Opinion
NOT TO BE PUBLISHED
San Francisco City and County Super. Ct. No. 469572
Reardon, Acting P.J.
Appellant HSBC Retail Services, Inc. (HSBC) sought a refund of California sales tax, claiming it was eligible for a bad debt deduction. (See Rev. & Tax. Code, § 6055.) After respondent State Board of Equalization (SBE) disallowed the deduction, HSBC filed the underlying court action to obtain a refund. The trial court granted summary judgment to SBE, prompting this appeal. HSBC argues that the trial court erred when concluding that it did not qualify for a bad debt deduction. We affirm the judgment.
In its August 3, 2009 notice of appeal, HSBC purported to appeal from the June 8, 2009 order granting SBE’s motion for summary judgment and denying its own motion for summary judgment. An order granting summary judgment is not an appealable order. (Islander Yachts, Inc. v. One Freeport 36-Foot Vessel (1985) 173 Cal.App.3d 1081, 1086, fn. 6.) One may only appeal from a judgment entered after summary judgment is granted. (See Code Civ. Proc., § 904.1, subd. (a)(1).) On August 4, 2009, HSBC filed an amended notice of appeal from an aspect of the June 8, 2009 order entering judgment for SBE and against HSBC. A judgment is an appealable order. (See ibid.) Notice of entry of judgment was given on June 15, 2009. The August 4, 2009 amended notice of appeal was timely filed. (See Cal. Rules of Court, rule 8.104(a).) Thus, HSBC’s appeal is properly before us for determination on the merits.
I. FACTS
HSBC is a Delaware corporation that provides financing to California merchants who offered private label credit cards to the merchants’ customers. In these arrangements, the customers agree to pay HSBC for goods sold by participating merchants, HSBC pays the purchase price and the sales tax on these transactions to the merchants, and the merchants pay the sales tax to SBE. If a customer defaults on an obligation to repay HSBC, part of the losses that HSBC incurs are the sales taxes it has paid on the underlying transactions. If HSBC deems the accounts to be worthless and uncollectible, it charges them off for federal income tax purposes.
In December 2000, SBE issued a memorandum opinion in WFS Financial, Inc. (WFS Financial), allowing a claim for a sales tax refund on bad debts incurred before the end of 1999. That claim was based on defaults on vehicle purchase financing contracts. In that opinion, SBE concluded that a bad debt refund should be given if a claimant met three conditions: (1) its representatives were either present on the dealer’s premises or immediately available by telephone, fax or online connection at the time that the vehicles in question were sold; (2) it paid full consideration to the dealers for the receivables in question—i.e., it did not purchase the receivables at a discount; and (3) the dealers’ assignments of the receivables in question were substantially contemporaneous with the execution of the sales agreements between the dealers and the purchasers.
Later that month, HSBC sought more than $12 million in refunds from SBE for sales taxes paid on installment and credit accounts that were written off as bad debts for federal income tax purposes from 1997-1999. HSBC asserted that the WFS Financial memorandum opinion established its right to a refund. The refund section of SBE’s Sales and Use Tax Department denied most of the claims for sales made before October 1, 1999. In January 2006, HSBC appealed the denial. After review by SBE staff’s Appeals Division, the matter was returned to the department, which found that no further refund was due. Eventually, HSBC’s claim went before SBE’s board. On August 31, 2007, the board affirmed the determination that HSBC was entitled to no further refund. The board ruled that HSBC’s bad debt losses for purchases under its private label credit cards did not satisfy the requirements of WFS Financial.
At the time, the claim was filed on behalf of Household Retail Services, Inc. In September 2004, this entity was renamed as HSBC Retail Services, Inc.
HSBC also claimed refunds were due on accounts written off as bad debts after October 1, 1999, which were granted by SBE. Thus, the only claims at issue on appeal are those for bad debts written off before that date.
The claims that were made based on sales tax for uncollectible closed-end financing arrangements were paid, but those for sales tax paid on revolving accounts were not.
