Opinion
As Modified April 20, 1987.
Review Granted and transferred to Court of Appeals July 16, 1987.
Previously published at 191 Cal.App.3d 58
Adrian Kuyper, County Counsel, and David R. Chaffee, Deputy County Counsel, Santa Ana, for amicus curiae County of Orange on behalf of defendants and appellants.
Gerald J. Geerlings, County Counsel, W.W. Miller, Chief Principal Deputy and Loyal E. Keir, Deputy County Counsel, Riverside, for defendants and appellants County of Riverside and County of Merced.
John K. Van de Kamp, Atty. Gen., Edmond B. Mamer and Patti S. Kitching, Deputy Attys. Gen., for defendant and appellant State Bd. of Equalization.
Wyman, Bautzer, Rothman, Kuchel & Silbert, Allan B. Goldman, P.C., and Jerold Fagelbaum, Los Angeles, for plaintiff and respondent.
Ajalat & Polley, Charles R. Ajalat, Terry L. Polley and Richard J. Ayoob, Los Angeles, as amici curiae on behalf of plaintiff and appellant.
McDANIEL, Associate Justice.
Does the acquisition of one corporation by another result in a "change of ownership" (Rev. & Tax Code, § 64, subd. (c)) of
At the time it was applied to the acquisition here, Revenue and Taxation Code section 64, subdivision (c) (hereinafter section 64(c)) recited: "When a corporation, partnership, other legal entity or any other person obtains control, as defined in Section 25105, in any corporation, through the purchase or transfer of corporate stock exclusive of any shares owned by directors, such purchase or transfer of such stock shall be a change in ownership of property owned by the corporation in which the controlling interest is obtained." (Italics added.)
All statutory references are to the Revenue and Taxation Code unless otherwise specified.
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are not in dispute.
On July 27, 1979, Spicor, a wholly-owned subsidiary of Southern Pacific Company (SP), merged into Ticor, by the conversion of Spicor's shares of common stock into shares of common stock of Ticor. As a result of the merger, Ticor became a wholly-owned subsidiary of SP. TI, which had previously been a wholly-owned subsidiary of Ticor, remained a wholly-owned subsidiary of Ticor.
On October 26, 1979, the State Board of Equalization (the Board) issued Assessors' Letter No. 79/191, notifying county assessors throughout California that under section 64(c), supra, the acquisition of a corporation through stock transfer resulted in a change of ownership for both the parent company acquired and its subsidiaries, and therefore required a reappraisal of any real property owned by both the parent and the subsidiaries.
On November 5, 1979, the Board issued a letter to the county assessors of California, stating that the principles set forth in its foregoing October 26 letter should be applied to Spicor's merger with Ticor, and that "any real property owned by TICOR and all real property owned by subsidiaries of TICOR is subject to reappraisal by reason of a change of ownership under Revenue and Taxation Code, Section 64(c). Among the corporations controlled by TICOR is Title Insurance and Trust Company."
In April 1980, the Riverside County Assessor reappraised two parcels of real property (Parcel Nos. 215-131-001-6 and 215-131-002-7, more commonly known as, respectively, On June 3, 1980, also reflecting the foregoing policy announcement by the Board, the Merced County Assessor reappraised a parcel of real property (Parcel No. 30-272-08, more commonly known as 525 West Twentieth Street, Merced) owned by TI and situated in Merced County. The reappraisal was for the year 1980-81, and increased the roll value of the property from $165,750 to $220,000.
On September 12, 1980, TI filed applications to change the assessments on the foregoing properties with the Assessments Appeals Boards of Riverside and Merced Counties (the Boards). The ground for the applications was that the corporate merger did not cause a change in the ownership of the properties in question, and that therefore there was no basis for the reappraisals.
On January 16, 1981, the Boards denied the applications, on the ground that they lacked jurisdiction to rule on the legal issue presented.
On December 8, 1980, and April 9, 1981, TI paid a total of $9,719 in taxes on the subject property in Riverside County, and a total of $2,282 in taxes on the subject property in Merced County. $1,724 of the $9,719 and $562.80 of the $2,282 were as a result of the reassessments.
