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District Court of Appeal, Third District, California.


Civ. 7563.

Decided: March 28, 1949

Adrian A. Kragen and Loeb & Loeb, all of Los Angeles, Downey, Brand, Seymour & Rohwer, of Sacramento, and T.B. Richardson, of Oakland, for appellant. Fred N. Howser, Atty. Gen., James E. Sabine, Deputy Atty. Gen., and Irving H. Perluss, of Sacramento, for respondent.

This is an action brought by the state to recover use tax allegedly due and owing from the defendant under the Use Tax Act of 1935, Stats.1935, p. 1297, for the period from July 1, 1935 to March 31, 1937. Defendant's answer generally denied liability therefor, and as a separate defense alleged that by reason of the statute of limitations contained in section 15 of said act, now section 6487 of the Revenue and Taxation Code, the action was barred. After a hearing in the trial court upon a stipulation of facts, judgment was entered in favor of the state, and from the judgment so entered defendant has appealed.

From the record before us it appears that the Universal Film Exchanges, Inc., is a foreign corporation engaged in business in the State of California; that on March 20, 1946, a use tax determination was made by the State Board of Equalization (hereinafter referred to as the Board) with respect to the use or shortage of prints of motion pictures, certain office supplies and film equipment during the period from July 1, 1935 to and including March 31, 1937, or approximately ten years prior to the commencement of these proceedings; that the defendant petitioned the Board for a re-determination of the tax, which petition was denied, and that during the period referred to, the defendant filed the returns in question upon a form prepared by the Board and denominated “Sales Tax and Use Tax Return.”

The form upon which the returns were made consist of two parts, both of which appear in sequence on one page and include eleven items of information showing the figures from which both taxes are computed. The first six of these items which are also numbered in sequence appear under the title “Computation of Retail Sales Tax” and the remaining five appear under the heading “Computation of Use Tax”; Item 6 is entitled “Retail Sales Tax due and payable *”; Item 10 is entitled “Amount of use tax required to be collected”; and Item 11 is entitled “Total amount of tax due and payable (Item 6 plus Item 10)”. In the returns filed by defendant the only entries appear in items 1 to 6, inclusive, under the sales tax sub-heading. No entry, notation or mark of any kind appears after the items listed under the use tax sub-heading, except in Item 11, wherein defendant entered the same figures as were entered in Item 6, the amount shown to be due for sales tax.

The stipulation of facts further discloses that from July 1, 1935 to October 20, 1943, it was the practice of the section of the Board which audited Sales and Use Tax Returns to treat the filing of such a return as is involved herein as a return of both sales and use tax; that during such period the Board issued no notice of determination that such a return as was so filed by defendant was not a Sales and Use Tax Return within the meaning of the applicable statute, Section 7 of the Use Tax Act, Revenue and Taxation Code, § 6451 et seq.; but that after an opinion of the Attorney General dated October 21, 1943, which stated that the filing of a return on which there was no information or notation entered under the sub-heading “Computation of Use Tax” was not a return of use tax, the practice of the Board was changed, and such a return was considered as one of sales tax only. Thereafter a notation which indicated either none or zero in such lines was a sufficient notation within the administrative practice of the Board. The parties further stipulated that the returns were filed by defendant in good faith with no intent to evade or avoid payment of either sales or use tax.

The sole question presented for decision to the lower court and to this court on appeal is whether or not the filling in of the form in the aforesaid manner constituted a return of both sales and use taxes or was a return of sales tax only. The parties agree that if it is to be regarded as a return of sales tax only then the three year statute of limitations, Section 6487, Rev. & Tax Code, did not bar this action to recover use tax for the period involved, in that under such interpretation no use tax return would have been made and hence the statute would have been tolled during such period, but if it is regarded as a return of both sales and use taxes the action is barred.

In support of its main contention, that the trial court committed error in holding that the return filed was not a return of both taxes, appellant argues that the Board was authorized to prescribe a single form for the combined return of sales and use tax; that the form prescribed is denominated “Sales Tax and Use Tax Return”; that line 11 thereof accumulates the total of the two tax liabilities in a single item “Total amount of tax due and payable”, and that the certificate which the taxpayer is required to sign constitutes a statement by the taxpayer “that the statements made and the figures shown herein and in any accompanying schedules are to the best of my knowledge and belief a true and complete return, made in good faith for the period stated, pursuant to the Retail Sales Tax Act of 1933 and the Use Tax Act of 1935”. (Italics ours.) From the foregoing appellant concludes that the form prescribed by the Board constituted a single, inseparable return of sales and use tax and not two separate returns, each of which was required to be completed as if it were a single and completely separate return, and that the taxpayer, by leaving blank the items under the computation of the use tax, impliedly alleges that he has no use tax liability.

