Hotel Del Coronado Corp. v. Employment Development Department
HOTEL DEL CORONADO CORPORATION, and v. EMPLOYMENT DEVELOPMENT DEPARTMENT, and
- Area
- civil
- Panel
- Howard B. Wiener (author)
Analysis
The trial court granted summary judgment in favor of the Employment Development Department, rejecting the Hotel's argument that the repeal of the statute establishing its tax liability eliminated its obligation to pay previously assessed taxes. The Court of Appeal affirmed the judgment, holding that the repeal did not retroactively extinguish liability that had already accrued prior to the repeal.
| Ruling reviewed | Standard | The court | The model |
|---|---|---|---|
Summary judgment in favor of the Employment Development Department regarding the validity of the unemployment tax assessment despite the subsequent repeal of Unemployment Insurance Code section 681.“The court rejected Hotel Del’s assertion that the repeal of section 681 eliminated its liability for the assessments made before the date of repeal and denied its motion for summary judgment. The court granted the Department’s motion.” | de novo | correct | agree with court The appellate court correctly applied the principle that the repeal of a tax statute does not retroactively extinguish liability for taxes that had already accrued and become due prior to the repeal. The court distinguished between the existence of liability and the mechanisms for collection, noting that the Hotel's liability was established under section 681 before it was repealed, and the repealing statute did not expressly forgive prior liabilities. This aligns with the general rule against retroactive application of statutes absent clear legislative intent. |
Authorities
- relied: Aetna Cas. & Surety Co. v. Ind. Acc. Com. (1947) 30 Cal.2d 388 — Statutes are presumed not to operate retroactively unless there is express statutory language or a clear implication of legislative intent to that effect.
- relied: Southern Service Co., Ltd. v. Los Angeles (1940) 15 Cal.2d 1 — Payment of taxes under protest is not considered an involuntary payment for the purpose of recovering illegally collected taxes in the absence of a specific statutory right to a refund.
The appellate opinion: sound — The opinion is sound because it correctly distinguishes between the accrual of tax liability and the subsequent repeal of the authorizing statute, applying the well-established presumption against retroactivity. It effectively addresses the plaintiff's reliance on Southern Service by distinguishing the facts (voluntary payment of legal taxes vs. illegal taxes) and concluding the case does not support the plaintiff's position.
The trial court denied Hotel del Coronado's motion for summary judgment and granted the Employment Development Department's cross-motion, rejecting the hotel's claim that the 1983 repeal of Unemployment Insurance Code section 681 extinguished its liability for a 1981 assessment of unreported musicians' wages for 1978-1980 and entitled it to a refund of taxes paid under protest. The Court of Appeal affirmed, holding that liability accrued quarterly under section 1110 before repeal, that section 1703 governs lien perfection and collection rather than liability, that the repeal was not retroactive, and that Southern Service Co. v. Los Angeles did not require a different result.
| Ruling reviewed | Standard | The court | The model |
|---|---|---|---|
Grant of summary judgment to the Department and denial of Hotel Del's motion on the ground that the repeal of section 681 did not eliminate liability for pre-repeal assessments“The court rejected Hotel Del’s assertion that the repeal of section 681 eliminated its liability for the assessments made before the date of repeal and denied its motion for summary judgment. The court granted the Department’s motion.” | de novo | correct | agree with court The question was purely one of statutory construction on undisputed facts, so independent review was appropriate even though the opinion does not state the standard. Section 1110 made contributions due and payable the first day of the month after each quarter, so liability for 1978-1980 wages accrued long before the January 1, 1983 repeal; the repealing act contained no forgiveness language, and the presumption against retroactivity (Aetna) supports reading the repeal prospectively. The result is correct, though the court did not address the common-law rule that repeal of a statute without a saving clause abates pending proceedings based on it (Governing Board v. Mann), which was the doctrinal home of Hotel Del's argument and is subject to a vested-rights exception that would likely cover accrued tax liability. |