In July 1981, TI filed complaints in Riverside County Superior Court and Merced County Superior Court, for a refund of the $1,724 and the $562.80, respectively, and for declarations that section 64(c) either did not apply to real property owned by a corporate subsidiary of an acquired corporation, or, if it did, was unconstitutional.
In October 1982, the cases were coordinated, and the coordinated proceeding was assigned to the Riverside County Superior Court.
After trial to the court on a stipulated set of facts and submitted exhibits, the court ruled that: (1) section 64(c) did not apply to subsidiaries of acquired corporations; (2) the application of section 64(c) by the Board and the Counties of Riverside and Merced (the defendant counties) to TI's property was inconsistent with the intent of the Legislature; and (3) the defendant counties should refund to TI the excessive taxes it had paid in the taxable year of 1980-81, with interest thereon. Because of these rulings, the court did not consider the constitutionality of section 64(c).
Thereupon TI prepared a proposed judgment, which included an order for the Board to: (1) advise all county assessors of the decision; (2) countermand its October 26, 1979, and November 5, 1979, letters to the assessors (supra ); and (3) request the assessors to refund to TI any additional taxes it had paid due to the 1980 reassessment. After a hearing, a judgment was filed in accordance with the court's ruling, and without including the foregoing directives as to the Board.
The following month, the defendant counties filed a motion to correct a clerical error in the judgment as to the amount of the tax refund Merced County owed to TI. Thereupon TI filed a cross-motion to correct a clerical error in the judgment, to state, in the event the decision became final or were sustained on appeal, that the defendant counties should refund to TI the portion of taxes TI paid for the years after 1980-81 which resulted from the improper reappraisals the counties made for the year 1980-81.
After a hearing, the defendant counties' motion was granted, and TI's cross-motion was denied. This appeal and cross-appeal followed.
DISCUSSION
Defendants contend: (1) the trial court erred in ruling that section 64(c) did not require the reassessment of TI's real property; and (2) section 64(c) is constitutional. I
DOES SECTION 64(c) REQUIRE THE REASSESSMENT OF TI'S REAL PROPERTY?
As noted, at the time it was applied to the acquisition here, (1) section 64(c) provided that when one corporation "obtains control, as defined in Section 25105, in any [other] corporation," such control "shall be a change of ownership of property owned by the corporation in which the controlling interest is obtained" (italics added); (2) section 25105 defines "control" as "[d]irect or indirect ownership or control of more than 50 percent of the voting stock of the taxpayer [corporation]." (Italics added).
Without citing any authority, defendants contend that "indirect" in section 25105 applies to control of the subsidiaries of the acquired corporation, and that the inclusion of section 25105 in section 64(c) shows that the Legislature intended section 64(c) to apply to the property owned by those subsidiaries. TI disagrees, contending that "indirect" in section 25105 applies only to control of the acquired corporation, and that the omission of any reference in section 64(c) to property owned by these subsidiaries of the acquired corporation, and the inclusion of such a reference in section 64(b), show that the Legislature indeed intended section 64(b ) to apply to such property, and section 64(c ) not to apply. For the reasons stated below, we agree with TI.
Section 64(b) recites in relevant part: "(b) Any corporate reorganization, where all of the corporations involved are members of an affiliated group, ... or any transfer of real property among members of an affiliated group shall not be a change of ownership.... [p] For purposes of this subdivision 'affiliated group' means one or more chains of corporations connected through stock ownership with a common parent corporation if: [p] (1) One hundred percent of the voting stock, exclusive of any share owned by directors, of each of the corporations, except the parent corporation, is owned by one or more of the other corporations; and [p] (2) The common parent corporation owns, directly, 100 percent of the voting stock, exclusive of any shares owned by directors, of at least one of the other corporations." (Italics added.)
