County of Los Angeles together with
County contends (1) the buyer and seller must pay the full amount demanded in notices of tax delinquency before challenging the amount, but they failed to do so, so County is entitled to judgment in the full amount demanded as a matter of law, and the buyer and seller can challenge that amount and seek a refund only by filing a claim with the county and then seeking judicial review; (2) if the value of the real property is properly at issue in this action, a decision by the Public Utilities Commission (PUC) conclusively establishes the value; (3) the trial court’s value analysis and conclusion are flawed; and (4) County is entitled to prejudgment interest under Civil Code section 3287, subdivision (a), and a penalty assessment under a Redondo Beach ordinance.
We conclude that County has not shown error and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
1. Factual Background
Southern California Edison Company (Edison) offered for sale by auction several electric power generating plants, including
Edison and AES executed asset sales agreements in November 1997 stating sales prices of $436 million and $249 million for the Alamitos and Redondo Beach plants, respectively. The parties agreed that before the transaction closed they would allocate the sales prices to the various assets conveyed and agreed to rely оn that allocation “for all purposes (including, without limitation, financial, accounting, and federal and state tax purposes) . . . .”
The PUC approved the sale of the three plants in December 1997 in decision No. 97-12-106, concluding that the auction was properly conducted and that the aggregate market value of the three plants was $781 million. The parties then allocated the $436 million sales price for the Alamitos plant as follows: $35,131,445 for land, $119,858,876 for machinery and equipment attached to the land, $263,569,780 for goodwill, and the remainder for other assets. They allocated the $249 million sales price for the Redondo Beach plant аs follows: $32,145,180 for land, $77,685,539 for machinery and equipment attached to the land, $129,445,545 for goodwill, and the remainder for other assets. The parties
Edison reported to the county recorder that the documentary transfer tax due for recordation of the grant deeds was $171,167.15 for the Alamitos plant and a total of $365,032.25 for the Redondo Beach plant, including $121,677.05 payable to Los Angeles County and $243,355.20 payable to City of Redondo Beach. Edison reported that those amounts were calculated based on the full value of the properties. The amounts correspond to real property values of $155,606,500 for the Alamitos plant and $110,615,130 for the Redondo Beach plant.
County counsel served notices of tax delinquency in September 1999 requesting payment of an additional $308,433 for the Alamitos plant and an additional $456,668 for the Redondo Beach plant, calculated based on the full sales prices of $436 million and $249 million, respectively. Edison and AES failed to pay the purported deficiency.
2. The Complaint
County sued Edison, The AES Corporation, AES Alamitos, L.L.C., AES Redondo Beach, L.L.C., AES Southland, L.L.C., and others in October 2000 seeking to recover delinquent documentary transfer taxes and to impose an equitable lien.
3. Motion to Bifurcate
AES moved to bifurcate the trial asking the court to decide a preliminary legal question before conducting a trial on other issues. The question presented according to AES was how to determine “the consideration or value of the interest or property conveyed” (Rev. & Tax. Code, § 11911, subd. (a)) for purposes of calculating the documentary transfer tax when a sale includes real and personal property. AES argued that the “consideration or value” could be based on either the tоtal consideration paid, the consideration paid for the real property pursuant to buyer’s and seller’s agreed allocation, or the fair market value of the real property.
County opposed the motion arguing that the court did not have sufficient information to decide how to determine the “consideration or value” of the property conveyed. County also argued that the “consideration or value” is the total consideration paid and that Edison and AES bear the burden of proof to show otherwise. County did not argue that it was entitled to the full amount demanded in the tax deficiency notices as a matter of law because the defendants failed to pay that amount or that the court was precluded from determining the consideration or value due to the defendants’ nonpayment.
The court granted the bifurcation motion in May 2001, stating that it would decide the proper basis for calculation of the documentary transfer tax before conducting a trial on the remaining issues.
