Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of San Diego County, Charles R. Hayes, Judge, Super. Ct. No. GIC851159
BENKE, J.
Plaintiffs and appellants Larry Williams and Kathryn Hanes filed a declaratory relief action concerning a dispute with defendant and respondent Franchise Tax Board (Board). They apparently did not pay their state income taxes for several years but had offered to do so on the condition the Board "answer several questions." They sought a declaration from the trial court that pursuant to section 1485 et seq. of the Civil Code the failure of the Board to respond to their offers to perform extinguished their obligation to pay their taxes for the operative years. The Board demurrered on several grounds, including the prohibition stated in article 13, section 32 of the California Constitution and Revenue and Taxation Code section 19381, against legal or equitable process preventing or enjoining the collection of any tax and on the ground that tax obligations may not be extinguished under the cited Civil Code sections. The trial court granted the demurrer without leave to amend. Williams and Hanes appeal.
BACKGROUND
A. Complaint
Williams and Hanes filed a complaint seeking declaratory relief. The complaint is not a model of clarity or specificity. They alleged they made offers to the Board "to perform" certain unspecified obligations that arose over a period of years, i.e., their "debts" to the Board. We take this to mean Williams and Hanes did not pay their taxes for several years. These offers to perform were conditioned on the Board "answering several questions." The complaint does not state either specifically or generally what the questions were. The complaint alleges the Board did not object to the offers; indeed, it did not respond in any way. Williams and Hanes argued that pursuant to the extinguishment of obligation provisions of sections 1485, 1498, 1501 and 1504 of the Civil Code, the failure of the Board to respond resulted in the extinguishing of their obligation, presumably their obligation to pay taxes.
Williams and Hanes acknowledged that article 13, section 32 of the California Constitution precludes legal or equitable actions to enjoin or prevent the collection of taxes. They argued, however, that they sought not the prevention of the collection of taxes but merely a declaration that their obligations to the Board had been extinguished by operation of the extinguishment of obligation provisions of the Civil Code.
B. Demurrer
The Board demurred to the complaint on several grounds, including that in light of article 13, section 32 of the California Constitution, the trial court was without jurisdiction to grant the relief sought. The Board also argued the extinguishment provisions of the Civil Code were not applicable to tax obligations, the tax obligations remained and the court had no power to prevent collection.
The trial court found that based on article 13, section 32 of the California Constitution, it lacked subject matter jurisdiction and sustained the Board's demurrer without leave to amend. A judgment of dismissal was entered and Williams and Hanes appeal.
DISCUSSION
Williams and Hanes sought a declaration from the trial court that their obligation to pay taxes for certain years was extinguished by their offer to perform made pursuant to various provisions of the Civil Code. (See Civ. Code, § 1485 et seq.) They argue the trial court erred in sustaining the Board's demurrer to their complaint and in finding it had no jurisdiction to consider their action. They concede that article 13, section 32 of the California Constitution and Revenue and Taxation Code section 19381 preclude legal or equitable actions to enjoin or prevent the collection of taxes. They argue, however, their action did not seek such relief. They contend that because their tax obligation was extinguished by their offer to perform, they owed no tax and, therefore, their declaratory relief action did not attempt to enjoin or prevent the collection of a tax.
On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, we give the complaint a reasonable interpretation and treat the demurrer as admitting all material facts properly pled. We do not, however, assume the truth of contentions, deductions or conclusions of law. When a demurrer has been sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. When it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment. If it can be cured, the trial court has abused it discretion and we reverse. If it cannot be cured, there has been no abuse of discretion and and we affirm. (Singhania v. Uttarwar (2006) 136 Cal.App.4th 416, 425-426.)
A. Law
1. Constitution and Revenue and Taxation Code
While Williams and Hanes cite liberally to federal law concerning the jurisdictional issues involved here, California legislation and cases fully define the matters at issue.
Article 13, section 32 of the California Constitution states in relevant part: "No legal or equitable process shall issue in any proceeding in any court against this State . . . 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."
Revenue and Taxation Code section 19381 states in relevant part: "No injunction or writ of mandate or other legal or equitable process shall issue in any suit . . . in any court against this state . . . to prevent or enjoin the assessment or collection of any tax under this part."
Revenue and Taxation Code section 19382 in relevant part states: "[A]fter payment of the tax and denial by the [Board] of a claim for refund, any taxpayer claiming that the tax computed and assessed is void in whole or in part may bring an action, upon the grounds set forth in that claim for refund, against the [Board] for the recovery of the whole or any part of the amount paid."
These sections embody the "pay first, litigate later" rule and are based on the important policy that in order to insure the continuation of essential public services, the collection of revenue through taxation must precede any litigation concerning that taxation. (First Aid Services of San Diego, Inc. v. California Employment Development Dept. (2005) 133 Cal.App.4th 1470, 1478.)
