Opinion
As Modified on Denial of Rehearing Feb. 8, 1995.
In denying rehearing the Court of Appeal directed that the opinion was no longer certified for publication.
Previously published at 31 Cal.App.4th 483
Michael R. Faber, June T. Summers, Heller, Ehrman, White & McAuliffe, San Francisco, for appellant/plaintiff.
Daniel E. Lungren, Atty. Gen., Timothy G. Laddish, Sr. Asst. Atty. Gen., Richard F. Finn, Supervising Deputy Atty. Gen., Robert E. Murphy, Deputy Atty. Gen., San Francisco, for respondent/defendant.
DOSSEE, Associate Justice.
Relying on a regulation promulgated by defendant State Board of Equalization (the Board) in 1989, the trial court concluded that a 1983 sale-leaseback between ROLM Corporation and Chase Commercial Corporation was a taxable transaction. On appeal, ROLM argues that the 1989 regulation is not retroactive and, hence, does not govern the I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff IBM Corporation is the successor in interest to ROLM Corporation. For ease of reference, we will refer to both entities as "ROLM."
The facts underlying this tax refund action are largely undisputed. ROLM's complaint alleges, and the Board admits, the following facts:
"ROLM manufactures and sells electronic equipment. Over a period beginning in 1981 and ending in 1983, ROLM purchased certain research and development equipment (the 'Equipment') at retail.... ROLM paid California sales tax, sales tax reimbursement, or use tax on all of these purchases.
"On December 31, 1983, ROLM entered into two agreements with Chase Commercial Corp. ('Chase').... In the first agreement, entitled 'Bill of Sale', ROLM purportedly transferred its title to the Equipment to Chase for a stated amount. In the second agreement, entitled 'Master Agreement to Lease Equipment', Chase purportedly leased the Equipment back to ROLM for a period of three years at a stated rental amount based on a percentage of the Equipment's initial acquisition cost to Chase. ROLM was given an 'option' to extend the 'lease' at an amount equal to the then fair rental value, and an 'option' to 'repurchase' all of the Equipment at the end of the 'rental' term for 15 percent of the amount initially advanced by Chase....
"ROLM exercised its 'repurchase option' in December 1986.... [p] At all times since its original purchase by ROLM, both before and after the transaction with Chase, the Equipment was located on ROLM's premises and was used by ROLM in furtherance of ROLM's business activities. Except insofar as the Equipment served to secure ROLM's obligations under the Master Agreement to Lease Equipment, Chase did not have and never had any use for the Equipment. [p] ROLM was at all times liable for all repairs and maintenance of the Equipment, for the cost of insuring the Equipment, for all taxes or assessments with respect to the Equipment, and for all risks of loss of or damage to the Equipment....
"Neither ROLM nor Chase collected or remitted any sales or use tax with respect to the 'sale' or the 'lease'. [p] Pursuant to an audit of ROLM conducted by the Board, by a Notice of Determination dated September 13, 1985 the Board notified ROLM that the Board had determined that ROLM had underpaid sales and use tax for the period January 1, 1984 through September 30, 1984 in the amount of $120,919.05. The Notice of Determination also asserted interest due through October 1, 1985 of $18,867.98. By letter dated September 23, 1985, ROLM petitioned the Board for a redetermination of the tax and interest asserted to be due in the Notice of Determination. [p] After an informal hearing before a hearing officer of the Board on April 14, 1987, the Board determined that the amount of tax [and interest] asserted to be due in the Notice of Determination was due...."
On August 1, 1989, after paying the disputed taxes and interest and after unsuccessfully seeking a refund from the Board, ROLM filed the instant tax refund action. ROLM alleged that "[t]he tax and interest which ROLM paid with respect to the Chase transaction was illegally and erroneously collected from ROLM. The Chase transaction was a mere financing device in the nature of a secured loan, and not a sale and lease, for sales and use tax purposes."
After hearing evidence regarding the intent of ROLM and Chase in entering the sale-leaseback, the trial court issued its statement of decision. The court held that California Code of Regulations, title 18, section 1660(a)(3) (hereafter section 1660(a)(3)), operative on July 26, 1989, applied retroactively and governed the taxability of the 1983 sale-leaseback. The trial court found that the sale-leaseback did not satisfy all of the requirements for non-taxability set forth in section 1660(a)(3) and, for that reason, was taxable.
Section 1660(a)(3) provides that transactions structured as sales and leasebacks will be treated as non-taxable financing transactions if certain detailed requirements are satisfied.
ROLM agrees with the trial court's finding that the sale-leaseback did not satisfy all of the requirements enumerated in section 1660(a)(3).
II. DISCUSSION
ROLM asserts that the sale-leaseback should have been treated as a non-taxable financing transaction under the rationale of Cedars-Sinai. (See ante, fn. 4.) According to ROLM, the trial court erred when it concluded that section 1660(a)(3) applied retroactively and rendered the sale-leaseback taxable. For the reasons discussed below, we agree.