Appellant refers to the action by the audit section of the Board in treating the filing of a return in the manner and form of the return herein involved and the apparent approval thereof by the Board as being a return on both sales and use tax liabilities. Such practice, it contends, is consistent with the supplementary nature of the two taxes and of aid in construing the provisions of Section 7 of the Use Tax Act and Section 9 of the Sales Tax Act, supra, Revenue and Taxation Code, § 6451 et seq., in regard to the filing of returns.

Paraphrasing the court in Douglas Aircraft Co. v. Johnson, 13 Cal.2d 545, 549, 90 P.2d 572, the adoption by the legislature of these two taxes constitutes a comprehensive taxing program applicable to the sale, use, storage, or consumption of personal property, each taxing privileges not taxed by the other and both of which are mutually exclusive. While the taxes thus complement each other it does not follow therefrom nor from the fact that as the Board has prescribed a form enabling the taxpayer to report both tax liabilities on a single form, that the furnishing of information as to one tax thereby renders the form a return of both tax liabilities. The applicable statutes require a return as to each tax liability, and while the Board has prescribed a single form it is clear that the form itself provides for the separate computation of each tax, and has not, therefore, attempted to change the exclusive character of the two taxes.

Section 7 of said Use Tax Act of 1935, wherein the information specifically required in the return is set forth, states that it shall be in such form as may be prescribed by the Board “showing the total sales price of the tangible personal property sold by the retailer during such preceding quarterly period, the storage, use or consumption of which is subject to the tax imposed by this act *”. (Italics ours.) Section 9 of the Sales Tax Act of 1933 contains similar language in regard to the return of sales tax. In view of this language it seems clear that the inference drawn by appellant from the fact that by leaving completely blank the items on the form relating to the computation of the use tax thereby impliedly stated that it had no use tax liability cannot be sustained.

The determination as to whether or not a taxpayer has use tax liability can be made only from the facts of each particular case, and hence it would appear that the foregoing language of said Section 7 should be interpreted as requiring the taxpayer to make an affirmative “showing” of those facts required by said section and upon which liability or non-liability must of necessity depend. This is reasonable and necessary under our system of tax administration based on self-assessment wherein the purpose of a return is not to obtain information in some form but rather to obtain it with sufficient completeness, uniformity and arrangement that the physical task of handling and verifying the returns may be readily accomplished. Whitmore Oxygen Co. v. Utah State Tax Commission, Utah, 196 P.2d 976. While the Board is authorized to prescribe a single form of return to show the combined sales and use tax liability, it is a non sequitur to conclude, as does appellant, that the filling in of such form relating to the computation of sales tax liability also constitutes a return as to the use tax liability where the items pertaining to the computation of such liability are left completely blank. The fact that the Board has made it possible to make a return for both sales and use tax on the same form does not obviate the necessity of furnishing information as to both taxes.

While it is true that appellant signed the certification at the bottom of the form, which states that the form is filed pursuant to the Retail Sales Tax Act of 1933 and the Use Tax Act of 1935, it does not follow that appellant thereby filed a return of use tax liability, since it is also true that in so certifying it stated that “the statements made and the figures shown herein *” were to the best of its knowledge and belief “a true and complete” return (italics ours), which can mean only complete as to both sales and use tax. Hence, where, as here, it subsequently develops that a use tax has accrued, but that return for the period in question is silent as to any basis for the computation thereof, it seems obvious that such a return was and is insufficient within the meaning of the act.

Appellant's final contention that the purpose of the statute of limitations will be defeated if the judgment is not reversed is without merit, since the statute, by its own terms, does not purport to run in the absence of a proper showing, and as that which was filed herein cannot be held to be a return within the meaning of the act, the statute did not run.

In conclusion it should be noted that while the stipulation of facts shows acceptance by the audit section of the Board of returns such as were filed by defendant as returns of both taxes, which action might well have lulled defendant into a false position, there is nothing in the record to show that such conduct was the result of any administrative interpretation or other ruling or regulation of the Board regularly adopted by that body. However, even if the contrary were true, the power delegated to the Board to adopt rules and regulations is not a grant of legislative power nor can it be used to alter or enlarge a legislative enactment nor can the interpretation of a statute be predicated upon an erroneous administrative construction thereof. In the last analysis the final responsibility for the interpretation of the law must rest with the court. Whitcomb Hotel, Inc. v. California Employment Commission, 24 Cal.2d 753, 757, 151 P.2d 233, 155 A.L.R. 405.

The judgment is affirmed.

PEEK, Justice.

ADAMS, P.J., and THOMPSON, J., concur.

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