The Appeals Division decision contains the findings of SBE staff, not those of the board. (See Cal. Code Regs., tit. 18, § 5265, subd. (a).)
On November 28, 2007, HSBC filed a civil action against SBE, seeking a refund of more than $9 million in sales tax paid on the denied claims, plus interest. (See Rev. & Tax. Code, § 6933.) Both sides moved for summary judgment. After hearing, the trial court granted SBE’s motion and denied that of HSBC in June 2009. It concluded that HSBC did not meet any of the three prongs of the WFS Financial test and entered judgment for SBE.
II. STANDARD OF REVIEW
A defendant may move in the trial court for summary judgment, contending that an action has no merit. (Code Civ. Proc., § 437c, subds. (a), (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) When analyzing a trial court’s grant of summary judgment on appeal, we engage in a three-step process. We first identify the issues framed by HSBC’s pleadings, as these are the allegations to which SBE’s motion for summary judgment must address. Next, we determine whether SBE established facts negating HSBC’s allegations and justifying judgment in its favor. Finally, if the summary judgment motion creates a prima facie case for judgment in SBE’s favor, we determine whether HSBC’s opposition demonstrates any triable issue of material fact. (See Shamsian v. Atlantic Richfield Co. (2003) 107 Cal.App.4th 967, 975.)
On appeal, we determine anew whether SBE—as the party seeking summary judgment—has conclusively established that HSBC has not stated a cause of action, such that SBE was entitled to summary judgment as a matter of law. (See Code Civ. Proc., § 437c, subd. (c); Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 860; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) We conduct an independent review of any legal issues underlying the judgment, including the interpretation and application of statutes and regulations. (See Lenane v. Continental Maritime of San Diego, Inc. (1998) 61 Cal.App.4th 1073, 1079.) We also determine anew the construction and effect of the facts presented to the trial court. (Kolodge v. Boyd (2001) 88 Cal.App.4th 349, 356; see Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2009) ¶ 8:165, p. 8-128.)
III. EVIDENTIARY OBJECTIONS
A. Legal Principles
Initially, HSBC contends that the trial court abused its discretion in sustaining SBE’s objections to its evidence. In support of its motion for summary judgment, HSBC filed declarations from its manager Gary Adams and Attorney Peter O. Larsen, and requested that the trial court take judicial notice of various matters. SBE filed objections to some aspects of this proffered evidence, several of which the trial court sustained.
Our review of a ruling on summary judgment is based on the evidence in support of and in opposition to the motion, unless objections to that evidence were made and sustained in the trial court. (Hughes v. Pair (2009) 46 Cal.4th 1035, 1039.) With this in mind, we consider the limits of the evidence before us before we address the merits of the central issue on appeal. HSBC—as the appellant—has the burden of establishing any trial court abuse of discretion. (See Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 89-90.)
B. Sufficiency of Trial Court Ruling
Initially, HSBC contends that the trial court’s rulings on SBE’s objections to its evidence were insufficient because that court stated no basis for those rulings. It reasons that the trial court’s unexplained rulings provide us with no meaningful basis for review. Since the time that HSBC filed its briefs in this matter, the California Supreme Court held that a trial court’s failure to rule expressly on evidentiary objections related to a motion for summary judgment does not waive those issues on appeal. (Reid v. Google, Inc. (2010) 50 Cal.4th 512, 526-527.) Thus, HSBC’s challenge to the sufficiency of the trial court’s order sustaining SBE’s objections necessarily fails.
C. WFS Financial Hearing Transcripts
1. Factual Background
First, HSBC contends that the trial court erred when it sustained SBE’s objections to its request that the trial court take judicial notice of the transcript of the hearing leading to the WFS Financial memorandum opinion. It also appended this transcript to Larsen’s declaration as an exhibit. It appears that HSBC sought to use a statement of a single board member made at this hearing to explain the meaning of the WFS Financial memorandum opinion. In the trial court, SBE objected that the transcript contained hearsay and was irrelevant. HSBC responded that the transcript was a proper subject of a request for judicial notice even if it was hearsay. (Evid. Code, §§ 452, subd. (h), 454, subd. (a)(2).) With regard to the exhibit attached to Larsen’s declaration, HSBC argued that the transcript was not hearsay and was relevant to SBE’s interpretation of the applicable regulation. The trial court sustained SBE’s objection to this transcript.