ROLM also argues that section 1660(a)(3) is not the exclusive means for determining whether a particular sale-leaseback is taxable and, in the event that it is, that the regulation is invalid. In light of our conclusion that section 1660(a)(3) does not apply retroactively, we have no occasion to address these arguments.
"Generally, the same rules of construction and interpretation which apply to statutes govern the construction and interpretation of administrative regulations. (Cal. Drive-in Restaurant Assn. v. Clark (1943) 22 Cal.2d 287, 292 [140 P.2d 657, 147 A.L.R. 1028].) ' "[I]t is an established canon of interpretation that statutes are not to be given a retrospective operation unless it is clearly made to appear that such was the legislative intent." [Citation.]' (Evangelatos v. Superior Court (1988) 44 Cal.3d 1188, 1207 [246 Cal.Rptr. 629, 753 P.2d 585].)" (Union of American Physicians & Dentists v. Kizer (1990) 223 Cal.App.3d 490, 504-505, 272 Cal.Rptr. 886.)
The Board argues that this general principle is inapplicable to tax regulations because they are presumed to be retroactive in the absence of some indication to the contrary. (See Rev. & Tax.Code, § 7051 ["The board may prescribe the extent to which any ruling or regulation shall be applied without retroactive effect."]; see also Aerospace Corp. v. State Bd. of Equalization (1990) 218 Cal.App.3d 1300, 1308, 267 Cal.Rptr. 685.) This argument presupposes that section 1660(a)(3) contains no provision limiting its retroactivity. In fact, as the legislative history of the regulation states, as the Board admitted, and as the trial court found, section 1660(a)(3) did not become operative until July 26, 1989. The inclusion of an operative date in section 1660(a)(3) reflects that the regulation was not intended to apply retroactively. (See Thompson v. Board of Supervisors (1986) 180 Cal.App.3d 555, 562, 225 Cal.Rptr. 640 [when an ordinance contains an operative date, the substantive rights of individuals under its provisions are not affected until that date]; see also People v. Vega-Hernandez (1986) 179 Cal.App.3d 1084, 1090, fn. 10, 225 Cal.Rptr. 209; People v. Palomar (1985) 171 Cal.App.3d 131, 134, 214 Cal.Rptr. 785; Estate of Rountree (1983) 141 Cal.App.3d 976, 979-980, 192 Cal.Rptr. 152; Estate of Nicoletti (1982) 129 Cal.App.3d 475, 479, 181 Cal.Rptr. 137; People v. Henderson (1980) 107 Cal.App.3d 475, 488, 166 Cal.Rptr. 20.) In the alternative, the Board argues that the application of section 1660(a)(3) does not involve a retroactive application of the law at all because the regulation merely clarifies existing law. Again, the Board is mistaken. A statute or regulation has retroactive application when " 'it substantially changes the legal effect of past events. [Citations.]' (Kizer v. Hanna (1989) 48 Cal.3d 1, 7 [255 Cal.Rptr. 412, 767 P.2d 679].)" (Union of American Physicians & Dentists v. Kizer, supra, 223 Cal.App.3d at p. 505, 272 Cal.Rptr. 886.) In this case, as the trial court found and the Board does not dispute, the sale-leaseback was not taxable under the rationale of Cedars-Sinai. Under section 1660(a)(3), by contrast, the trial court found the sale-leaseback was taxable. Since the application of section 1660(a)(3) by the trial court substantially changed the legal effect of the sale-leaseback, its application to the transaction cannot be deemed non-retroactive.
The Board attempts to circumvent this long line of cases by arguing that, unlike for statutes, " 'operative' is a term without any meaning in relation to administrative regulations." This argument is meritless. (See Union of American Physicians & Dentists v. Kizer, supra, 223 Cal.App.3d at pp. 504-505, 272 Cal.Rptr. 886 [same principles govern interpretation of both statutes and administrative regulations]; Thompson v. Board of Supervisors, supra, 180 Cal.App.3d at p. 562, fn. 5, 225 Cal.Rptr. 640 [applying principles of statutory construction to the use of an operative date in a county ordinance].)
III. DISPOSITION
The judgment is reversed, and the case is remanded to the trial court with directions to enter judgment in favor of ROLM. Costs are awarded to ROLM.
STRANKMAN, P.J., and NEWSOM, J., concur.
In its petition for rehearing, the Board completely changes its theory of the case, acknowledging that the inclusion of an operative date renders a regulation non-retroactive but asserting, for the first time, that section 1660(a)(3) does not include an operative date. The Board argues that the legislative history of section 1660(a)(3), which clearly specifies an operative date, is not part of the regulation. According to the Board, "[a]t most, [the legislative history] is editorial comment which does not have its source with the Board, the author of the regulation." The Board's new position directly contradicts its concession, throughout this litigation, that the legislative history of section 1660(a)(3), including its operative date, is a part of the regulation. We decline to permit the Board to withdraw its concession and change its theory of the case in its petition for rehearing.