Opinion
C056745
9-29-2008
PATRICIA TYLER-GRIFFIS, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.
Not to be Published
After the Franchise Tax Board (FTB) sought to collect a deficiency allegedly owed on the 1984 joint income tax return filed by Patricia Tyler-Griffis and her husband Charles (not a party to this action), Tyler-Griffis applied to the FTB for relief pursuant to "innocent spouse" rules. The FTB denied her application and she appealed to the State Board of Equalization (SBE). The SBE upheld the FTB decision and Tyler-Griffis filed this Superior Court petition for writ of mandate.
The SBE demurred on the ground that the petition improperly sought to impair collection of a tax (Cal. Const., art. XIII, § 32) and instead Tyler-Griffis should pay the tax and file a refund action to press her claim. The trial court sustained the demurrer without leave to amend and Tyler-Griffis timely filed this appeal. We affirm.
STANDARD OF REVIEW
On demurrer we must assume that all of the pleaded facts are true, and we must disregard legal conclusions. (See Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.)
BACKGROUND
Tyler-Griffis married Charles Griffis in 1971 and the marriage remains intact. They filed a joint California income tax return in 1984. In 1987 they filed for bankruptcy, and in 1988 their pre-petition debts were discharged. In 1989 they moved to Africa.
On March 21, 1990, the FTB assessed an additional tax liability on the couples 1984 return, based on information received from the Internal Revenue Service. Other assessments are not relevant to this appeal.
In June 1996, Tyler-Griffis, who had returned to this country, learned about this assessment, and told her husband, who was still in Africa, about it. In May 1997, the couple amended the creditors list for their bankruptcy to include this assessment, and the bankruptcy court discharged it. The FTB asserts the liability was not discharged and pursued collection of an amount now over $640,000.
In 2003, Tyler-Griffis applied for relief on the grounds she was an "innocent spouse" as defined by statute (Rev. & Tax. Code, § 18533, subds. (b) & (f)). After the FTB denied her application, Tyler-Griffis appealed to the SBE (see Rev. & Tax. Code, § 18533, subd. (e)). The SBE upheld the FTB decision denying relief.
Tyler-Griffis then filed the instant mandamus petition, seeking an order directing the SBE to set aside its decision and directing the FTB "to cease and desist from any and all collection" of the tax assessed. The trial court sustained the SBEs demurrer without leave to amend, and Tyler-Griffis timely filed this appeal.
DISCUSSION
Although Tyler-Griffiss briefs discuss the merits of her underlying claim, the only issue before us is whether she can seek judicial review of the SBE decision denying her claim before she pays the deficiency. She cannot. Because she raises issues in a disjointed manner, we will address them in a different order than presented in her briefs.
The California Constitution states in relevant part:
"No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin 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 (hereafter, § 32).)
"This provision is implemented in Revenue and Taxation Code sections 19381 and 19382. Section 19381 provides in relevant part: `No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against this state or against any officer of this state to prevent or enjoin the assessment or collection of any tax under this part . . . . Section 19382 provides that a taxpayer who disputes the computation or assessment of a tax may bring an action against FTB for its recovery." (Nast v. State Bd. of Equalization (1996) 46 Cal.App.4th 343, 346 (Nast).)
It does not matter how an action is framed; if the effect of the suit would be to impair tax collection, it is barred:
"It is well established that the applicability of section 32 does not turn on whether the action at issue specifically seeks to prevent or enjoin the collection of a tax. Instead, the provision bars `not only injunctions but also a variety of prepayment judicial declarations or findings which would impede the prompt collection of a tax. [Citation.] The relevant issue is whether granting the relief sought would have the effect of impeding the collection of a tax." (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247-248; see First Aid Services of San Diego, Inc. v. California Employment Development Dept. (2005) 133 Cal.App.4th 1470, 1479-1481.)