To accomplish this end, the sections are "construed broadly" and apply not only to cases that directly prevent or enjoin the collection of taxes but also to "a variety of prepayment judicial declarations or finding which would impede the prompt collection of a tax." (State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 639; First Aid Services of San Diego, Inc. v. California Employment Development Dept., supra, 133 Cal.App.4th at p. 1478; Casey v. Bonelli (1949) 93 Cal.App.2d 253, 255.)
California courts have recognized that under rare and exceptional circumstances when requiring the payment of a tax before an issue involving it can be litigated would result in irreparable injury, the "pay first, litigate later" rule must yield and the issue may be considered. However, to assure the exception does not swallow the rule and defeat the important policy advanced by it, the exceptions "deal primarily with situations where the taxpayer is facing criminal penalties or is forced to endure unwarranted criminal procedures." (Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65, 71, fn. 4.)
A court has no authority to grant relief to a taxpayer when the tax in question has not been paid. In the broad sense of the term, therefore, the court has no jurisdiction to grant the relief sought. (Milhous v. Franchise Tax. Bd. (2005) 131 Cal.App.4th 1260, 1267.)
2. Civil Code
Civil Code section 1485 states: "An obligation is extinguished by an offer of performance, made in conformity to the rules herein prescribed, and with intent to extinguish the obligation."
Civil Code section 1427 states: "An obligation is a legal duty, by which a person is bound to do or not do a certain thing."
Civil Code section 1428 states: "An obligation arises either from: [¶] One−The contract of the parties; or, [¶] Two−The operation of law. An obligation arising from the operation of law may be enforced in the manner provided by law, or by civil action or proceeding."
Civil Code section 1501 states: "All objections to the mode of an offer of performance, which the creditor has an opportunity to state at the time to the person making the offer, and which could be then obviated by him, are waived by the creditor, if not then stated."
B. Discussion
1. Jurisdiction
The trial court correctly concluded that the "pay first, litigate later" rule embodied in article 13, section 32 of the California Constitution and Revenue and Taxation Code section 19381 denied it subject matter jurisdiction over this case. Williams and Hanes attempt to artfully write themselves around the prohibition by arguing that they do not seek a declaration to avoid the payment of a tax but merely a declaration that no tax obligation exists because it was extinguished by their unobjected to offer of performance.
As noted, the "pay first, litigate later" rule is broadly construed to advance the important policy of maintaining necessary government revenue and applies to any action that impedes the prompt collection of a tax. Whatever the merit of Williams and Hanes's core claim with regard to the extinguishment of their tax obligations, a judicial determination of its merit was required. The California Constitution and the Revenue and Taxation Code clearly require that taxpayers pay taxes before a court may determine whether the payment was required in whole or in part.
Williams and Hanes argue they come within exceptions to the "pay first, litigate later" rule. They claim irreparable injury in the possibility they could be charged criminally with a failure to pay their taxes. They do not assert they have been charged in this state with criminal offenses related to that failure. It appears there was no impediment to them paying their taxes and then litigating the claimed extinguishment of their tax obligation.
Williams and Hanes also argue the "pay first, litigate later" rule does not apply when it is certain the taxpayer will prevail in his action. As we will discuss, whatever the application of that exception, it is anything but certain that taxpayers will prevail on their claim.
2. Extinguishment of Tax Obligations
Williams and Hanes assert the following remarkable proposition: A taxpayer may condition the payment of a tax on the government answering questions put to it by the taxpayer. If the government does not either answer the question or specifically reject that condition of performance, then pursuant to various provisions of the Civil Code the tax is extinguished.
We treat the question as one of statutory interpretation. The California Constitution contains over 38 sections dealing with taxation. (Cal. Const., art. 13.) The Legislature has created a complex and detailed Revenue and Taxation Code that contains over 60,000 sections. The Revenue and Taxation Code contains detailed provisions concerning taxation, the cancellation of illegal taxes, agreement with the Board concerning the payment of taxes, and compromises concerning the payment of taxes and the nonpayment of taxes. (See, e.g., §§ 19431, 19441, 19442, 19443.)
The question is whether in enacting the California taxation system it was the intent of the Legislature to allow a taxpayer to circumvent the complex, detailed and revenue-protecting taxation system defined in the Revenue and Taxation Code by making an offer to perform under Civil Code section 1485 et seq.
Williams and Hanes note that nothing in the Revenue and Taxation Code states its provisions concerning agreements and compromises are the exclusive means of handling tax obligations. Undoubtedly, it never occurred to the Legislature that any such statement was necessary. It is a rule of statutory construction that a general legislative provision is controlled by one that is special. The latter is treated as an exception to the former. A specific provision relating to a particular subject will govern in respect to that subject. This is true even though the general would be broad enough to include the subject to which the more general provision relates. (People v. Superior Court (Jimenez) (2002) 28 Cal.4th 798, 808.)
We conclude it was the obvious intent of the Legislature that every aspect of taxation would be controlled by the Revenue and Taxation Code and that Civil Code provisions dealing with obligations in general are not applicable to the collection of taxes.
The judgment is affirmed.
WE CONCUR: MCCONNELL, P.J., NARES, J.