First, defendants' interpretation of section 25105 as applied to section 64(c) is unwarranted by both the general principles of statutory construction, and the particular language of the statute. Generally, "In the construction of a statute or instrument, the office of the judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all." (Code Civ.Proc., § 1858.) " '[C]ourts, in interpreting statutes levying taxes, may not extend their provisions, by implication, beyond the clear import of the language used, nor enlarge upon their operation so as to embrace matters not specifically included. In case of doubt, construction is to favor the taxpayer rather than the government.' " (Cal. Motor, etc., Co. v. State Bd. of Equal. (1947) 31 Cal.2d 217, 223-224, 187 P.2d 745.)
Particularly, when section 25105 is incorporated into the relevant language of section 64(c), the following results: "When a corporation ... obtains '[d]irect or indirect ... control of more than 50 percent of the voting stock of' any corporation ... such [control] shall be a change of ownership of property owned by the corporation in which the controlling interest is obtained." (Italicized language is taken from section 25105.)
Applying the foregoing language to the merger here, TI's argument is that Southern Pacific would have acquired "indirect" control of TI only if, for example, Southern Pacific owned 100 percent of Spicor and Ticor, and Spicor and Ticor each acquired 50 percent (or even 26 percent) of the stock of TI, resulting in Southern Pacific's "indirect" control of more than 50 percent of We agree with TI that the Legislature's repeated use of the singular in section 64(c) ("the corporation ... in which the controlling interest is obtained") (italics added), and omission of any reference to subsidiaries, support TI's interpretation that the word "indirect" applies to the manner of obtaining control of the stock of the initially-acquired or parent "corporation" (here, Ticor), and not, as appellants contend, to whether that corporation (Ticor) controls any additional corporations (such as TI) in a manner so as to enable those additional corporations to become acquired corporations.
In their opening brief, defendants argue that their interpretation is "crystal clear" from the "plain and simple words of ... sections 64(c) and 25105." In their reply brief, defendants concede that TI's interpretation of those statutes is the "literal" one, albeit "formalistic," "narrow" and "unreasonable."
Defendants argue that by adopting TI's interpretation the trial court ignored section 25105, and in essence wrote the term "indirect" out of that statute. Not so. Both defendants' and TI's interpretations of "indirect" were presented at trial and argued at length. The fact that the court accepted TI's interpretation of "indirect" and rejected defendants', does not mean that it ignored section 25105, or wrote the "indirect" out of the statute.
Moreover, the present wording of section 64, subdivision (e ), which was added by the Legislature in 1980, the year after the merger here, is consistent with TI's interpretation not with defendants'. In 1980, subdivision (e) recited in relevant part: "In order to assist in the determination of whether a change of ownership has occurred under subdivision (c), the Franchise Tax Board shall include a question in substantially the following form on returns for partnerships, banks and corporations ... [p] If the corporation (partnership) owns real property in California, was control of the corporation (partnership) transferred or sold during the year? ... [p] If an entity answers 'yes' to the above question, then the Franchise Tax Board will furnish the name and address of such entity to the State Board of Equalization." (Italics added.)
Subdivision (e) was amended once, in 1982, when the foregoing italicized portion was changed to recite: "has cumulatively more than 50 percent of the voting stock (or more than 50 percent of total interest in both partnership capital and partnership profits) (1) been transferred by the corporation (or partnership) since March 1, 1975, or (2) been acquired by another legal entity or person during the year?" In other words, and consistent with TI's interpretation, in 1982 the Legislature further defined "control" of a corporation to mean: the accumulation (i.e., direct or indirect acquisition ) of more than 50 percent of its voting stock by one entity or person. Defendants' interpretation of section 64(c) cannot be applied to the 1982 text of subdivision (e), and is inconsistent with the obvious purpose thereof, which is to furnish the name of the transferred or acquired "entity" to the Board of Equalization, so that the property of that entity can be reappraised.
