61 Cal.App.5th 1071
Cal. Ct. App.2021Background
- Torrance Municipal Code §225.1.4 imposes a 6½% utility users’ tax on the “charges made” for electrical energy and specified ancillary charges; the tax is collected by the franchised utility and remitted to the city.
- The CPUC-authorized Industry Assistance (IA) credit is an annual rebate passed through investor-owned utilities (including Edison) to qualifying customers and is applied as a bill credit.
- Edison subtracted IA credits from customers’ billed amounts before calculating and remitting Torrance’s electricity users’ tax, reducing Torrance’s tax receipts.
- Torrance sued Edison seeking declaratory relief and recovery of unpaid taxes, penalties, and interest, alleging Edison’s methodology unlawfully reduced the tax base.
- The trial court sustained Edison’s demurrer without leave to amend, concluding Edison’s net-billing method was correct and Torrance could not recover unpaid taxes directly from Edison.
- The Court of Appeal reversed: it held IA credits do not reduce the tax base, but agreed Edison is not directly liable for taxes owed by customers; remand with leave to amend to add customers as defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IA credits reduce the §225.1.4 tax base | "Charges made" means gross charges for metered energy and listed service charges; IA credits are separate rebates and do not reduce the tax base | "Charges made" equals the net amount actually billed after application of IA credits; tax applies to amounts for which customer is liable | IA credits do not reduce the tax base; tax applies to the charges made for electricity and ancillary services as defined in §225.1.4(a) |
| Whether Torrance can recover unpaid taxes directly from Edison | Torrance sought to hold Edison liable for under-remitted tax amounts and associated penalties and interest | Edison: tax is a debt owed by the customer to the city; utility is a pass-through and not directly liable for customers’ unpaid tax | Edison is not directly liable for customers’ unpaid taxes; customers owe the debt to the city; Torrance may amend to sue customers |
| Whether sustaining demurrer without leave to amend was proper | Complaint could state claims if corrected to name liable customers and clarify relief; leave should be afforded | Demurrer argued claims fail as a matter of law and amendment would be futile | Court abused discretion by denying leave to amend; remanded with directions to allow Torrance to amend |
| Whether interpreting ordinance to require tax on gross charges would impermissibly rewrite the tax or violate constitution | Torrance said it only seeks enforcement of existing ordinance language | Edison argued Torrance’s reading would effectively increase taxes without voter approval | Court did not reach constitutional invalidity; it applied ordinary statutory construction and declined to rewrite the ordinance; held Torrance’s textual reading controls for tax base analysis |
Key Cases Cited
- Jarrow Formulas, Inc. v. LaMarche, 31 Cal.4th 728 (2003) (rules for statutory interpretation; plain meaning inquiry)
- Ramirez v. City of Gardena, 5 Cal.5th 995 (2018) (use of ordinary meaning and context in construing statutes)
- Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal.4th 26 (1998) (liberal construction of pleadings in furtherance of justice)
- Ainsworth v. Bryant, 34 Cal.2d 465 (1949) (government may make businesses agents to collect taxes)
- City and County of San Francisco v. Regents of University of California, 7 Cal.5th 536 (2019) (upholding collection arrangements where entities act as tax collection agents)
- Blank v. Kirwan, 39 Cal.3d 311 (1985) (leave to amend standard on demurrer)
- Wildlife Alive v. Chickering, 18 Cal.3d 190 (1976) (expressio unius canon and limited statutory exceptions)