Opinion
7-14-1959
CITY OF POMONA, a municipal corporation, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, an agency of the State of California; Monte Vista, a municipal corporation; and the County of San Bernardino, Defendants, City of Montclair (formerly known and sued and named as 'City of Monte Vista') and the County of San Bernardino, Appellants. * Civ. 23715.
Henry M. Busch, City Atty., Montclair, Burke, Williams & Sorensen, by Royal M. Sorensen, Los Angeles, for appellant, City of Montclair.
CITY OF POMONA, a municipal corporation, Plaintiff and Respondent,
v.
STATE BOARD OF EQUALIZATION, an agency of the State of California; Monte Vista, a municipal corporation; and the County of San Bernardino, Defendants,
City of Montclair (formerly known and sued and named as 'City of Monte Vista') and the County of San Bernardino, Appellants. *
Henry M. Busch, City Atty., Montclair, Burke, Williams & Sorensen, by Royal M. Sorensen, Los Angeles, for appellant, City of Montclair.
Albert E. Weller, County Counsel, J. B. Lawrence, Deputy County Counsel, San Bernardino, for appellant, County of San Bernardino.
Arlo E. Rickett, Jr., City Atty., Pomona, O'Melveny & Myers, Pierce Works, Howard J. Deards, William D. Moore, Los Angeles, for respondent.
FOURT, Justice.
This is an appeal from a judgment made in a mandamus proceeding concerning the apportionment of certain taxes.
The city of Pomona is a municipal corporation, hereinafter referred to as 'Pomona,' located in the county of Los Angeles. The city of Montclair is a municipal corporation, incorporated as the City of Monte Vista on April 25, 1956, and hereinafter referred to as 'Montclair,' located in the county of San Bernardino. The county of San Bernardino is a duly existing county of the state of California, at times herein referred to as 'the county.' On February 28, 1956, the city council of Pomona adopted an ordinance imposing a one percent sales and use tax pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5, section 7200-7207, Revenue and Taxation Code), hereinafter referred to as the 'Bradley-Burns Act.'
On May 22, 1956, the county of San Bernardino adopted an ordinance imposing a one-tenth of one percent sales and use tax within the county, pursuant to the Bradley-Burns Act. On May 28, 1956, the city council of Montclair adopted an ordinance imposing a nine-tenths of one percent sales and use tax within that city, pursuant to the Bradley-Burns Act.
The two cities and the county each entered into an agreement with the State Board of Equalization, hereinafter referred to as the 'board,' which agreements provided, among other things, that the Board should 'perform exclusively all functions incident to the administration and operation of' said respective ordinances. Likewise, it was agreed that all provisions of the law applicable to the administration and operation of the State Sales and Use Tax should be applicable to the administration of the ordinances; and further, that the said Board should prescribe and adopt such rules and regulations as in its judgment are necessary or desirable for the administration and operation of the ordinances, and the distribution of the local taxes collected thereunder.
The county boundary line between Los Angeles county and San Bernardino county is the boundary line between Pomona, in Los Angeles county, and Montclair, in San Bernardino county. Sears, Roebuck & Company, hereinafter referred to as 'Sears,' have and do operate a retail store with an address of 1600 East Holt Street, Pomona, consisting of two buildings, the first of which (sometimes hereinafter referred to as the 'store') includes sales floor area, storage area, offices and administration area, cafeteria and other facilities; the second of which is known as a service building and contains a service station, sales area, warehouse and other facilities. The buildings are approximately 300 feet apart. Each of such buildings is located astride the boundary line between the two cities and counties. The buildings are part of a large, modern integrated shopping center known as Pomona Valley Shopping Center, hereinafter referred to as the 'Shopping Center.' Sears, as such, does not own any of the land or buildings within the Shopping Center. Some of the land within the shopping center and the two buildings occupied as the Sears store are owned by Cecil P. Bronston, as successor co-trustee of the Supplemental Savings and Retirement Plan of Sears, Roebuck & Company employees, hereinafter referred to as the 'owner'. The land so owned is subject to agreement with the Shopping Center which requires that certain areas be maintained for parking, and be subject to use by the customers of any of the establishments in the Shopping Center, and that certain ratios between sales floor area and parking area be maintained; and certain ratios maintained between sales floor area and parkways and walkways are subject to a non-exclusive easement in favor of the Shopping Center, its tenants and their customers. The owner has certain corresponding rights in various additional areas of the Shopping Center, including rights to have its lessees use other parking areas in the shopping center, and certain other and additional rights. All of the rights of the owner are leased to Sears for a term of years.
