STANLEY E. GROSZ, Plaintiff and Appellant, v. CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION, et al., Defendants and Respondents; AMAZON SERVICES, LLC, et al., Real Parties in Interest and Respondents.
B309418
In the Court of Appeal of the State of California, Second Appellate District, Division One
Filed 1/9/23
CERTIFIED FOR PUBLICATION; (Los Angeles County Super. Ct. No. 19STCV27757)
Dakessian Law, Mardiros H. Dakessian; Capstone Law, Ryan H. Wu, and Tyler Anderson for Plaintiff and Appellant.
Rob Bonta, Attorney General, Tamar Pachter, Assistant Attorney General, Lisa W. Chao, and Douglas J. Beteta, Deputy Attorneys General, for Defendants and Respondents.
Hueston Hennigan, John C. Hueston, Moez M. Kaba, Joseph A. Reiter, and Michael H. Todisco for Real Parties in Interest and Respondents.
In addition to its own products, Amazon fulfills orders for products sold by third-party merchants through a program it calls “Fulfillment by Amazon” (FBA).1 The trial court in this action described the program as alleged in the First Amended Complaint (FAC): “To support this program,
Stanley Grosz filed a taxpayer action under
The trial court sustained the respondents’ demurrers without leave to amend. The trial court reasoned that the
BACKGROUND
Because this case is before us after a trial court sustained demurrers, and because we must accept the factual allegations in the operative complaint as true for purposes of our review of the trial court‘s order, the facts we recite here arе drawn from the allegations in Grosz‘s FAC.
The FAC alleged that in addition to selling its own products, Amazon “contracts with FBA Merchants in order to offer various products supplied by FBA Merchants for sale on www.amazon.com.” According to the FAC, FBA Merchants send their goods to Amazon fulfillment centers, where Amazon stores the goods until they are sold to consumers. Amazon “handle[s] all the storing, packaging, and shipping of property held” in its fulfillment centers and “controls which fulfillment centers are used for the storage of products supplied by FBA Merchants.” Amazon handles payment processing services for FBA Merchants’ goods that are sold on the Amazon Web site, and “processes transactions for invoiced orders, as well as payments, refunds, and adjustments” on the FBA transactions. According to the FAC, Amazon “receives and holds sales proceeds on behalf of FBA Merchants.”
According to the FAC, California imposes sales and use taxes (see
Citing California Code of Regulations, Title 18, section 1569 (Regulation 1569), the FAC stated that “Amazon is the ‘retailer’ for FBA [s]ales in California . . . .”
According to the FAC, Amazon “has not [paid] and does not pay sales tax or collect and remit use tax to California for sales in California of [goods] supplied by FBA Merchants.” The FAC further alleged that the DTFA “has not [collected] and does not attempt to collect sales and use tax from Amazon for sales of [goods] in California supplied by FBA Merchants.”
Based on those allegations, the FAC alleged two causes of action. First, the FAC allеged in a cause of action for injunctive relief that “Amazon is liable for at least three years of past-due taxes, interest, and penalties” and that the DTFA “had a mandatory duty to assess and collect from Amazon sales and use tax” for sales of FBA Merchants’ products in California. Grosz seeks an
Grosz alleged that he was bringing the аction under Section 526a, which creates taxpayer standing under certain circumstances.