Further, section 480.1, the reporting statute for section 64(c), which was added by the Legislature in 1981 (and, for our purposes, not modified thereafter) is also consistent with TI's interpretation. Section 480.1 recites in relevant part: "(a) Whenever there is a change in control of any corporation, partnership, or other legal entity, as defined in subdivision (c) of Section 64, a signed change of ownership statement as provided for in subdivision (b), Significantly, there is no reference to corporate subsidiaries in any of the versions of section 64(e), section 64(c), or section 480.1. Moreover, in 1980 the Legislature rejected an attempt to include such a reference in a proposed amended section 64, which was part of SB1260. The proposed amendments to section 64(c) in SB1260 would have expanded the statute to read as follows:
"When a corporation, partnership, other legal entity or any other person, or affiliated group of persons acquires control, as defined in Section 25105, in any corporation through the purchase or transfer of corporate stock, such purchase or transfer of such stock shall be a change in ownership of property owned by the acquired corporation and all property owned by all entities in which the acquired corporation holds an ownership interest of 50 percent or more. For purposes of this subdivision affiliated persons shall include, but not be limited to family members, related by blood or marriage, partners, joint venturers, corporations under common ownership or control or any of the foregoing." (Italics added.)
The proposed amendments were all rejected, and the final version of SB1260 contained no reference to section 64. Because the proposed amendments included several changes in addition to the new language as to property of subsidiaries, the reason for the rejection of that particular language is speculative. However, the introduction of the language supports TI's position, in that the introduction "created an inference that some members of the Legislature thought a change in the law necessary in order to [apply the statute to the property of subsidiaries]." (Ambrose v. Cranston (1968) 261 Cal.App.2d 137, 144, 68 Cal.Rptr. 22.)
Moreover, it is also significant that the manner in which SB1260 would have amended section 64(c) to include the property of subsidiaries (by adding such property to the property of "the" acquired corporation) is consistent with TI's position (the "acquired" corporation is only the parent corporation), and inconsistent with appellants' (both the parent and its subsidiaries may be "acquired" corporations).
Otherwise, as noted, the Legislature's reference to the real property of subsidiaries in section 64(b), and the omission of any such reference in section 64(c), show that the Legislature did not intend subdivision (c) to apply to such property. (City of Port Hueneme v. City of Oxnard (1959) 52 Cal.2d 385, 395, 341 P.2d 318.)
Defendants contend that their interpretation of section 64(c) is consistent with the Legislature's "ultimate control" theory of taxing corporately owned real property, because "[u]nder the ultimate control theory the substance of the transaction is examined to determine if the real control of an entity has been transferred or changed." However, defendants offer no convincing authority to support the application of this proposition to corporate subsidiaries, and there is nothing in the legislative history of section 64(c) which would justify such an application.
As to the legislative history, the reports of the 1978 Task Force on Property Tax Administration and the Assembly Revenue and Taxation Committee both referred to the "ultimate control" theory in terms of only one acquired corporation. Moreover, the Task Force recommended that the Legislature follow a "separate entity" rather than an "ultimate control" approach, because of: (1) the administrative and enforcement Defendants also contend that TI's interpretation would frustrate the intent of the Legislature, because, "[a]s a practical matter, a corporation negotiating for a takeover could prevent the reappraisal of its real property ... simply by forming a wholly-owned subsidiary corporation to which it could transfer its real property prior to the takeover."
The Task Force report recites in relevant part: "Under the 'ultimate control' theory, a change in ownership of real property belonging to a corporation would occur when a single shareholder gains majority control of the corporation through the purchase of shares. Take a simple case. John Doe, Inc., is a wholly owned corporation of John Doe. It owns a grocery store. George Smith buys all the shares of the corporation. Under the ultimate control approach that would constitute a change in ownership of the grocery store." (Report of the Task Force on Property Administration, January 22, 1979, p. 45, italics on "ultimate control" in original, other italics added.)
However: (1) Defendants concede that the foregoing scenario does not apply to the present case.
(2) The creation of a wholly-owned subsidiary in order to avoid an increase in property taxes may result in other, undesirable tax consequences (see, e.g. City of Los Angeles v. Olson Farms, Inc. (1983) 142 Cal.App.3d 527, 191 Cal.Rptr. 485, where the court upheld the imposition of a business license tax on activities between a corporation and its subsidiaries).