There was evidence which apparently was not disputed to the effect that the Sears store building is located 70.06 percent within Pomona, and 29.94 percent within Montclair; and that 14.95 percent of the Sears' service building is located within Pomona, and 85.05 percent within Montclair. Therefore, if the area of both buildings is computed, 54.14 percent is within Pomona, and 45.86 percent is within Montclair.
The Board collected from Sears for the third quarter of 1956, pursuant to the Bradley-Burns Act and the ordinances adopted by the cities and county, the sum of $32,375.16, that amount being one percent of the gross receipts of Sears as the place of business for that particular term. Pomona filed a petition for a writ of mandate and sought to compel the Board to pay the entire sum to it. Montclair and San Bernardino county contended that only a portion of the entire amount was due Pomona, and that the balance was due to Montclair and San Bernardino county, in their respective portions.
After a trial in April, 1957, a memorandum of decision was filed by the judge wherein he indicated that Pomona was entitled to 45.70 percent of the sum of money on hand with the Board, and that Montclair was entitled to nine-tenths of 54.30 percent of said sum, and that the county of San Bernardino was entitled to one-tenth of 54.30 percent of said sum. The court stated in its memorandum, 'The evidence clearly demonstrates the unitary character and single location of Sears' business, but the application of the direct or separate accounting method under the circumstances presented herein would invoke an undue burden upon the retailer. On the other hand, the application of the factor formula method reflects a just and equitable allocation. Arithmatical accuracy is not generally possible in this difficult field. All methods of allocation, direct or separate accounting, as well as factor formula, contain estimates and, in varying degrees, are applied by the exercise of human judgment. If the method adopted accords with our statutes and regulations and produces an allocation approximately correct, although not meticulously precise, and is arrived at by the exercise of fair human judgment, so that it reasonably attributes gross receipts from sales allocable to that portion of the place of business within the taxing jurisdiction, it would seem to meet the test of being just and reasonable.
'The tax is not upon the sale but is upon the privilege of doing business and only those gross receipts from sales which are not attributable in any part to the place of business within the taxing jurisdiction should be excluded from the measure of the tax. The place of business in the instant matter is located within two taxing jurisdictions and thus the sales tax should be apportioned in accordance with that portion of the place of business within each of such jurisdictions. An apportionment based upon the location of the physical facilities constituting the place of business appears to be a reasonable and practicable measure of apportionment which can be applied to this action and with just and equitable results.'
The trial court then determined the percentages 'of the buildings and land used by Sears Roebuck & Company' in the respective cities, and determined that Pomona was entitled to 45.70 percent of the sum of money on hand with the Board, and Montclair was entitled to nine-tenths of 54.30 percent and the county of San Bernardino was entitled to one-tenth of 54.30 percent of the money on deposit with the Board.