Because a person wrongly assessed has an adequate remedy by way of a refund suit, barring suit to prevent tax collection has long been upheld. (See Aronoff v. Franchise Tax Board (1963) 60 Cal.2d 177, 179-180 [construing predecessor provision].) It does not matter if the assessment is wrong:
"Because the remedy at law is deemed to be adequate, courts have refused to order mandamus relief even though the taxpayers underlying claim is found to have merit. In Sherman v. Quinn (1948) 31 Cal.2d 661 [], the taxpayers sought a writ of mandate to compel a county assessor to assess to them property being purchased under a conditional sales contract so they could claim the veterans exemption. After determining the taxpayers were correct . . . the court nevertheless affirmed the trial courts sustaining of the assessors demurrer on the ground the writ was not the proper remedy. Because an action to recover the disputed tax was an adequate remedy, mandamus was not available." ( Nast, supra, 46 Cal.App.4th at p. 347.)
The purpose of this rule is to assure "that governmental agencies have a reliable source of income with which to fund vital public services." (Milhous v. Franchise Tax Bd. (2005) 131 Cal.App.4th 1260, 1266 (Milhous).)
In Nast, supra, 46 Cal.App.4th 343, the FTB assessed additional taxes on Nasts income and he protested. When the FTB denied his protest, he appealed to the SBE. Unlike Tyler-Griffis, at that point Nast paid the disputed tax. After the SBE denied his appeal, Nast filed a mandate petition. The trial court sustained a demurrer based on the conclusion that Nasts sole remedy was to file a refund action. (Nast, supra, at pp. 345-346.) Even though Nast had paid the taxes, we found he chose the wrong procedural vehicle to recoup them, by filing a mandate action to set aside the SBE decision instead of a refund action. We further concluded it was too late for him to file a refund action:
"Pursuant to Revenue and Taxation Code section 19384, a refund action had to be commenced within 90 days following SBEs denial of Nasts petition for rehearing on October 5, 1994. However, this does not mean the remedy of a refund action is inadequate; it simply means Nast failed to timely pursue it." (Id. at p. 348.)
Here, Tyler-Griffis has failed to pay the tax, and it appears she failed to file a refund action. She cannot sue in mandate to contest the SBE decision denying her claim.
Tyler-Griffis points to three cases limiting the scope of section 32, but they do not limit section 32 in any way which helps her. In Agnew v. State Bd. of Equalization (1999) 21 Cal.4th 310, the California Supreme Court invalidated an SBE policy requiring a taxpayer to pay both the challenged tax and unpaid interest thereon before commencing an action for a refund. (But see Milhous, supra, 131 Cal.App.4th at p. 1266 [subsequent statute requires payment of interest].) That decision has no relevance here. In City of Sacramento v. State of California (1990) 50 Cal.3d 51, the California Supreme Court assumed that a citys contributions to the state unemployment insurance fund were payments of a "tax," but concluded a suit claiming certain costs amounted to unfunded mandates which should be reimbursed was not a challenge to the validity of the tax, but a claim that the payments to the state "are subject to a statutory and constitutional subvention which the state refuses to make. It is incidental that these costs happen to include what might be characterized as a `tax." (Franchise Tax Bd. v. Superior Court, supra, at pp. 62-64.) That decision has no relevance here. In Franchise Tax Bd. v. Superior Court (1989) 212 Cal.App.3d 1343, taxpayers sued, seeking a declaration that they were not California residents and the FTB demurred. The court held that statutes allowing such a suit (Code Civ. Proc., § 1060.5 & Rev. & Tax. Code, § 19801) were not unconstitutional: "The statutes do not authorize the superior court to prevent or enjoin collection of the tax, but permit it only `to determine the fact of [the taxpayers] residence in this State during the year or years set forth in the notice or notices of deficiency assessment. [Citation.] Enactment of a tax statute that postpones collection of a tax until a specified time simply does not implicate the constitutional anti-injunction principle." (Id. at p. 1347.) "Our conclusion is not inconsistent with the underlying purpose of the anti-injunction provision. Article XIII, section 32 embodies and restates the public policy that revenue collection continue unimpeded by tax litigation. [Citation.] This policy is not thwarted by residency litigation where the state has, by legislation, itself authorized, directed, and consented to the postponement of collection pending the litigation." (Id. at pp. 1348-1349.) Tyler-Griffis has not pointed to any similar statute allowing this suit.
