App.5th 922
Cal. Ct. App.2020Background
- Jeremy Daniel Kintner was an officer/shareholder of HK Architectural; the corporation’s franchise status was suspended in 2009 and it failed to remit sales tax.
- In 2012 the Board of Equalization assessed Kintner ~$67,389.53 under a longstanding policy and a 2000 regulation (18 Cal. Code Reg., § 1702.6) holding controlling officers/shareholders liable for sales tax during suspension.
- Kintner sued in 2017 under Gov. Code § 11350 seeking declaratory judgments that the Policy and Regulation were illegal/unconstitutional; he had paid only about 11% of the assessed tax.
- The trial court overruled the Department’s demurrer, treating the suit as a regulation challenge under § 11350 and relying on Pacific Motor.
- The Department sought a writ; the Court of Appeal held § 32’s constitutional "pay first" rule bars declaratory suits that would have the effect of invalidating unpaid tax assessments and granted the writ, directing the trial court to sustain the demurrer without leave to amend.
Issues
| Issue | Plaintiff's Argument (Kintner) | Defendant's Argument (Department) | Held |
|---|---|---|---|
| Whether a taxpayer with an unpaid tax assessment may pursue a § 11350 declaratory action to invalidate a tax regulation without first paying the tax | § 11350 authorizes challenges to regulations; Kintner may seek declaratory relief and disavowed any request to enjoin collection | Section 32 (Cal. Const., art. XIII, § 32) requires payment before challenging tax assessments; declaratory relief that would nullify an unpaid assessment is barred | Held: Section 32 bars declaratory relief under § 11350 when the effect would invalidate an outstanding unpaid tax; demurrer sustained without leave to amend |
| Whether § 11350 impliedly repeals or exempts declaratory challenges from the constitutional pay‑first rule | § 11350’s authorization of regulation challenges permits such suits regardless of unpaid assessments | § 11350 is silent on pay‑first and cannot impliedly repeal a constitutional provision; statutes must be read compatibly | Held: No implied repeal/exemption; § 11350 does not override § 32; the statutes can co‑exist |
| Whether Pacific Motor authorizes Kintner’s suit despite § 32 | Pacific Motor supports allowing regulation validity suits under the predecessor to § 11350 | Pacific Motor is distinguishable and does not permit suits that would hinder tax collection or affect unpaid assessments | Held: Court respectfully disagrees with any broad reading of Pacific Motor that would permit this end‑run around § 32 |
| Whether pleading labels or disclaimers ("only declaratory relief," no injunction) avoid § 32 | Kintner: labels and disclaimers control; relief sought would not compel collection action | Department: court must look to practical effect; if judgment would bind the government and negate liability, § 32 applies | Held: Substance controls over labels; practical effect that would absolve tax liability triggers § 32 |
Key Cases Cited
- Loeffler v. Target Corp., 58 Cal.4th 1081 (recognizes constitutionally mandated "pay first" rule for tax challenges)
- Woosley v. State of California, 3 Cal.4th 758 (§ 11350 must be strictly construed in tax cases; declaratory relief cannot be used to deny tax collection)
- Pacific Gas & Electric Co. v. State Board of Equalization, 27 Cal.3d 277 (discusses history and public‑policy rationale for pay‑first rule)
- State Bd. of Equalization v. Superior Court (O’Hara & Kendall Aviation, Inc.), 39 Cal.3d 633 (declaratory relief that effectively prevents tax collection is barred by section 32)
- Modern Barber Col. v. Cal. Emp. Stab. Com., 31 Cal.2d 720 (historical treatment of pay‑first principle; legislative codifications)
- Pacific Motor Transport Co. v. State Bd. of Equalization, 28 Cal.App.3d 230 (earlier authority permitting regulation challenges; court declines to follow any broad reading that conflicts with § 32)
- Agnew v. State Bd. of Equalization, 21 Cal.4th 310 (distinguishes cases where taxpayer had paid before suing)
- McClain v. Sav‑On Drugs, 6 Cal.5th 951 (reiterates pay‑first requirement for refund actions)
- Honeywell, Inc. v. State Board of Equalization, 48 Cal.App.3d 907 (purpose of § 11350 and limits where a taxpayer has an adequate remedy)
- Calfarm Ins. Co. v. Deukmejian, 48 Cal.3d 805 (res judicata/collateral estoppel principles relevant to the preclusive effect of declaratory judgments)