All further statutory references are to the Evidence Code unless otherwise indicated.
2. Hearsay
The objection to the proffered statements in the WFS Financial transcript was properly sustained on hearsay grounds. Arguing that this evidence was not hearsay, HSBC misconstrues the statutes it cites. It errs first when it argues that the hearsay rule does not at all apply to matters sought to be judicially noticed. A trial court considering the propriety of taking judicial notice is given the broadest latitude when determining what sources of evidence are trustworthy. For this reason, section 454 allows the trial court to consider hearsay evidence when determining whether the matter is worthy of judicial notice. However, nothing in that provision permits a court to take judicial notice of matter that is itself hearsay evidence. (See § 454, subd. (a)(2) & Assem. Com. on Judiciary com., 29B pt. 1, West’s Ann. Evid. Code (1995 ed.) foll. § 454, p. 532; see also 1 Witkin, Cal. Evidence (4th ed. 2000) Judicial Notice, § 40, pp. 134-135.)
HSBC also argues that the statements in the WFS Financial transcript do not constitute hearsay because they are not offered for the truth of the matter asserted. It contends that the statements contained in that transcript are offered for the fact that the statements were made, regardless of their truth. At the same time, it asserts that the statement of an SBE board member made at that hearing may help “illuminate” the meaning of the memorandum opinion in that matter. The purpose of illumination is to shed light on a subject in order to divine its truth—i.e., “to prove the truth of the matter stated.” By definition, the statements were hearsay. (§ 1200, subd. (a).)
Hearsay evidence is inadmissible unless some exception to the hearsay rule applies. (See § 1200, subd. (b).) HSBC argues that the public records exception to the hearsay rule applies to this transcript. (See § 1280.) This contention is based on a misunderstanding of the scope of this exception to the hearsay rule. The fact that a hearsay statement is contained in a document of which a trial court may properly take judicial notice does not render the hearsay statement itself admissible. A court may take judicial notice of the existence of a public record, but not the hearsay statements contained in it unless an independent hearsay exception applies to those statements. (North Beverly Park Homeowners Assn. v. Bisno (2007) 147 Cal.App.4th 762, 778; Garcia v. Sterling (1985) 176 Cal.App.3d 17, 22.) Assuming that the trial court could take judicial notice of the WFS Financial transcript, hearsay statements contained in it cannot be admitted to prove the truth of those statements. As the statements contained in the WFS Financial transcript were inadmissible hearsay, the trial court properly sustained SBE’s objection to taking judicial notice of them and to appending them to Larsen’s declaration.
HSBC also asserts, without argument, that an administrative hearing transcript is the proper subject of a request for judicial notice, as a fact that is not reasonably subject to dispute. (See § 452, subd. (h).) Its failure to offer any argument in support of this claim relieves us of the obligation of addressing this issue. (See Berger v. Godden (1985) 163 Cal.App.3d 1113, 1119; see also 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 701, pp. 769-771.)
3. Relevancy
A court may only take judicial notice of evidence that is relevant. (Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063, overruled on another ground in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1276.) Relevant evidence has some tendency to prove a disputed fact that is of consequence to an action. (§ 210.) Measured by this definition, the statement of a single member of the SBE board is irrelevant to explain the meaning of the ultimate ruling of the five-person board. Thus, the trial court properly sustained SBE’s objection to this proffered evidence of this ground, as well.
D. Interim Ruling and Adams References to It
HSBC also asserts that the trial court abused its discretion by sustaining SBE’s objection to evidence of the decision of the SBE staff’s Appeals Division in its own claim. SBE objected that this interim ruling was irrelevant. HSBC responded that the findings made at the interim administrative level were relevant to the issues before the trial court. That court sustained SBE’s objection to the staff decision.
