Opinion
Rehearing Denied March 14, 1975.
Opinion on pages 295-302 omitted.
HEARING GRANTED
For Opinion on Hearing see 125 Cal.Rptr. 465, 542 P.2d 625.
[119 Cal.Rptr. 685]Thomas M. O'Connor, City Atty., City and County of San Francisco, John J. Doherty, William M. Bennett, Jr., Deputy City Attys., San Francisco, for defendant and appellant.
Albert G. Evans, San Francisco, for plaintiffs and respondents San Francisco Distributing, Inc., and others.
Hutchinsons&s Quattrin, J. Albert Hutchinson, San Francisco, for plaintiffs and respondents ABC Distributing Co., Inc. and Associated Parties.
ROUSE, Associate Justice.
Two separate actions for declaratory and injunctive relief were filed against defendant Citys&sCounty of San Francisco by certain wholesale liquor and beer distributors. The purpose of such actions was to obtain a judgment declaring that defendant's payroll expense tax ordinance was invalid as applied to plaintiffs and enjoining its enforcement against them.
Both actions were consolidated for trial and submitted to the trial court for decision upon a written stipulation by the parties. The stipulation declared that each of the plaintiffs is doing business within the City and County of San Francisco, and, in connection with his business, hires and employs one or more individuals as employees to perform work or render services within the City and County of San Francisco.
Each of the plaintiffs engages in whole or in part in business activities which require a license pursuant to the Alcoholic Beverage Control Act of the State of California. Such business activities include specifically the sale at wholesale of either beer, wine or distilled spirits, together with customary, related activities such as warehousing, delivery by truck, etc., which are incidental to the wholesale sale of alcoholic beverages.
In addition to engaging in business activities within the City and County of San Francisco which require a license under the Alcoholic Beverage Control Act of the State of California, some of the plaintiffs also engage in substantial business activities within the City and County of San Francisco which do not require a license. Some of the plaintiffs either purchase or sell alcoholic beverages in interstate commerce on foreign commerce, and/or deal in alcoholic beverages, imported from foreign countries or for export to foreign countries.
It was further stipulated that all parties to the action reserved for some later proceedings any issues relating to the exempt or nonexempt status of particular transactions in alcoholic beverages. It was also stipulated that the parties intend to confine the issues in this lawsuit to the validity of the San Francisco payroll expense tax ordinance on its face, and as applied to wholesalers in alcoholic beverages.
The trial court rendered an intended decision, finding that defendant's payroll expense tax ordinance imposed a tax upon every employer based upon his payroll expense for employees performing services for him within the City and County of San Francisco. The court determined that the ordinance could not validly be applied to plaintiffs, in their capacity as wholesalers and distributors of alcoholic beverages, for two reasons:
(1) Article XX, section 22, of the California constitution, expressly reserved to the Department of Alcoholic Beverage Control the exclusive power to collect occupation taxes on account of the manufacture, importation or sale of alcoholic beverages in this state; and (2) section 32010 of the Revenue and Taxation Code provided that the taxes imposed under the Alcoholic Beverage Tax Law (Rev.s&sTax.Code, [119 Cal.Rptr. 686] § 32001 et seq.) 'are in lieu of all county, municipal, or district taxes on the sale of beer, wine or distilled spirits.'
Findings of fact having been waived, the trial court rendered a judgment which declared the payroll expense tax ordinance void and unenforceable against plaintiffs as related to their business as wholesalers of alcoholic beverages. The judgment enjoined defendant from seeking to enforce said ordinance against plaintiffs as related to their business as wholesalers of alcoholic beverages.
Defendant City and County filed notice of appeal from this judgment.
On its face the ordinance appears to have been intended purely as a revenue collecting measure. Section 3 of the ordinance provides, in pertinent part, as follows:
'A tax for general revenue purposes is hereby imposed upon every person who, in connection with his business, engages, hires, employs or contracts with one or more individuals as Commission Merchant or Employee, to perform work or render services in whole or in part within the City and County of San Francisco.