The DTFA and Amazon both demurred to the FAC. Among a host of other arguments, the DTFA argued that the determination about who is a “retailer” under the Revenue and Taxation Code or the accompanying regulations is left to the discretion of the DTFA.6 “Determinations that a party is a ‘retailer’ in California, liable for the sales tax or collection of the use tax, required to file a tax return, and collection is worth pursuing,” the DTFA argued, “require the [DTFA] to act according to the dictates of its own judgment.” The DTFA argued that under Section 526a, “a taxpayer must allege a governmental action was mandatory, not discretionary . . . .” “A mandatory duty to act,” the DTFA argued, “is one where the government agency or officer has a clear, present and ‘ministerial duty’ to act . . ., meaning the agency or officer ‘is required to perform in a prescribed manner in obedience to the mandate of legal authority and without regard to his own judgment or opinion concerning such act‘s propriety or impropriety, when a given state of facts exists.‘” Amazon joined in the DTFA‘s arguments, and included its own argument regarding Grosz‘s standing to enjoin the DTFA‘s discretionary acts.7
The trial court then examined the legal authority that the parties identified as relevant—“Revenue and Tax[ation] Code [sections] 6014, 6015, and 6006, as well as [Regulation] 1569“—to determine whether those statutes “mandated the legal conclusion that Amazon (and not the FBA Merchants) were the retailer for the FBA [s]ales described in the FAC.” On its examination, the trial court noted that “inasmuch as Amazon may qualify as a ‘retailer’ under
The trial court declined to do so, explaining: “The determination of which party—FBA Merchants or Amazon—was the retailer necessarily entailed consideration of all sections of the vast statutory scheme and required discretion especially considering ‘the “highly technical,” “intensely detailed and fact-specific sales tax system governing an enormous universe of transactions.“’ ” The trial court understood the statutes to mean that “[b]ecause there is but one transaction or sale of the product to the customer, [the DTFA] may collect the sales and use taxes either from Amazon or from the FBA Merchants, but not both. Because the definition of ‘retailer’ set forth in the statutes cited by [Grosz] . . . apply with equal or grеater force to the FBA Merchants, [Grosz] has merely demonstrated at best that [the DTFA] could have chosen either Amazon or the FBA Merchants as the ‘retailer’ liable for sales and use taxes for each FBA sale, meaning that [the DTFA] had the discretion to choose either one.” “The mere fact that [Grosz] disagrees with the outcome of [the DTFA]‘s discretionary determination,” the trial court explained, “does not mean that [the DTFA] violated a mandatory duty.”
Because the trial court concluded that the determination whether Amazon or a given FBA Merchant was the “retailer” for purposes of sales and use tax was discretionary and not ministerial, the trial court concluded that Grosz did not have standing to challenge the DTFA‘s determination. And because Grosz‘s lawsuit was premised on the alleged failure of the DTFA to perform a duty that was discretionary, rather than mandatory, thе trial court concluded that there was no reasonable possibility that Grosz could amend his complaint to state a viable cause of action. On that basis, the trial court denied Grosz leave to amend his complaint.
Based on its order sustaining the DTFA‘s and Amazon‘s demurrers without leave to amend, the trial court directed the clerk to enter an order dismissing the matter. Grosz filed a timely notice of appeal.
DISCUSSION
A. The Law
1. Demurrer
“A demurrer tests the sufficiency of the allegations in a complaint as a matter of law. [Citation.] We review the sufficiency of the challenged complaint de novo. [Citation.] We accept as true the properly pleaded
2. Code of Civil Procedure Section 526a
“The purpose of [S]ection 526a, ‘which applies to citizen and corporate taxpayers alike, is to permit a large body of persons to challenge wasteful government action that otherwise would go unchallenged because of the standing requirement. [Citation.] . . . [A]lthough by its terms the statute applies to local governments, it has been judicially extended to all state and local agencies and officials. [Citations.]’ [Citation.] ‘[T]he individual citizen must be able to take the initiative through taxpayers’ suits to keep government accountable on the state as well as on the local level.’ ” (Vasquez v. State of California (2003) 105 Cal.App.4th 849, 854, fn. omitted.)
“It is established that an action lies under [S]ection 526a not only to enjoin wasteful expenditures, but also to enforce the government‘s duty to collect funds due the State. ’ “A taxpayer may sue a governmental body in a representative capacity in cases involving [its] . . . failure . . . to perform a duty specifically enjoined.” [Citation.] This well-established rule ensures that the California courts, by entertaining only those taxpayers’ suits that seek to measure governmental performance against a legal standard, do not trespass into the dоmain of legislative or executive discretion. [Citations.] This rule similarly serves to prevent the courts from hearing complaints which seek relief that the courts cannot effectively render; the courts cannot formulate decrees that involve the exercise of indefinable discretion; their decrees can only restrict conduct that can be tested against legal standards. [Citations.]’ ” (Vasquez v. State of California, supra, 105 Cal.App.4th at pp. 854-855, italics added.)