4. Ruling on How to Determine the Consideration or Value
The parties submitted briefs on the basis for calculation of the tax. After a hearing, the court concluded in July 2001 that (1) the documentary transfer tax must be based on the “consideration or value” of
5. Stipulation
The parties filed a stipulation in October 2001 stating that the buyer’s and seller’s agreed allocation of the sales prices are “not ‘determinate’ or ‘definite’ ” for purposes of calculating the documentary transfer tax and that the total considerаtion paid for the plants “does not properly measure the documentary transfer tax.”
6. Trial on the Remaining Issues and Judgment
The trial of the remaining issues commenced in October 2001. Appraisers testified on the value of the real property and power plants. The court decided during trial that the defendants bore the burden of proof on the question of the value of the real property.
The court issued an extensive tentative decision setting forth the facts, restating its prior rulings, and explaining in detail its decision on the real property value. The parties each objected to parts of the tentative decision and proposed changes. The court filed a statement of decision and later an amended statement of decision in March 2002, concluding that the value of the real property as of the date of conveyance was $255.6 million for the Al amitos plant and $193.6 million for the Redondo Beach plant and directing the parties to calculate the amounts of documentary transfer tax deficiency to include in the judgment. The court denied County’s request for an equitable lien.
The parties submitted proposed judgments in which they agreed on the total amount of documentary transfer tax due under the court’s decision. County’s proposed judgment also included prejudgment interest at the rate of 10 percent from the date of conveyance. County did not file a motion for prejudgment interest, but filed only a declaration stating the purported legal basis for prejudgment interest.
The superior court entered a judgment in April 2002 awarding a total of $383,843 in damages against Edison and AES, including $146,280 in documentary transfer taxes payable to the county, $54,996 payable to City of Long Beach, and $182,567 payable to City of Redondo Beach. The court denied County’s request for prejudgment interest. No party moved for a new trial.
7. Related Actions
AES applied to the county’s assessment appeals board to reduce the assessed real property value for the Alamitos and Redondo Beach plants. AES moved the board to stay the administrative proceedings until the superior court decided this case, arguing that the same question, the fair market value of the real property, was at issue in each proceeding and that the decision in this case would be collateral estoppel. The board concluded that the superior court’s decision in this action would not be binding on the board and denied the request for a stay. The appeals board then conducted evidentiary hearings and determined the value of the real property for purposes of property tax.
AES sought judicial review of the board’s decision by suing the county in two separate actions in December 2002. AES moved the superior court in those actions to stay the actions pending our decision in
CONTENTIONS
County contends (1) AES and Edison must pay the full amount demanded in the nоtices of tax delinquency before challenging the amount, but they failed to do so, so County is entitled to judgment in the full amount demanded, and AES and Edison can challenge the amount of the assessment and seek a refund only by filing a claim with the county and then seeking judicial review; (2) if the value of the real property is properly at issue in this action, the PUC decision conclusively establishes the value; (3) the trial court’s value analysis and conclusion are flawed; and (4) County is entitled to prejudgment interest under Civil Code section 3287, subdivision (a), and a penalty assessment under a Redondo Beach ordinance.
DISCUSSION
1. County Cannot Argue for the First Time on Appeal that the Value of the Real Property is Not at Issue in this Action
A taxpayer ordinarily must pay a tax before commencing a court action to challenge the collection of the tax. This rule, commonly known as “pay first, litigate later,” is well established and is based on a public policy reflected in the state Constitution, several statutes, and numerous court opinions.
Article XIII, section 32 of the state Constitution prohibits an action against the state to prevent or enjoin the collection of any tax, other than an action after payment of the tax to recover the tax paid.
Several statutes in language similar to the prohibitory language of article XIII, section 32 of the state Constitution prohibit an action to prevent or enjoin the collection of specified taxes imposed by state or local government. (E.g., Rev. & Tax. Code,
Some courts have held that the “pay first, litigate later” rule applies broadly beyond the specific constitutional and statutory provisions. (Flying Dutchman Park, Inc. v. City and County of San Francisco (2001)
This is not an action commenced by a taxpayer challenging the assessment or collection of a tax, as in the foregoing cases. Rather, AES and Edison challenge the documentary transfer taxes as defendants in an action commenced by the taxing authorities.