Thereafter, pursuant to a motion made by Pomona, the orders of submission and directing judgment were vacated, the trial was reopened and additional evidence was taken. The court, on August 31, 1958, signed a judgment determining that Pomona was entitled to 87.2848 percent of the money on deposit, Montclair was entitled to nine-tenths of 12.7152 percent of said sum, and San Bernardino county was entitled to 1/10 of 12.7152 percent of the amount. The trial court in the last order, determined in effect that the lamp department, the garden shop department and the furniture department in the Sears' buildings were each divided by the county boundary line; that all of the other departments of the store making retail sales were entirely within one city or the other; that the net sales of the departments located entirely within Pomona constituted 82.7155 percent of the total net sales of the store, and the net sales of the departments located entirely within Montclair constituted 6.6112 percent of the total net sales of the store; that of total sales floor area of the furniture department (by which is meant area in which merchandise is displayed and where sales personnel and customers customarily stand in negotiating the sale of merchandise), 34.5563 percent was, during the third quarter--located within the city of Pomona and 65.4437 percent was located in the city of Montclair; that the total net sales of the furniture department for said period constituted 8.6604 percent of the total net sales of the store; that of the total sales floor area of the lamp department 95.1363 percent was * * * located within the city of Pomona and 4.8637 percent was located within Montclair; that the total net sales of the lamp department for the period constituted 1.1941 percent of the total net sales of the store; that of the total sales floor area of the garden shop department 53.8066 percent was located within Pomona, and 46.1934 percent was located within Montclair; that the total net sales of the garden shop constituted .8188 percent of the total net sales of the store; further, that if net sales of departments lying wholly within Pomona are allocated to Pomona, and the total net sales of departments lying wholly within Montclair are allocated to Montclair, and if the net sales of the furniture, lamp and garden shop departments are apportioned between the two cities on the basis of the sales floor area of such departments lying within the respective cities, there would be allocated to Pomona 87.2848 percent, and to Montclair 12.7152 percent of the total sales of the store; that such an approach did not involve substantial variation and that it would be 'more appropriate and desirable if the percentage figure be left variable.'
The main issue in this case is: when a single retail store is located within two cities, each of which has a sales tax ordinance adopted pursuant to the Bradley-Burns Act, how should the sales tax collected from such retail establishment be allocated between the two cities?
It is essential in determining this case to have in mind certain fundamental statutory and regulatory provisions.
The pertinent sections of the Revenue and Taxation Code, Part 1.5, Uniform Local Sales and Use Taxes, as they read in 1956 provide as follows: ' § 7202. The sales tax portion of any sales and use tax ordinance adopted under this part shall be imposed for the privilege of selling tangible personal property at retail, and shall include provisions in substance as follows: * * * * * * '(d) A provision that the county shall contract prior to the effective date of the county sales and use tax ordinance with the State Board of Equalization to perform all functions incident to the administration or operation of the sales and use tax ordinance of the county. * * * * * * '(h) That any retailer subject to a sales and use tax under the county ordinance shall be entitled to credit against the payment of taxes due under that ordinance the amount of sales and use tax due to any city in which the place of business is located; provided, that the city sales and use tax is levied under an ordinance including provisions in substance as follows: '(1) A provision imposing a tax for the privilege of selling tangible personal property at retail upon every retailer in the city at the rate of 1 percent or less of the gross receipts of the retailer from the sale of all tangible personal property sold by him at retail in the city and a use tax of 1 percent or less of purchase price upon the storage, use or other consumption of tangible personal property purchased from a retailer for storage, use or consumption in the city. * * * * * * '(4) A provision that the city shall contract prior to the effective date of the city sales and use tax ordinance with the State Board of Equalization to perform all functions incident to the administration or operation of the sales and use tax ordinance of the city which shall continue in effect so long as the county within which the city is located has an operative sales and use tax ordinance enacted pursuant to this part.' ' § 7205. All retail sales for the purpose of this part shall be presumed to have been consummated at the place of business of the retailer unless the tangible personal property sold is delivered by the retailer or his agent to an out-of-state destination or to a common carrier for delivery to an out-of-state destination. * * *'
Regulations of the Board of Equalization adopted in furtherance of the administration of the collection and allocation of the tax under the Bradley-Burns Act, read in part as follows: '2202. Place of Sale for Purposes of Local Sales and Use Tax. For the purposes of the Bradley-Burns Uniform Local Sales and Use Tax Law, all retail sales occur at the place of business of the retailer unless the tangible personal property sold is delivered by the retailer or his agent to an out-of-state destination, or to a common carrier for delivery to an out-of-state destination. * * * * * * 'If a seller has more than one location for which sellers' permits are required, and if two or more of such locations participate in the sale, the sale occurs at the place of business where the principal negotiations are carried on. If this place is the place where the order is taken, it is immaterial that the order must be forwarded for acceptance, approval of credit, shipment, or billing. For the purposes of this rule, an employee's activities will be attributed to the place of business out of which he works.' '2099. Permits. Every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax is required to hold a permit for each place of business at which transactions relating to sales are customarily negotiated with his customers. * * * If two or more activities are conducted by the same person on the same premises, even though in different buildings, only one permit is required. For example, a service station operator having a restaurant in addition to the station on the same premises requires only one permit for both activities. * * * * * * 'A retailer is liable for the payment of tax measured by receipts from retail sales made in his place of business by operators of concessions therein, unless the concessionaires obtain permits from the Board.'
