City of Fontana v. Calif. Dept. of Tax and Fee etc.
A147642A
| Cal. Ct. App. | Nov 28, 2017Background
- Medline, a multi-entity supplier, reorganized sales operations in 2006 by placing a new subsidiary, MedCal Sales, LLC, as the focal point for California sales from an Ontario, CA office; previously sales were fulfilled from warehouses in Fontana and Lathrop.
- Ontario entered a Location Agreement offering subsidies tied to sales-taxed activity in Ontario; MedCal obtained a seller’s permit and began reporting sales as originating in Ontario, shifting local sales tax receipts from Fontana and Lathrop to Ontario.
- Fontana and Lathrop filed administrative petitions for reallocation with the State Board of Equalization (Board), arguing the retailer (and situs of sale) remained Medline and not MedCal; after extensive proceedings the Board found MedCal was the retailer and allocated taxes to Ontario.
- Cities sued by petition for administrative mandamus under Code Civ. Proc. § 1094.5; the trial court set aside the Board’s decision, concluding no substantial evidence supported the Board’s factual finding that MedCal transferred title to consumers and directing remand.
- On appeal the Court of Appeal reviewed whether substantial evidence in the administrative record supported the Board’s decision that MedCal was the retailer (i.e., where and when title passed) and reversed the trial court, upholding the Board’s allocation to Ontario.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper standard of review | Cities: legal question on undisputed facts; independent review applies because contracts control. | Board: substantial-evidence review applies; deference to agency factfinding and credibility. | Substantial-evidence review applies; appellate court conducts independent substantial-evidence review of the administrative record and defers to Board expertise. |
| Identity of the retailer / transfer of title | Cities: documentary contracts and invoices show Medline, not MedCal, sold goods; parol evidence cannot override written contracts. | Board: records, declarations, testimony, internal accounting, customer-facing conduct, and UCC § 2‑401 factors support finding MedCal held title and was the retailer. | There is substantial evidence supporting the Board’s factual finding that MedCal purchased for resale, held title when completing performance, and thus was the retailer; Board’s allocation to Ontario affirmed. |
| Weight/credibility of unsworn hearsay and internal accounting entries | Cities: Board relied on unsworn hearsay and internal journal entries; trial court permissibly discounted such evidence. | Board: its rules allow hearsay, unsworn representative statements, and accounting entries; credibility assessments are for the Board. | Board permissibly relied on unsworn statements and accounting evidence; credibility and weighing of such evidence are for the Board. |
| Remedy / reallocation and retroactivity | Cities: Board erred and should be ordered to reallocate taxes back to Fontana & Lathrop with full retroactive effect. | Board/Ontario: Board’s allocation to Ontario should be upheld; remedy is allocation as determined by Board. | Court rejected Cities’ claim for reallocation to them; remanded with directions to enter judgment denying Cities’ petition and left allocation to the Board as supported by the record. |
Key Cases Cited
- City of South San Francisco v. Board of Equalization, 232 Cal.App.4th 707 (Cal. Ct. App. 2014) (Board may use UCC § 2‑401 principles to determine when title passes for sales-tax situs)
- Loeffler v. Target Corp., 58 Cal.4th 1081 (Cal. 2014) (deference to BOE on complex sales-tax questions)
- Fukuda v. City of Angels, 20 Cal.4th 805 (Cal. 1999) (presumption of correctness for administrative findings; challenger bears burden)
- Sierra Club v. California Coastal Com., 12 Cal.App.4th 602 (Cal. Ct. App. 1993) (substantial-evidence standard in administrative mandamus review)
- Universal Camera Corp. v. NLRB, 340 U.S. 474 (U.S. 1951) (judicial review must give weight to administrative expertise while examining record)
- Microsoft Corp. v. Franchise Tax Bd., 39 Cal.4th 750 (Cal. 2006) (application of tax statutes to undisputed facts presents question of law)