'The amount of such tax for persons . . . shall be one (1%) percent of the payroll expense of such person; provided, that such tax shall be levied only upon that portion of payroll expense which is attributable to the City and County of San Francisco. . . .
'This ordinance shall not be construed as requiring any license whatsoever, nor shall payment of this tax be a condition precedent to engaging in any business within the City and County of San Francisco. This tax is imposed for general revenue purposes and in order to require commerce and the business community to carry a fair share of the costs of local government in return for the benefits, opportunities and protections afforded by the City and County of San Francisco.'
The ordinance does not contain any regulatory provisions, and no criminal penalties are imposed for failure to pay the tax.
As previously noted, the trial court held that the ordinance could not validly be applied to plaintiffs as related to their business as wholesalers of alcoholic beverages because the ordinance violated article XX, section 22, of the California Constitution. That section provides, in pertinent part, that 'The Department of Alcoholic Beverage Control shall have the exclusive power . . . to license the manufacture, importation and sale of alcoholic beverages in this State, and to collect license fees or occupation taxes on account thereof. [p] . . . The Legislature shall provide for apportioning the amounts collected for license fees or occupation taxes under the provisions hereof between the State and the cities, counties and cities and counties of the State, in such manner as the Legislature may deem proper.'
The language employed in the above-quoted constitutional provision is not ambiguous. It is apparent that the Legislature intended to reserve to the Department of Alcoholic Beverage Control the exclusive power to collect license fees or occupation taxes on account of the manufacture, importation and sale of alcoholic beverages in this state. Our Supreme Court so held in Ainsworth v. Bryant (1949) 34 Cal.2d 465, 473, 211 P.2d 564, but it also held that the Legislature had not reserved exclusive taxing power over other forms of taxes and that a San Francisco ordinance imposing a tax upon a buyer or consumer of alcoholic beverages or other tangible personal property was not a license or occupation tax within the meaning of the constitutional provision. (Pp. 474-475, 211 P.2d 564.)
In the instant case, defendant City and County of San Francisco relies upon two basic arguments in support of their contention that the payroll expense tax ordinance likewise does not fall within the scope of the constitutional prohibition: First, the ordinance does not impose a license or occupation tax; and second, an ordinance taxing all employers having employees who work within the City and County of San Francisco cannot by deemed a tax on account [119 Cal.Rptr. 687] of the manufacture, importation or sale of alcoholic beverages. We have concluded that neither of these arguments is sound.
Defendant has cited Edward Browns&sSons v. McColgan (1942) 53 Cal.App.2d 504, 128 P.2d 186, as authority for its contention that the payroll expense tax ordinance is not an occupation tax. However, the McColgan decision is in fact authority for the contrary proposition. The court there held that a tax upon the privilege of doing business as a corporation within the state was not an occupation tax. The court stated, 'It is not an occupational tax . . .. While the tax is imposed only on companies doing business in California, the phrase 'doing business' merely describes the group intended to be taxed--the tax is not imposed on the doing of business. If it were, it would be an occupational tax . . .. The tax by express language is imposed on the privilege of doing business as a corporation. It is imposed on the privilege of using the corporate mechanism . . ..' (P. 508, 128 P.2d p. 188.) The ordinance in the instant case would appear to fall directly within the McColgan definition of an occupation tax, since it taxes any employer who does business in San Francisco by having in his employ any individual who performs or renders services there.
Ainsworth v. Bryant, supra, at page 474, 211 P.2d 564, also defines an occupation tax in terms which would apply to the payroll expense tax ordinance. In upholding the San Francisco tax upon buyers or consumers of tangible personal property, the court stated, 'The San Francisco tax is not upon anyone's occupation; therefore it is not an occupation tax. Rather the subject of tax under the ordinance is the transaction of sale; the purchaser or consumer is made the taxpayer, and the retailer acts only as the tax collector, responsible for remitting it to the taxing authority. The buyer's occupation is not taxed, for it is not a pursuit or occupation to buy at retail for use or consumption.' In the case at bar, unlike the Ainsworth case, it is obviously a pursuit or occupation to maintain employees within the City and County of San Francisco, and it is precisely this conduct which the ordinance taxes.