Tyler-Griffis also points to part of the innocent spouse statute and claims it "prohibits a collection action by the FTB while consideration of a request for `innocent spouse relief is pending. When the decision of the FTB, or the [SBE] if a request for relief is appealed to the [SBE], becomes final, the stay of collection . . . ends." The provision in question, Revenue and Taxation Code section 18533, subdivision (e)(1)(B), provides, with exceptions, that "no levy or proceeding in court shall be made, begun, or prosecuted" to collect an assessment until 30 days after the FTB makes its ruling, or until an appeal to the SBE is final. But Tyler-Griffiss instant mandate petition against the SBE is not a proceeding to collect the assessment and therefore we fail to see the relevance of this provision in this appeal.
Tyler-Griffis also claims that if she pays the tax she will not be able to pursue a refund, therefore this mandate proceeding is the only mechanism she can employ. This claim is based on a misreading of the statute. She sought relief under two subdivisions. The first applies in part where "there is an understatement of tax attributable to erroneous items of one individual" filing a joint return, and in the circumstances "it is inequitable to hold the other individual liable for the deficiency in tax . . . attributable to that understatement[.]" (Rev. & Tax. Code, § 18533, subd. (b)(1)(B) & (D).) The other applies in part where "it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either)[.]" (Id., subd. (f).) Thus, although Tyler-Griffis states in her brief that her ability to seek relief turns on the existence of an "unpaid tax liability," under both of the subdivisions just quoted, the issue turns on existence of a deficiency. Where Tyler-Griffis goes wrong is assuming a deficiency is eliminated when a tax is paid. A "deficiency" is defined in part to include the amount that exceeds "The amount shown as the tax by the taxpayer on an original or amended returned, if an original or amended return was filed[,]" (Id., § 19043, subd. (a)(1)(A).) If Tyler-Griffis had paid the disputed amount, that would not have changed the "deficiency," that is, the amount by which the tax that allegedly should have been paid exceeded the amount shown on the filed return. Paying the disputed amount does not eliminate a deficiency.
Indeed, as the Attorney General stated at oral argument, section 18533, subdivision (e)(3)(A), which by its terms is applicable to an innocent spouse claim under section 18533, subdivision (b), one of the subdivisions relied on by Tyler-Griffis, "a credit or refund shall be allowed or made to the extent attributable to the application of this section." Thus, the statute confirms that payment of the tax would not nullify an innocent spouses ability to pursue a refund action after paying the disputed amount, as in other tax dispute cases.
Thus, Tyler-Griffis was not without an adequate legal remedy, namely, a refund suit. Whether she has lost that remedy by not timely filing a refund suit is not relevant to the viability of the instant mandate petition. (Nast, supra, 46 Cal.App.4th at p. 348.)
Tyler-Griffis also claims that granting her "innocent spouse" relief will not impair the collection of a tax because the state would still be able to pursue her husband. But relief to her would indeed impair the states ability to collect the tax deficiency. As she concedes, by electing to file a joint return Tyler-Griffis became jointly liable for the alleged deficiency. (See Murchison v. Murchison (1963) 219 Cal.App.2d 600, 604.) Requiring the FTB to pursue only her husband would make collection harder.
Tyler-Griffis confusingly claims that if section 32 bars review in mandamus of the SBEs denial of an "innocent spouse" claim, then statutes allowing trial courts to allocate income taxes between divorcing spouses (see Rev. & Tax. Code, § 19006, subd. (b) & Fam. Code, § 2628), "must also be an impermissible judicial interference with the collection of taxes." We find no logic in this claim because the fact the Legislature has authorized trial courts to allocate tax liability in some cases in dissolution actions does not alter the scope of section 32 as applied to this case. (Cf. Franchise Tax Bd. v. Superior Court, supra, 212 Cal.App.3d at pp. 1348-1349 [legislative consent to postpone tax while residency is challenged does not thwart purpose of § 32].)
We agree with Tyler-Griffiss general view that an aggrieved person must be able to obtain judicial review of an adverse tax ruling. But she simply chose the wrong procedural vehicle. (Nast, supra, 46 Cal.App.4th at p. 348.)
Tyler-Griffiss reliance on federal tax law and unpublished SBE decisions add no weight to her claim, as at best they touch on the merits of her innocent spouse claim, not the viability of this mandate proceeding.
DISPOSITION
The judgment is affirmed. Tyler-Griffis shall pay the SBEs cost on appeal. (Cal. Rules of Court, rule 8.278 (a).)
We concur:
DAVIS, Acting P.J.
CANTIL-SAKAUYE, J.