9 Cal. App. 5th 684
Cal. Ct. App.2017Background
- Customers bought lancets and glucose test strips at retail pharmacies and were charged sales tax reimbursement, which pharmacies remitted to the State Board of Equalization (Board).
- The Board promulgated Regulation 1591.1 in 2000, exempting lancets and test strips when furnished by a pharmacist and used by a diabetic per physician instructions; application of the regulation to the purchases here was disputed.
- Customers sued retailers and the Board seeking a class-wide order compelling retailers to file administrative refund claims with the Board and to secure refunds for customers, alleging breach of contract, UCL, negligence, and CLRA violations.
- The trial court sustained demurrers to the fourth amended complaint without leave to amend; plaintiffs appealed.
- The Court of Appeal examined whether courts may fashion a judicial tax-refund remedy for customers when no statutory refund remedy exists and whether the circumstances here met the criteria for such a remedy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court may create a judicial remedy compelling retailers to file refund claims when customers lack statutory refund rights | Javor permits customers to compel retailers to seek refunds even if Board has not already determined refunds are due; unique taxpayer/economic-taxpayer imbalance warrants remedy | Loeffler and statutory scheme reserve refund procedures to Legislature; Javor limited to cases where Board already determined refunds due and remedy fits statutory scheme | Court may create such remedy only if (1) no statutory remedy exists for claimant, (2) remedy is consonant with existing statutes, and (3) the Board already determined refund is due; plaintiffs failed to satisfy these prerequisites, so demurrer upheld |
| Whether judicially fashioned remedy would conflict with statutory provisions (e.g., retailer waiver and safe-harbor rules) | Plaintiffs: statutory presumptions make retail waivers and safe-harbors irrelevant; judicial remedy needed to prevent unjust enrichment | Defendants: creating remedy would negate retailer statutory waiver (§6905) and undermine safe harbor that protects retailers who remit reimbursements (§6901.5) | Court held judicial remedy here would conflict with statutory waiver and safe-harbor, so remedy inappropriate |
| Whether customers have alternative remedies adequate for due process | Plaintiffs: absence of practical remedy violates due process and takings protections; courts should intervene | Defendants: customers can petition Board, request audits/deficiency determinations, and seek APA review or declaratory relief against regulation; taxes are not takings | Court held available administrative remedies satisfy due process; no takings claim warranted |
| Whether leave to amend to add constitutional takings claim should be granted | Plaintiffs sought leave to plead takings to cure defect | Defendants opposed as futile | Court denied leave; takings/due process claims lack merit as matter of law |
Key Cases Cited
- Javor v. State Board of Equalization, 12 Cal.3d 790 (Cal. 1974) (court fashioned customer remedy to compel retailers to seek refunds where Board had already admitted refunds due and remedy fit statutory scheme)
- Decorative Carpets, Inc. v. State Board of Equalization, 58 Cal.2d 252 (Cal. 1962) (Board may condition refunds to prevent retailer unjust enrichment of amounts collected from customers)
- Loeffler v. Target Corp., 58 Cal.4th 1081 (Cal. 2014) (customers are not taxpayers; statutory refund procedures must be strictly enforced; courts should not expand refund methods)
- Delta Air Lines, Inc. v. State Board of Equalization, 214 Cal.App.3d 518 (Cal. Ct. App. 1989) (distinguishable: common-carrier purchaser allowed to pursue refund derivative claim where statutory regime treated it as retailer)