The trial court, in its intended decision, aptly stated that 'The ordinance imposes a 1% tax upon the payroll expense of the employer for the privilege of doing business in San Francisco. Reduced to its simplest form, it is a tax on one's business or occupation and this additional burden will be reflected in the price which the consumer will ultimately be required to pay for the product.' We conclude that the trial court was correct and that the payroll expense tax ordinance was unquestionably an occupation tax.
We turn next to defendant's contention that the ordinance did not impose an occupation tax 'on account' of the manufacture, sale or distribution of alcoholic beverages. Essentially, defendant takes the position that unless a taxing measure singles out alcoholic beverages for special treatment and taxation, it cannot be deemed to have been levied 'on account' thereof. Defendant asserts that the 'operating incidence' of an ordinance is the controlling factor. Since the operating incidence of the payroll expense tax is the maintaining by any and all employers of employees in San Francisco, and not the manufacture, importation and sale of alcoholic beverages, defendant denies that the ordinance is prohibited by the constitutional provision.
In this instance, the use of the term 'operating incidence' of a tax is misleading, since defendant appears to be equating the term with the particular words used in an ordinance rather than with the practical operation of the ordinance. In fact, the rule is precisely the opposite, since the practical operation of a tax measure, rather than its definition or the precise words which may be applied to it, must control. (Wisconsin v. J. C. Penney Co. (1940) 311 U.S. 435, 443-444, 61 S.Ct. 246, 85 L.Ed. 267.) Thus, a tax upon corporations for the privilege of doing business in the state [119 Cal.Rptr. 688] might be valid if applied to corporations engaged in intrastate business, but as to a corporation engaged only in interstate activities, the tax is unconstitutional since 'The incidence of the tax is upon no intrastate commerce activities because there are none.' (Spector Motor Service v. O'Connor (1951) 340 U.S. 602, 605-606, 71 S.Ct. 508, 510, 95 L.Ed. 573; emphasis supplied.)
Webster's New International Dictionary (3d ed. 1965) defines the phrase 'on account of' as 'for the sake of,' 'by reason of,' 'because of.' It is apparent that, within the meaning of the latter two definitions, an occupation tax imposed upon an individual engaged exclusively in the manufacture, sale or distribution of alcoholic beverages would be a tax imposed 'on account of' the manufacture, sale or distribution of alcoholic beverages. In the instant case, the trial court scrupulously avoided invalidating defendant's tax ordinance insofar as it applied to business activities of plaintiffs which did not relate to the manufacture, sale or distribution of alcoholic beverages. Thus, the judgment rendered by the trial court held the ordinance invalid and enjoined its enforcement against plaintiffs only 'as related to their business as wholesalers of alcoholic beverages . . ..'
In Century Plaza Hotel Co. v. City of Los Angeles (1970) 7 Cal.App.3d 616, 626, 87 Cal.Rptr. 166, 173, the court stated, 'Taxation and regulation of alcoholic beverages are intertwined. Thus, it is necessary that the level of taxation be high enough so that this business pays its fair share of the cost of government, yet not so high as to result in illegal trafficking in liquor and its concomitant tax evasion. Few persons would desire the return of prohibition and the bootlegger. Viewed in that context, we have no purely municipal affair to consider, but a matter of statewide significance.'
We conclude that the trial court correctly held that defendant's payroll expense tax ordinance was prohibited by article XX, section 22, of the California Constitution. Thus, it becomes unnecessary to determine whether the court was also correct in determining that said ordinance was prohibited by section 32010 of the Revenue and Taxation Code.
The judgment is affirmed.
TAYLOR, P. J., and KANE, J., concur.