The Fourth District Court of Appeal, Division One has held that the public policy supporting the “pay first, litigate later” rule also applies when a taxpayer defends a collection action commenced by the taxing authority, so a taxpayer defendant who has not paid the tax cannot challenge the collection of the tax. (Riverside County Community Facilities Dist. v. Bainbridge 17 (1999)
We need not decide whether the “pay first, litigate later” rule applies to documentary transfer taxes or whether the rule applies when a taxpayer defends an action to collect documentary transfer taxes, because there are two principal reasons not to apply the rule here. First, County did not invoke the rule in the trial court. County never argued based on the rule that it was entitled to judgment in the amount demanded in the tax deficiency notices or the amount alleged in the complaint
The doctrine of waiver ordinarily prevents a party from arguing for the first time on appeal questions that were not presented to the trial court. (Doers v. Golden Gate Bridge etc. Dist. (1979)
Assuming for the purpose of argument that the “pay first, litigate later” rule applies beyond the specific constitutional and statutory provisions, the public policy supporting extension of the rule is more compelling when there has been no trial of the ultimate issues but only a ruling on a demurrer to a taxpayer’s complaint or on a dispositive pretrial motion. (See Flying Dutchman Park, Inc. v. City and County of San Francisco, supra,
2. The PUC Decision Does Not Conclusively Establish the Value
County argued to the trial court that the PUC’s determination that the market value of the three plants was $781 million supports the conclusion that the consideration paid for the plants is the best indicator of the value of the real property. County did not argue that the PUC decision conclusively establishes the value of the real property, but presented that question as a question of fact for the trial court to decide. Apart from the impediments resulting from County’s conduct
A final decision by an administrative agency may be given collateral estoppel effect in a subsequent judicial action if the agency acted in a judicial capacity and resolved disputed factual issues that the parties had an adequate opportunity to litigate. (Brosterhous v. State Bar (1995)
A public utility proposing to sell a plant or other property necessary or useful in the performance of its duties must first obtain the PUC’s authorization. (Pub. Util. Code, § 851.) Property sold to a purchaser “dealing with such property in good faith for value” is conclusively presumed to be property that is not necessary or useful. (Ibid.) Pursuant to Public Utilities Code section 851, the PUC concluded that the aggregate market value of the Alamitos, Redondo Beach, and Huntington Beach plants was the purchase price of $781 million. The PUC did not distinguish the value of the real property from the value of the personal property, however. Moreover, the PUC made no finding as to the value of each individual plant. Since County has not shown that those issues were either presented to the PUC or actually decided by the PUC, the PUC decision is not collateral estoppel on those issues.
3. County Cannot Argue for the First Time on Appeal that the Damages Awarded are Inadequate
Failure to move for a new trial on the ground of excessive or inadequate damages precludes a challenge on appeal to the amount of damages if the challenge turns on the credibility of witnesses, conflicting evidence, or other factual questions. (Schroeder v. Auto Driveaway Co. (1974)
“When defendants first challenge the damage award on appeal, without a motion for new trial, they unnecessarily burden the appellate courts with issues which can and should be resolved at the trial level. [Fn. omitted.]” (Schroeder v. Auto Driveaway Co., supra,
4. County’s Legal Challenges to the Valuation Method Are Groundless
County also presents legal questions concerning the validity of the trial court’s valuation method. County contends the real property value should include the value of operating permits and intangible assets essential to the operation of a plant and the going cоncern value of the plants as businesses. County cites no authority for these arguments.