“The cases have . . . been careful to note that [S]ection 526a has its limits. In particular, the courts have stressed that the statute should not be
3. Sales and Use Tax “Retailer”
“The California Sales and Use Tax Law (
Specifically, California law imposes a tax on “the gross receipts of any retailer from the sale of all tangible personal prоperty sold at retail in this state . . . .” (
Pertinent to this appeal, the Sales and Use Tax Law states that ” ‘[r]etailer’ includes,” among other things, “[e]very seller who makes any retail sale or sales of tangible personal property . . .” and “[e]very person engaged in the business of making sales for storage, use, or other consumption . . . .” (
The Sales and Use Tax Law expressly makes the DTFA responsible to enforce its provisions and allows it to “prescribe, adopt, and enforce rules and regulations relating to [its] administration and enforcement.” (
One such regulation—the regulation that Grosz contends disposes of this matter—is Regulation 1569, which states in full: “A person who has possession of property owned by another, and also the power to cause title to that property to be transferred to a third person without any further action on the part of its owner, and who exercises such power, is a retailer when the party to whom title is transferred is a consumer. Tax applies to his gross receipts from such a sale. [¶] Pawnbrokers, storage men, mechanics, artisans, or others selling the property to enforce a lien thereon, are retailers with respect to sales of the property to consumers and tax applies to the receipts from such sales.”
B. Analysis
Because taxpayers have no authority to enjoin discretionary government activity under Section 526a (Silver, supra, 26 Cal.App.3d at p. 909), the outcome of Grosz‘s appeal turns on whether the DTFA has discretion to determine who the “retailer” is for purposes of a transaction subjeсt to the Sales and Use Tax Law.8
Grosz contends that the trial court erred when it concluded that the determination of who is a “retailer” under the Sales and Use Tax Law for purposes of Amazon‘s FBA program involves an exercise of discretion, and therefore is not properly the subject of a Section 526a suit. According to Grosz, Regulation 1569 governs the outcome of the suit, because it requires the DTFA to conclude that Amazon was the retailer for purposes of FBA sales in California, to the exclusion of FBA Merchants.
At the outset, we address what appears in Grosz‘s briefing to be an argument Grosz intended to make (but ultimately did not make) about the proper function of both the trial court and this court in reviewing the
In his FAC, Grosz made several statements, in a section entitled “factual allegations,” that he appears to allude to as facts that the trial court should have taken (and we should take) as true. Namely, he contends that California imposes sаles and use taxes under certain circumstances and that “retailers” are responsible for paying sales tax and collecting and remitting use tax. In the same “factual allegations” section, the FAC selectively quotes from
To the extent Grosz‘s allusions to “determination[s] that [are] impermissible on a demurrer” refer to the trial court‘s interpretation of the Revenue and Taxation Code and its associated regulatory scheme to determine whether the identity of a “retailer” is a discretionary question for the DTFA, we reject Grosz‘s characterization. The DTFA‘s, Amazon‘s, and Grosz‘s arguments both in the trial court and here center exclusively on questions of statutory
Specifically—and more to the point—the determination whether the question of who is a retailer under the Sales and Use Tax Law is discretionary or ministerial is a question of law. (Alejo v. Torlakson (2013) 212 Cal.App.4th 768, 779-780 [” ‘In most cases, the appellate court must determine whether the аgency had a ministerial duty capable of direct enforcement or a quasi-legislative duty entitled to a considerable degree of deference. This question is generally subject to de novo review on appeal because it is one of statutory interpretation’ “].) As did the trial court, we note that for purposes of a demurrer, “[t]he court does not . . . assume the truth of contentions, deductions or conclusions of law.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)
On the statutory interpretation question, we conclude, as did the trial court, that the determination of who is a “retailer” under the Sales and Use Tax Law and relevant regulations is one that invokes the discretion of the DTFA; making that designation is not a ministerial task.