It will be noted that the language used in section 7202, Revenue and Taxation Code, is substantially the same as that used in section 6051 of the same Code.
Each of the ordinances in this case contains all of the language referred to in subdivision (h)(1) of section 7202, and they are substantially the same, excepting fof the rates imposed.
The courts of this state have stated, with reference to the sales tax, in Livingston Rock & Gravel Co. v. De Salvo, 136 Cal.App.2d 156, at page 160, 288 P.2d 317, at page 319:
'A sales tax is an excise and privilege tax levied on a retailer for the privilege of selling tangible personal property. Section 6051 of the Revenue and Taxation Code says: "For the privilege of selling tangible personal property at retail a tax is hereby imposed upon all retailers at [a fixed percentage] of the gross receipts of any retailer from the sale of all tangible personal property sold at retail in this State. * * *'
'An excise tax is imposed upon the right to exercise a privilege. Ingels v. Riley, 5 Cal.2d 154, 159, 53 P.2d 939, 103 A.L.R. 1. A privilege tax is not a property tax. Id.; Anders v. State Board of Equalization, 82 Cal.App.2d 88, 93, 185 P.2d 883. The law imposes the fixed rate of the tax on gross receipts and not on the individual sale of tangible personal property. Western Lithograph Co. v. State Board of Equalization, 11 Cal.2d 156, 163, 78 P.2d 731, 117 A.L.R. 838. It is not a tax on the sale or because of the sale but is an excise tax for the privilege of conducting a retail business measured by the gross receipts from sales. * * *
'It has uniformly and consistently been held that the sales tax is laid solely on the retailer and not on the consumer. The tax relationship is between the retailer only and the state; and is a direct obligation of the former. (Citing cases.)'
The tax is upon the gross receipts, and not upon the individual sale of merchandise. And, as said in Western Lithograph Co. v. State Board of Equalization, supra, 11 Cal.2d 156, at pages 164, 166-167, 78 P.2d 731, at page 736: 'It does not become a tax on the sale nor because of the sale, but remains on excise tax for the privilege of conducting a retail business measured by the gross receipts from sales. * * * * * *
'* * * Notwithstanding the holdings or expressions in the cases distinguished, it must here be concluded that a proper construction of the Retail Sales Tax Act of California is that the tax is not on the sale, but rather that it is a tax in the same category as property and excise taxes payable by an independent contractor engaged in the business of retail sales which, although they are reflected in the higher cost of the product or commodity offered, must be considered merely as a necessary expense of conducting the business. It is a tax computed on the gross receipts from the conduct of the business of the retail merchant.'
Thus, the problem here is, what are the gross receipts of the Sears' retail establishment, and what is the proper measure to use in apportioning the tax collected between the local political jurisdictions involved?