(3) If, as defendants argue, TI's "literal" interpretation of section 64(c) leaves a "loophole" in the statute which the Legislature intended to close, then, because we may not extend the provision of a tax statute nor construe it in favor of the government rather than the taxpayer (Cal. Motor, etc., Co. v. State Bd. of Equal., supra, 31 Cal.2d 217, 223-224, 187 P.2d 745), it is the function of the Legislature, not of this court, to "insert what has been omitted." (Code Civ.Proc., § 1858, supra.)
In view of our decision that section 64(c) does not apply to TI's real property, we need not address its constitutionality.
II
TI'S CROSS-APPEAL
On the refund issue, the prayers in TI's complaints against defendant counties were limited to the excess taxes TI had paid in those counties on December 8, 1980, and April 9, 1981. After trial, TI attempted to include a provision in the judgment whereby the Board would request any counties to which TI had paid any excess taxes because of the 1980 reappraisal to refund such taxes. The attempt was unsuccessful, and the judgment was limited to the defendant counties and the taxable year of 1980-1981. TI then filed a cross-motion, supra, requesting the trial court to modify the judgment to order the Board to request the defendant counties to refund to TI any excess taxes it had paid after 1980-81.
At the hearing on TI's cross-motion, Loyal E. Keir, the deputy county counsel who was representing the defendant counties, told the court that in the "normal course of events," the ultimate decision in this case would be "binding" on the defendant counties, and, if the trial court's decision were affirmed, that the defendant counties would refund the post 1980-81 excess taxes to TI. Mr. Keir further assured the trial court, as an officer of the court, that he would personally attend to any such refund, if he were "still around." The motion was denied.
On appeal, TI contends, without citing any authority, that the trial court erred in denying its foregoing prejudgment and post-judgment requests. Defendants disagree, relying on Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 165 Cal.Rptr. 122, 611 P.2d 463, In Pacific Gas & Electric, three public utilities filed an action to compel the Board to adjust the assessment of their real property before they paid taxes thereon in over 50 counties. The Supreme Court held that the action should be dismissed, and that the appropriate procedure would be for the utilities to pay the taxes, then to choose a target forum to litigate the alleged overpayment, and, "in the event they receive a favorable judgment invalidating the Board's decision, [obtain] refunds from the remaining counties through administrative procedures. ( Rev. & Tax Code, § 5096 )." (Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d 277, 283, italics added, 165 Cal.Rptr. 122, 611 P.2d 463.)
Section 5096 recites in relevant part: "On order of the board of supervisors, any taxes paid before or after delinquency shall be refunded if they were: ... [p] (b) Erroneously or illegally collected. [p] (c) Illegally assessed or levied."
Section 5097 recites in relevant part: "(a) No order for a refund under this article shall be made, except on a claim." Significantly, subdivision (d) of section 5097, which applies "only to refunds of property taxes levied by the City of Fresno," and "only through June 30, 1986," eliminates the claim requirement "if a refund is ordered by a final decision of a court of competent jurisdiction ... and the taxes paid were either ... [e]rroneously or illegally collected, [or] [i]llegally assessed or levied." The limited application of subdivision (d) to refunds by the City of Fresno within a specific time period, persuades us that the Legislature did not intend a taxpayer in any other category to avoid the statutory claim procedures for obtaining refunds.
Moreover, as to the post 1980-81 refunds from the defendant counties, even if those items were before the court in the general sense that they were discussed at the post-judgment hearing on TI's cross-motion, supra, the court undoubtedly, and correctly, believed, as a result of Mr. Keir's representation, that TI would not be prejudiced by the absence of any order for a refund. Further, we are not persuaded by TI's argument that it will be "enormously prejudiced by having to incur substantial added expense" (italics added) in initiating and processing claims for refunds in the defendant counties for each year after 1980-81.
Finally, because section 5142 provides that an action for refund may not be brought "unless a claim for refund has first been filed" (see also § 5140, infra ), TI's failure to file claims with the defendant counties for the years after 1980-81, would preclude it from obtaining a court order for refunds for those years.