Documentary transfer tax is calculated based on the value of the “realty.” (Rev. & Tax. Code, § 11911, subd. (a).) Although the Revenue and Taxation Code does not define “realty” for purposes of section 11911, the term commonly encompasses only real property and improvements, excluding personal property. (Cf. Rev. & Tax. Code, §§ 104, 105 [defining “real property” and “improvements” for purposes of property tax].) Property is valued for purposes of property tax by assuming the presence of intangible assets necessary to put the property to productive use, but excluding the value of those intangible assets, and also excluding the value of intangible assets relating to the going concern value of a business. (Rev. & Tax. Code, §§ 110, subds. (d), (e), 212, subd. (c).)
5. County Is Not Entitled to Prejudgment Interest Based on Legal Grounds that it Failed to Assert Below or a Penalty Assessment that it Failed to Request Below
County requested prejudgment interest in the trial court, arguing that the defendants would have been entitled to prejudgment interest in a refund action under Revenue and Taxation Code section 5151, so County should be entitled to prejudgment interest in this action. County did not move for or request prejudgment interest under Civil Code section 3287, subdivision (a), so the trial court did not err by failing to award prejudgment interest under that statute. (North Oakland Medical Clinic v. Rogers (1998)
County for the first time on appeal also seeks to impose a penalty assessment under a Redondo Beach ordinance, after failing to raise the issue before the trial court at any time. County as plaintiff must present its case to the trial court in the first instance and cannot seek new items of damage for the first time on appeal. Accordingly, we need not decide whether the ordinance applies in these circumstances.
DISPOSITION
The judgment is affirmed. Respondents are entitled to costs on appeal.
Klein, P. J., and Aldrich, L, concurred.
Appellants’ petition for review by the Supreme Court was denied January 22, 2004.
Notes
The relationship among the various AES entities is not relevant to our opinion, so we will not distinguish among them. We refer to them individually and collectively as AES.
We express no opinion on the collateral estoppel effect of the judgment.
“No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or еnjoin the collection of any tax. After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature.” (Cal. Const., art. XIII, § 32.)
County referred to the “pay first, litigate later” rale in arguing to the trial court that the defendants should bear the burden of proof as to value and in arguing in their posttrial brief that the real property value should be determined by subtracting the value of the personal property from the total consideration paid. County did not argue based on the rule, however, that as a matter of law it was entitled to judgment in the amount dеmanded in the tax deficiency notices or the amount alleged in the complaint. County also referred to the “pay first, litigate later” rale in arguing during trial that the defendants failed to exhaust an administrative remedy available to challenge a tax deficiency notice served by City of Redondo Beach and that the amount of tax due to the city therefore was conclusively established. The trial court rejected that argument, concluding among other things that the argument was contrary to the parties’ stipulation that the total consideration paid does not determine the tax basis and that County failed to timely raise the issue in the first phase of the bifurcated trial. County does not challenge that ruling on appeal.
The “pay first, litigate later” rule bars an action to challenge a tax before the tax has been paid, as stated ante. A court has no authority to grant relief to a taxpayer in a prepayment action where the rale applies, so any relief granted can be said to be in excess of jurisdiction. (See Abelleira v. District Court of Appeal (1941)
“(d) Except as provided in subdivision (e), for purposes of determining the ‘full cash value’ or ‘fair market value’ of any taxable property, all of the following shall apply:
“(1) The value of intangible assets and rights relating to the going concern value of a business using taxable property shall not enhance or be reflected in the value of the taxable property. Q] . . . HD
“(e) Taxable property may be assessed and valued by assuming the presencе of intangible assets or rights necessary to put the taxable property to beneficial or productive use.” (Rev. & Tax. Code, § 110, subds. (d), (e).)
“(c) Intangible assets and rights are exempt from taxation and, except as otherwise provided in the following sentence, the value of intangible assets and rights shall not enhance or be reflected in the value of taxable property. Taxable property may be assessed and valued by assuming the presence of intangible assets or rights necessary to put the taxable property to beneficial or productive use.” (Rev. & Tax. Code, § 212, subd. (c).)
We acknowledge, of course, that documentary transfer tax is not a property tax, but rather a tax on the exercise of the privilege of conveying property. (City of Huntington Beach v. Superior Court (1978)