As Grosz confirmed at oral argument in this matter, courts in Section 526a actions “can only restrict conduct that can be tested against legal standards.” (Harman v. City and County of San Francisco (1972) 7 Cal.3d 150, 161.) “[T]he courts cannot formulate decrees that involve the exercise of indefinable discretion. . . .” (Ibid.)
At oral argument, Grosz identified County of Sonoma v. State Bd. of Equalization (1987) 195 Cal.App.3d 982 (Sonoma), as the case most favorable to his argument. In that case, Grosz argued, a taxpayer had standing under Section 526a to require the BOE to collect a sales tax on geothermal steam even though the BOE‘s interpretation of a particular Revenue and Taxation Code section was that the law exempted sales of geothermal steam.
The nature of the dispute in Sonoma compared to the nature of the dispute here highlights the context of a ministerial action as opposed to a discretionary action, and provides us a framework from which to analyze the statutes involved here. In Sonoma, “[f]acilities to take advantage of the geothermal energy resources in the area known as The Geysers in Sonoma County were first construed in 1957. Several companies captured the steam and sold it to utility companies which used it to spin turbines, thereby generating electricity. . . . [Citation.] No sales tax was collected by the Board on sales of the
Either there was, as the BOE argued, an exemption, in which case no taxes were to be collected. Or there was no exemption, and taxes were to be collected. The question was one of statutory interpretation, and there was no BOE discretion to be exercised. Here, by contrаst, the question is not whether the law imposes a tax, but rather on whom, based on language in several interrelated statutes. The question here, as the trial court pointed out, is not whether the DTFA has discretion, but rather how it must exercise that discretion. That is the critical distinction between this case and Sonoma.
Grosz attempts to overcome this distinction by arguing that because of the language of Regulation 1569, there is only one possible way the DTFA could exercise its discretion—that there is only one conclusion to be drawn about who a “retailer” is under the appropriate statutes. For Grosz to have standing, then, we must interpret the language of Regulation 1569 in the same way he does.
To be designated what Grosz terms “the” retailer under Regulation 1569, Grosz contends, one must meet three “elements“: “(1) the person [or entity] has possession of property owned by another; (2) the person [or entity] has the power to cause title to that property to be transferred to a third person without any further action on the part of the owner; and (3) the person [or entity] exercises that power.” Because Amazon meets those three elements, Grosz argues, Regulation 1569 renders Amazon the only retailer for purposes of FBA sales through the words “[t]ax applies“: “Tax applies to his gross receipts from such a sale.”
Grosz argues that the trial court should have limited its analysis to Regulation 1569. Indeed, Grosz contends that “the court erred in reaching for the wider statutory and administrative Sales and Use Tax scheme to ignore the application of the specific regulation” because “The FAC explains” that FBA transactions “meet the elements of Regulation 1569.”
However, in urging us to adopt his argument (and his reading of Regulation 1569, which we address below), Grosz correctly tells us that “California courts apply the rеgular rules of statutory construction when
As a matter of statutory interpretation, then, it would have been inappropriate for the trial court to make its determination in this matter by taking selected language in Regulation 1569 out of context and ignoring other statutory provisions “relating to the same subject matter“—provisions that Grosz cited in his FAC and oppositions to the demurrers.
As in any case involving statutory interpretation, we begin with the text of the statute. (Bruni v. The Edward Thomas Hospitality Corp. (2021) 64 Cal.App.5th 247, 255.) Here, Grosz argues that Regulation 1569 is dispositive. Regulation 1569 states: “A person who has possession of property owned by another, and also the power to cause title to that property to be transferred to a third person without any further action on the part of its owner, and who exercises such power, is a retailer when the party to whom title is transferred is a consumer. Tax applies to his gross receipts from such a sale. [¶] Pawnbrokers, storage men, mechanics, artisans, or others selling the property to enforce a lien thereon, are retailers with respect to sales of the property to consumers and tax applies to the receipts from such sales.”