There is no question but that Sears is a retail store and is a single operative unit consisting of two buildings. Only one sales tax permit was issued by the Board, and we must presume that the Board has abided by the law and performed its duty. It would seem therefore, that the Board has determined that there is only one place of business, even though there is more than one political subdivision involved in its location, and that the issuance of a single permit was legal, proper and regular. Pomona, as the petitioner in the first instance, as a matter of fact, claimed that there was only one place of business; however, it also claimed that that one place of business was in Pomona. As we view it, the fact that the store is located in two cities does not in anywise change or alter the nature of the tax imposed, nor does it change the character of the operation of the store, or the measure of the tax to be applied. The fact that one place of business is located as Sears is located in the present case, does not necessarily establish that two contesting political subdivisions can make two places of business out of it, to the end that one or the other will get more tax dollars from the establishment.
The appellants assert, and we agree, that the tax should be apportioned according to the percentage of the place of business in the taxing jurisdiction. In this case, each political subdivision adopted an ordinance for the purpose of setting up a sales and use tax, and each complied with the provisions of the Revenue and Taxation Code. The presumption set forth in section 7205, with the one exception with which we are not concerned, provides that all retail sales be presumed to have been consummated at the place of business of the retailer. The Board, in the regulations adopted, deleted the words 'presumed to have been consummated,' and in lieu thereof, inserted 'occur.' In other words, the Board has said, in effect, that for the purpose of the Bradley-Burns Act, the sale occurs at the place of business of the retailer, with exceptions with which we are not now concerned.
It would seem that the tax on the sales from the place of business should be allocable to the entire place of business, and not to only a portion of the place of business. A place of business is necessarily more than a mere sales floor area. There are, of necessity, and particularly so in a large departmentalized store, many sections such as offices, administration facilities, warehouses, storage compartments and other divisions which go to make up the place of business.
Furthermore, each of the political subdivisions entered into a contract with the Board to the effect that the Board should perform, exclusively, all functions incident to the administration and operation of the ordinances. The contract provided that the taxes were to comply with the provisions of the Revenue and Taxation Code; further, the political subdivisions bound themselves to the rules and regulations adopted by the Board. One of the purposes of the Act, in the first instance, was to relieve the retailer from filing numerous tax returns and from the necessity of dealing and negotiating with various agencies. In other words, the parties in this case contracted for an allocation to be made pursuant to Board regulations.
Another difficulty with the allocation as contended for by Pomona, and as decreed by the trial court, is that net sales and taxable sales are not the same, and as a consequence there is a potential variance between the taxable sales and the net sales of about three percent. In other words, assuming that the annual sales tax collected from the store and distributable to the local political subdivisions would amount to a figure between $125,000 and $135,000, each percent would amount to at least $1,250. If the discrepancy equalled the maximum of three percent, the difference would be at least $3,750, which, to a small municipality, is a considerable sum.
Moreover, there was no evidence to the effect that there is any reasonable relationship between the square footage of a particular department in each taxing jurisdiction, and the dollar value properly allocable to each such portion of such department. In fact, the plaintiff's own witness, a representative of Sears, testified that he had no way of knowing, nor did the records reflect whether there was such a relationship. The witness also stated that to have such information, Sears would have to set up a new method of bookkeeping, adding extra expense, time and trouble, to its operations. The witness further stated that no records were kept which reflected what percent of the non-taxable sales occurred in Pomona or in Montclair.
It is true that public utility franchise payments are not exactly parallel to the situation before us. In the public utility cases, however, it has frequently been held that returns should be apportioned. See, County of Los Angeles v. Southern Counties Gas Co., 42 Cal.2d 129, 266 P.2d 27; County of San Diego v. San Diego Gas & Electric Co., 48 Cal.2d 25, 307 P.2d 365.
The court in the present case made no finding as to what percentages of the buildings were within the respective cities, or in other words, no finding was made as to what percentage of the place of business was within Pomona, and what percentage of the place of business was in Montclair.
We are of the opinion that under the circumstances the allocation should be made on the basis of the whole store as a place of business, and not on just the amount of floor space of certain departments which happen to be bisected by the dividing line between political subdivisions.
The judgment is reversed.
WHITE, P. J., and LILLIE, J., concur.
Hearing granted; WHITE, J., not participating. * Opinion vacated 1 Cal.Rptr. 489, 347 P.2d 904.