As to the refunds in counties other than the defendant counties, an issue which was not before the court in the pleadings or the evidence, TI acknowledges that it has already filed the claims in each of the remaining counties in which it has real property, and that many of those counties have entered into stipulations with TI to defer ruling on the claims until the present case is final. Notwithstanding the above, TI argues that it is prejudiced by the omission of language in the judgment requiring the Board to "request" the counties to issue the refunds, because, if the language were included, "[a]t that point the counties will be free to act favorably upon [TI's] pending claims." (Italics added.) The inference is that without such language, the counties would not be free to act favorably upon TI's claims, i.e., that the statutory refund procedure would, for some unexplained reason, be inadequate in this situation. We reject such an inference, and "assume that the taxing authorities would follow the [court's] determination." (Schoderbek v. Carlson (1980) 113 Cal.App.3d 1029, 1038, 170 Cal.Rptr. 400.)
"[A] specific statutory refund procedure has been provided for taxpayers whose property has been improperly reassessed. (Rev. & Tax Code, §§ 5096 [supra],
DISPOSITION
The judgment is affirmed.
CAMPBELL, P.J., concurs.
KAUFMAN, Associate Justice, dissenting.
Assigned by the Chairperson of the Judicial Council.
I respectfully dissent.
Notwithstanding the erudite discussion in the majority opinion of the history and meaning of subdivision (c) of section 64 of the Revenue and Taxation Code (the statute or section 64(c)), this is really a simple case, and the majority's resolution of the case is contrary to both the plain meaning of the statute and its purpose.
The statute adopts "control" as the measure of ownership. At the time it was applied to the question here subdivision (c) of section 64 1 read: "When a corporation, partnership, other legal entity or any other person obtains control, as defined in Section 25105, in any corporation, through the purchase or transfer of corporate stock exclusive of any shares owned by directors, such purchase or transfer of such stock shall be a change in ownership of property owned by the corporation in which the controlling interest is obtained."
In turn, section 25105 provides: "Direct or indirect ownership or control of more than 50 percent of the voting stock of the taxpayer shall constitute ownership or control for the purposes of this article."
Before the merger here involved Ticor owned all of the shares of the capital stock of TI and TI in turn owned the real property in question. By virtue of the merger Southern Pacific Company (Southern Pacific) acquired all of the shares of the capital stock of Ticor. Thus, the majority is correct that if Ticor owned any real property that property would be deemed to have changed ownership under sections 25105 and 64(c). The majority holds, however, that since Ticor owns no real property, no change in the ownership of TI's real property has taken place. But that is incorrect. Under the control concept as set forth in section 25105, because it owned more than 50 percent of the voting stock of TI, Ticor "owned" the real property of TI for "change of ownership" purposes and when Southern Pacific acquired Ticor, it also acquired Ticor's control over TI's real property (100 percent ownership of TI's stock), and a change of ownership of TI's real property occurred pursuant to section 64(c).
This accords both with reality and with the obvious purpose of the statute to recognize changes in the ownership of real property on a more equal basis whether the original owner was a corporation or an individual.
The judgment to the contrary is clearly erroneous and if I could command another vote it would be reversed.
Section 64(c) now recites: "When a corporation, partnership, other legal entity or any other person obtains control, as defined in Section 25105, in any corporation, or obtains a majority ownership interest in any partnership or other legal entity through the purchase or transfer of corporate stock, partnership interest, or ownership interest in other legal entities, such purchase or transfer of such stock or other interest shall be a change of ownership of property owned by the corporation, partnership, or other legal entity in which the controlling interest is obtained."
Section 25105 recites: "Direct or indirect ownership or control of more than 50 percent of the voting stock of the taxpayer shall constitute ownership or control for the purposes of this article."
Unless otherwise indicated, all further statutory references are to the Revenue and Taxation Code.
The Assembly Committee report recites, in relevant part: "The majority-takeover-of-corporate-stock provision deviates from this general theory, and represents an 'ultimate control' rationale. This provision was enacted out of a concern that, given the lower turnover rate of corporate property, mergers or other transfer of majority controlling ownership should result in a reappraisal of the corporation's property." (Staff to the Assembly Revenue and Taxation Committee, Revenue and Taxation Reference Book 1980, § I, p. 46, italics added.)