We do not interpret Regulation 1569 in the same way Grosz urges. As an initial matter we note that the plain language of Regulation 1569 does not designate any particular person or entity as “the” retailer in any set of circumstances, but rather as “a retailer.” And the language “[t]ax applies to his gross receipts from such sales” does not lead us to a different conclusion. That is because, as we understand from othеr portions of the Revenue and Taxation Code, “tax” may “apply” in any given situation covered by the Sales and Use Tax Law, but who collects it, from whom it is due, and how and when it is paid are all questions, among many others, that may have different answers depending on the contours of an individual transaction. To say that a “tax applies” is not the same as saying that the tax is owed by or collectible from one particular person or entity as part of a multi-party transaction. It is merely a statement that the transaction in question is one to which either sales or use “tax applies.” Consequently, even if we were to limit our review, as Grosz urges, to the language of Regulation 1569,
Moreover, to determine whether the designation of a taxpаyer as a “retailer” under the Sales and Use Tax Law is discretionary or ministerial requires us to examine more than just Regulation 1569. The Sales and Use Tax Law itself expressly defines “Retailer” in
In addition to expressly giving the DTFA discretion to determine who “may [be] regard[ed] . . . as retailers” for purposes of the Sales and Use Tax Law under the circumstances outlined in
Before the BOE‘s “duties, powers, and responsibilities” under the Sales and Use Tax Law were transferred from the BOE to the DTFA (upon the DTFA‘s establishment) (
In requests for judicial notice in the trial court and here, the parties provided us with several legal opinions issued by the BOE regarding whether a taxpayer was a retailer under
” ‘Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning.’ [Citation.] While courts take judicial notice of public records, they do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)
We make no comment on either the BOE‘s analysis or any party‘s charаcterization of what the judicially noticed letters do or do not establish vis-à-vis the Sales and Use Tax Law. Neither do we endorse or reject any of the contents of any of the judicially noticed documents. The letters attached to Grosz‘s first request for judicial notice in this court and to Amazon‘s request for judicial notice in the trial court do, however, demonstrate that the determination about whether a taxpayer is a retailer under the Sales and Use Tax Law involves analysis of a number of facts and circumstances. The BOE, and now the DTFA, obviously considered a host of factors and, in some cases, required extensive communication with the taxpayer to develop an understanding of relevant facts to ultimately determine whether a particular taxpayer was a retailer under
The BOE‘s powers have shifted to the DTFA. But we have no reason to believe that the scope of those powers or the discretion vested the agency has changed in any way. To the contrary, upon its creation, the DTFA was designated “the successor to, and [was] vested with, all of the duties, powers, and responsibilities” of the BOE. (
In sum, and contrary to Grosz‘s arguments here, there is no statute or regulation that conclusively establishes that the DTFA must pursue Amazon for sales and use taxes related to FBA transactions. Indeed, the language of
At oral argument, Grosz forcefully contended that if we were to reach the conclusion that we have reached, the DTFA‘s determination about the identity of a “retailer” under the Sales and Use Tax Law would be “unreviewable.” There are, in fact, at least two ways the DTFA‘s determination can be reviewed. The Sales and Use Tax Law gives the DTFA the authority to “bring an action . . . in the name of the people of the State of California to collect” delinquent taxes, for example. (
We affirm the trial court‘s order sustaining the DTFA‘s and Amazon‘s demurrers and dismissing the lawsuit.
DISPOSITION
The trial court‘s orders are affirmed. The respondents are awarded their costs on appeal.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
BENDIX, Acting P. J.
BENKE, J.*
* Retired Associate Justice of the Court of Appeal, Fourth Appellate District, Division One, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.