Rejection of Hotel Del's argument that under section 1703, subdivision (b) the taxes never became 'due and payable' because no return was filed and the assessment was not final before repeal“While we concede the creativity of Hotel Del’s argument, it is incorrect. Hotel Del fails to distinguish the significant difference between its liability and collection mechanisms which may exist to insure collection of the amount of money representing its liability.” | de novo | correct | agree with court Section 1703 by its terms concerns when an unpaid amount becomes a perfected and enforceable state tax lien; it is a collection device, while section 1110 fixes when contributions are due and payable and become delinquent. Reading section 1703(b) as the exclusive measure of when liability arises would make every contested assessment nonexistent until final, contrary to section 1110 and to the structure of the Code. The court's liability/collection distinction is sound, and because the taxes were already paid, collection mechanisms were irrelevant. |
Rejection of Hotel Del's contention that Southern Service Co. v. Los Angeles required reversal“Hotel Del nonetheless insists that Southern Service Co., Ltd. v. Los Angeles (1940) 15 Cal.2d 1 [97 P.2d 963] requires reversal. Hotel Del’s reliance on Southern Service is misplaced.” | de novo | correct | agree with court Southern Service addressed whether a taxpayer could recover illegally collected taxes voluntarily paid where a later amendment barred such refund suits; it held that payment under protest is not involuntary and that absent a statutory refund right only taxes paid under duress are recoverable. Nothing in it suggests that repeal of a taxing statute retroactively erases accrued, lawfully assessed liability; if anything, its treatment of voluntary payment cuts against the taxpayer here. The court correctly found it inapplicable. |
Authorities
- relied: Aetna Cas. & Surety Co. v. Ind. Acc. Com. (1947) 30 Cal.2d 388 — Statutes are presumed to operate prospectively absent express language or a clear implication of legislative intent that they apply retroactively.
- relied: Southern Service Co., Ltd. v. Los Angeles (1940) 15 Cal.2d 1 — Payment of taxes under protest is not involuntary payment; absent a statutory refund right, only illegal taxes paid under duress, coercion or compulsion are recoverable; distinguished as involving illegal taxes and a statutory bar to refund suits.
- missed: Governing Board v. Mann (1977) 18 Cal.3d 819 — Repeal of a statute without a saving clause terminates pending actions or proceedings based on it unless vested rights would be impaired; the court should have addressed this doctrine, which frames Hotel Del's argument, and explained why accrued tax liability falls within the vested-rights exception.
The appellate opinion: sound with gaps — The opinion reaches the correct result by distinguishing accrued liability under section 1110 from the lien and collection provisions of section 1703, invoking the presumption against retroactivity, and properly distinguishing Southern Service. It does not state the standard of review and never engages the established California rule that repeal of a statute abates pending proceedings absent a saving clause or vested rights, which was the strongest doctrinal footing for the taxpayer's position and deserved an express answer.
Opinion — Wiener
Opinion
WIENER, Acting P. J.Plaintiff Hotel del Coronado Corporation (Hotel Del) appeals a summary judgment in favor of Employment Development Department of the State of California (Department). We affirm.
I
On April 28, 1981, the Department levied an assessment of $8,084 for unemployment tax contributions pursuant to Unemployment Insurance *61Code section 11311 on the Hotel Del. The amount of the assessment represented unreported wages of musicians for the period January 1, 1978, to September 30, 1980. The assessment was authorized under section 681 which made certain musicians the statutory employees of the person utilizing their services under certain prescribed conditions.2 Section 681 was later repealed (Stats. 1982, ch. 1215, § 3, p. 4505, eff. Jan. 1, 1983).
On February 12, 1982, Hotel Del petitioned for review of this assessment under section 1222. Following a hearing the administrative law judge rejected Hotel Del’s argument that the repeal of section 681 estopped the Department from pursuing assessments made before the date of repeal. Hotel Del unsuccessfully appealed this decision to the California Unemployment Insurance Appeals Board.
Hotel Del then filed this action seeking a refund of the taxes it had paid under protest. Both parties moved for summary judgment. The court rejected Hotel Del’s assertion that the repeal of section 681 eliminated its liability for the assessments made before the date of repeal and denied its motion for summary judgment. The court granted the Department’s motion. This appeal ensued.
II
The Department determined Hotel Del filed deficient unemployment tax contributions for the period January 1, 1978, through September 30, 1980. Accordingly it assessed deficiencies against Hotel Del for that period. At the time of the assessment in 1981 section 1110 required the taxpayer to pay such taxes as follows: “(a) Employer contributions . . . are due and payable on the first day of the calendar month following the close of each calendar quarter and shall become delinquent if not paid on or before the last day of that month.” Thus under the statute it is clear Hotel Del was liable for the unpaid taxes during the period from April 1, 1978, through October 1, 1980.