In a similar fashion, HSBC challenges the trial court’s ruling sustaining SBE’s objection to a statement in Gary Adams’s declaration asserting that the Appeals Division decision included a finding that HSBC had satisfied one part of the WFS Financial test. SBE and HSBC disputed whether the Appeals Division made formal findings on this issue. The trial court also sustained SBE’s objection to this aspect of Adams’s declaration. On appeal, HSBC contends that the trial court also abused its discretion in sustaining SBE’s objection to Adams’s declaration.
In its decision, the SBE staff’s Appeals Division instructed the Sales and Use Tax Department to consider whether HSBC met the requirements set forth in the WFS Financial memorandum opinion. To the extent that the staff decision could be read to support HSBC’s claim that it satisfied the requirements of WFS Financial, those findings were superseded by the board’s subsequent, express finding that HSBC’s claim did not satisfy those very requirements. The evidence of the interim SBE staff decision was thus irrelevant to the issues before the trial court, as were the statement in Adams’s declaration about these interim findings. The trial court had no authority to take judicial notice of or to admit irrelevant evidence. (See, e.g., Mangini v. R.J. Reynolds Tobacco Co., supra, 7 Cal.4th at p. 1063; see also § 350.)
We are satisfied that the trial court acted within its authority when it sustained objections to these items of proffered evidence. Accordingly, we have not considered any of these documents when determining the issues on appeal. (See Hughes v. Pair, supra, 46 Cal.4th at p. 1039.)
HSBC’s briefs repeatedly refer to evidence to which the trial court sustained objections. We must ignore such evidence unless we find that the trial court erred in sustaining SBE’s objections to it. (See Hughes v. Pair, supra, 46 Cal.4th at p. 1039.) HSBC’s failure to note this challenged evidence in its briefs forced this court to do so in order to limit the scope of the evidence to that which we may properly consider to determine the issues presented on appeal.
IV. SALES TAX REFUND
A. Issues on Appeal and Legal Principles
On the merits of its central issue on appeal, HSBC contends that the trial court erred in concluding that it failed to establish any of the three conditions for refund set out in the guiding memorandum opinion in WFS Financial. That decision applies former Revenue and Taxation Code section 6055 and its then-applicable regulation. On appeal, HSBC asserts that it established all three WFS Financial conditions. In order to understand its argument, we review the pertinent statute and regulation that applied during the tax period at issue in this matter.
Under the statutory and regulatory scheme applicable during the tax years for which HSBC seeks a refund, a retailer was relieved from liability for that part of sales tax attributable to accounts that were found worthless and charged off for income tax purposes. If the retailer had paid the tax, it could take as a deduction the amount found worthless and charged off. (Former Rev. & Tax. Code, § 6055 [Stats. 1970, ch. 547, § 2, pp. 1056-1057; now § 6055, subd. (a)].) Applicable SBE regulations allowed a retailer’s successor to take this deduction if the successor paid full consideration for receivables. (See Cal. Code Regs., tit. 18, former § 1642, subd. (h)(1)(A).)
Effective January 2001, Revenue and Taxation Code section 6055 was amended to provide that a lender would also be entitled to a refund for sales tax paid after January 1, 2000, under specified circumstances. (See id., § 6055, subd. (b) [Stats. 2000, ch. 600, § 1]; Gov. Code, § 9600, subd. (a).) SBE amended its regulation to specify the circumstances in which lenders could obtain a refund for sales taxes for bad debts. Its revised regulation applied only to sales on which sales taxes were paid on or after January 1, 2000. (Cal. Code Regs., tit. 18, § 1642, subds. (h)(1)(A), (i).) SBE takes the position that until the statutory amendment was enacted, lenders such as HSBC were not entitled to a refund of sales taxes paid on bad debts.
