87 Cal.App.5th 428
Cal. Ct. App.2023Background
- Amazon’s Fulfillment by Amazon (FBA) program: third‑party merchants send inventory to Amazon fulfillment centers; Amazon stores, picks, packs, ships, processes payments, and may hold sales proceeds.
- Plaintiff Stanley Grosz sued under Code Civ. Proc. § 526a seeking a declaration and injunction that the California Department of Tax and Fee Administration (DTFA) had a mandatory duty to assess and collect sales/use tax from Amazon for FBA sales occurring before Oct. 1, 2019.
- Grosz relied on Regulation 1569 and portions of the Sales and Use Tax Law to allege Amazon was the "retailer" for FBA sales and thus liable to be taxed.
- DTFA and Amazon demurred, arguing the DTFA has discretion to determine which party is the retailer for a given transaction and that § 526a does not permit a taxpayer to compel discretionary agency action.
- The trial court sustained the demurrers without leave to amend; the Court of Appeal affirmed, holding the DTFA’s retailer‑designation is discretionary, § 526a relief is unavailable, and dismissal without leave to amend was proper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under § 526a to compel DTFA to collect taxes from Amazon for pre‑2019 FBA sales | Grosz: DTFA had a mandatory duty to assess/collect from Amazon; taxpayer may enforce that duty | DTFA/Amazon: Identity of the "retailer" is a discretionary agency determination; § 526a cannot be used to compel discretionary action | No standing; determination is discretionary and § 526a relief inappropriate |
| Whether Regulation 1569 requires DTFA to designate Amazon as the exclusive "retailer" for FBA sales | Grosz: Reg. 1569’s language (possession + power to transfer title + exercise of power) makes Amazon the retailer and mandates taxation of its receipts | DTFA/Amazon: Reg. 1569 must be read in context of the broader statutory scheme; it does not eliminate agency judgment or automatically single out Amazon | Reg. 1569 does not compel designating Amazon exclusively; it must be harmonized with the statutory scheme |
| Whether the retailer‑designation question is a factual merits issue that defeats demurrer | Grosz: FAC pleads facts showing Amazon meets Reg. 1569 elements; merits questions require evidence, so demurrer was premature | DTFA/Amazon: The core question (ministerial vs discretionary) is one of statutory interpretation and law; FAC states legal conclusions | Court: Whether designation is discretionary is a legal question subject to de novo review; legal conclusions in FAC are not controlling |
| Whether sustaining the demurrer without leave to amend was proper | Grosz: Could amend to plead a ministerial duty under Reg. 1569 | DTFA/Amazon: No reasonable possibility of curing because duty is discretionary | Affirmed: denial of leave to amend and dismissal were proper |
Key Cases Cited
- Silver v. Watson, 26 Cal.App.3d 905 (taxpayer may not sue to enjoin agency action when governing body has discretion)
- County of Sonoma v. State Bd. of Equalization, 195 Cal.App.3d 982 (taxpayer has § 526a standing when agency has no discretion to refuse collection)
- Alejo v. Torlakson, 212 Cal.App.4th 768 (ministerial vs. discretionary duty analysis is a legal question reviewed de novo)
- Harman v. City & County of San Francisco, 7 Cal.3d 150 (courts may only issue decrees that can be tested against legal standards)
- Associated Beverage Co. v. Board of Equalization, 224 Cal.App.3d 192 (agency historically may classify retailers on a case‑by‑case basis; discretion in administration)
- Wallace Berrie & Co. v. State Bd. of Equalization, 40 Cal.3d 60 (overview of California sales and use tax scheme)