*62The Hotel Del says it has no liability because of the application of section 1703, subdivisions (a) and (b),3 explaining the taxes never became “due and payable” under section 1703, subdivision (a) because neither of the events prescribed by section 1703, subdivision (b)(1) or (b)(2) occurred. It did not file a return showing amounts due and the assessment had not become final. Accordingly, because the statute authorizing the tax no longer exists, Hotel Del claims it is entitled to a refund.
While we concede the creativity of Hotel Del’s argument, it is incorrect. Hotel Del fails to distinguish the significant difference between its liability and collection mechanisms which may exist to insure collection of the amount of money representing its liability. Although there may be some situations in which the issue of liability becomes irrelevant because of practical problems associated with collection, there is still a considerable difference between these concepts. It is indeed possible to have liability without collection. Here collection is no problem because the taxes have already been paid.
In this case section 681 established Hotel Del’s liability before it was repealed. The enactment providing for the repeal did not provide for a forgiveness of all earlier tax liability and the elimination of the department’s earlier assessments. The fact the taxpayer challenged the assessment is beside the point. Even though Hotel Del initially attacked the validity of section 681 that issue was not resolved at trial and is not questioned here.
If later repeal of a tax statute could vitiate all earlier liability the typical taxpayer would have little incentive to timely pay his or her taxes. The taxpayer would opt in favor of a challenge and delayed payment approach with the hope—perhaps naive—that the underlying statute establishing liability would be later repealed or modified for the benefit of the taxpayer. Simply stated, acceptance of Hotel Del’s position would create havoc in our tax system.
Hotel Del’s argument would also result in the retroactive application of the repealing enactment, a disfavored interpretation of the statute (Sutherland, Statutory Construction (4th ed. 1986) § 41 et seq.) contrary to the general rule which precludes retroactivity lacking either express statutory *63language or a clear implication of legislative intent to that effect. (Aetna Cas. & Surety Co. v. Ind. Acc. Com. (1947) 30 Cal.2d 388, 393 [182 P.2d 159].)
Hotel Del nonetheless insists that Southern Service Co., Ltd. v. Los Angeles (1940) 15 Cal.2d 1 [97 P.2d 963] requires reversal. Hotel Del’s reliance on Southern Service is misplaced.
In Southern Service the plaintiff sued to recover taxes alleged to have been illegally collected for the tax year 1933-1934 which the taxpayer had voluntarily paid. Unfortunately for the taxpayer a later amendment to the statute precluded a suit for a refund for taxes voluntarily paid. The court held that payment of taxes under protest was not an involuntary payment. (15 Cal.2d at p. 6.) The court also stated “in the absence of such statute only illegal taxes paid under duress, coercion or compulsion are considered to have been involuntarily paid and therefore recoverable.” (At p. 7.) Lacking an express statutory right, the taxpayer had no right to obtain a refund for the taxes voluntarily paid. (At pp. 11-12.) The case before us involves legal taxes voluntarily paid. Southern Service either supports our conclusion or is simply inapplicable. In any event it does not require a contrary holding.
Disposition
Judgment affirmed.
Work, J., and Todd, J., concurred.
All statutory references are to the Unemployment Insurance Code of the State of California unless otherwise specified.
Where the entity providing the musicians’ services did not have a federal employer number and a reserve account, the purchaser of such services became the employer provided (1) the services of the musicians were performed for a period in excess of one day; (2) the purchaser had a federal employer number and a reserve account established in the unemployment fund; and (3) no other person paid unemployment insurance taxes for the musicians employed under the agreement. (See Stats. 1974, ch. 738, § 2, pp. 1635-1636.)
Section 1703, subdivision (a) provides, “If any employing unit... fails to pay any amount imposed under this division at the time that it becomes due and payable, the amount thereof ... shall... be a perfected and enforceable state tax lien____”
Section 1703, subdivision (b) provides, “... amounts are due and payable on the following dates: (1) For amounts disclosed on a return received by the director, the date of the notice by the director to the taxpayer of the amount due; (2) For all other amounts, the date the assessment is final.”
Cites, in this corpus
- Aetna Casualty & Surety Co. v. Industrial Accident Commission S. F. 17417; S. F. 17418; S. F. 17419; S. F. 17420; S. F. 17421; S. F. 17422; S. F. 17423; S. F. 17424; S. F. 17425; S. F. 17426; S. F. 17427; S. F. 17428; S. F. 17429 · 1947-06-26
- Southern Service Co. v. County of Los Angeles L. A. 16598 · 1940-01-02