B. Application of WFS Financial Test
HSBC cannot show that all three conditions of the WFS Financial memorandum opinion have been satisfied, such that it is entitled to the refund it seeks. Instead, undisputed facts established that HSBC did not meet the third prong of this test—that the dealer’s assignments of receivables to the claimant were substantially contemporaneous with the execution of the sales agreement between the dealers and the purchasers. In his declaration, HSBC manager Gary Adams admitted that a consumer could apply for an HSBC credit card without making an immediate purchase with that card. He also testified that once an account was established, all sales were charged to the existing account. No new account was set up for each purchase.
These undisputed facts establish that HSBC’s revolving credit card accounts were used for a series of purchases which it financed. This circumstance is distinguishable from the transactions at issue in WFS Financial, which were single-purchase installment sales agreements. HSBC criticizes this analysis, contending that it adds a requirement beyond the three prongs specified in WFS Financial. We disagree. The reasoning of a decision is construed with reference to the underlying facts in the matter. The force of that decision applies only when the key facts of the new case are undistinguishable from those of the decision. (Brown v. Kelly Broadcasting Co. (1989) 48 Cal.3d 711, 734-735.)
In the case before us, the transactions for which HSBC seeks a sales tax refund are significantly different from those present in WFS Financial. As HSBC conceded, revolving credit accounts differ from installment sales accounts. An installment sales account has a fixed term and is for a fixed amount. The payment schedule is defined throughout the term of the contract. By contrast, a revolving credit account provides a consumer with a credit limit, which the consumer uses to make multiple purchases. The principal balance and the minimum payment fluctuate throughout the term of the contract. The consumer may pay off the account entirely or make partial payments on a revolving account. All future purchases are governed by an ongoing contract. HSBC’s open-ended issuance of an ongoing credit line differs dramatically from WFS Financial’s onetime acceptance of the assignment of an entire limited term fixed account.
HSBC contends that because each individual retail transaction was electronically submitted to it daily for approval and was financed at the time of each sale, it met the third prong of WFS Financial. It deems an assignment to have occurred with each individual transaction on each revolving credit account. The facts related to the approval and financing of each HSBC revolving credit card transaction are not in dispute. However, these facts are insufficient as a matter of law to satisfy the third prong of the WFS Financial test. In our view, the differences between the ongoing credit line offered by HSBC and the closed-ended transaction in WFS Financial are sufficiently distinct that these facts cannot satisfy the third prong of that decision.
As we have determined that one prong of the WFS Financial test has not been satisfied, we need not consider whether HSBC met the requirements of the remaining two prongs.
Once SBE established that HSBC did not meet the criteria of the WFS Financial memorandum opinion, the burden of proof shifted to HSBC to show a triable issue of material fact existed as to its claim. To meet its burden, HSBC must set forth specific facts showing that a triable issue of material fact exists. (See Code Civ. Proc., § 437c, subd. (p)(2); Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477.) It cannot do so. As SBE was entitled to summary judgment as a matter of law, we conclude that the trial court properly granted its motion for summary judgment. (See Code Civ. Proc., § 437c, subd. (c).)
HSBC also argues that the trial court failed to rule on key issues relating to the second prong of the WFS Financial test. In light of our conclusion that HSBC failed to establish that it satisfied another prong of that test, we need not address this issue.
The judgment is affirmed.
We concur: Sepulveda, J., Rivera, J.
SBE allowed the claims between October 1, 1999 and January 1, 2000, to be considered as due on January 1, 2000, because of its quarterly reporting and payment requirements.
As HSBC contends on appeal that the trial court abused its discretion in sustaining these objections, it must, of course, be free to cite the underlying evidence in order to make that claim of error. However, citing this evidence in other parts of its briefs—the statement of facts as well as its argument on the substantive aspects of this appeal—as if no objection to it had been sustained without noting that its relevancy was subject to dispute was improper. As we have rejected HSBC’s claim that the trial court erred in sustaining objections to this evidence, we ignore its improper references to irrelevant evidence. (See Cal. Rules of Court, rule 8.204(a)(2)(C), (e)(2)(C).)