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District Court of Appeal, First District, Division 1, California.


No. 13928.

Decided: March 16, 1949

John J. O'Toole, City Atty., and Thos. J. Blanchard, Deputy City Atty., both of San Francisco, for respondents. Samuel W. Wicklow, of San Francisco, for appellant.

In an action by plaintiff, a retail seller of alcoholic liquors, to enjoin the collection of certain taxes under an ordinance of the city and county of San Francisco, a general demurrer to the complaint was sustained by the superior court. From the judgment thereon, plaintiff appeals.

The main question presented is the constitutionality of Ordinance No. 4537, adopted in July, 1947, by the board of supervisors, when applied to retailers of intoxicating liquors. This ordinance is one “imposing [an] excise tax on the retail purchase, use or other consumption of tangible personal property, providing for the registration of retailers, for the levy and collection of such tax and prescribing penalties for the violation of the provision [[[[thereof].” The ordinance imposes “an excise tax at the rate of one-half of one per cent of the purchase price * on the purchase by any person of tangible personal property from any retailer in the City and County of San Francisco, and on the use or other consumption of tangible personal property in said City and County purchased from any retailer for use or other consumption therein.” It requires that every retailer making sales of tangible personal property shall, at the time of making such sales, collect the said tax from each purchaser; also, such retailer, before engaging in business, must register with the tax collector and set forth certain data on the registration form. Within five days the tax collector shall issue without charge to the registrant a certificate of authority to collect the tax, which certificate must be displayed in the registrant's place of business. The tax is “due and payable from the purchaser at the time of purchase from a retailer in this City and County or, if not purchased, at the time of using or otherwise consuming tangible personal property in this City and County.” The registrant must keep records in the form prescribed by the tax collector and make quarterly returns. Any violation of the ordinance is made a misdemeanor.

It is contended that insofar as this ordinance attempts to collect a tax from the sale, purchase or use of intoxicating liquor, it is in violation of article XX, section 22, of the Constitution of California, which provides: “The State of California, subject to the Internal Revenue Laws of the United States, shall have the exclusive right and power to license and regulate the manufacture, sale, purchase, possession and transportation of intoxicating liquor within the State *.”

While the ordinance is of general application to all commodities sold, purchased or used within the city and county, we are concerned only with the validity of its application to intoxicating liquors. Its validity depends upon whether the state has reserved to itself exclusively the power attempted to be exercised under this ordinance. The exact question has not been passed on in California. However, somewhat analogous questions have been decided.

In Los Angeles Brewing Co. v. Los Angeles, 8 Cal.App.2d 391, 48 P.2d 71, 73, the city had sought to impose upon and collect from plaintiff company a license tax upon its business of manufacturing and distributing beer and wine within the city. The court, after holding that the power to “license and regulate” necessarily included the power to impose and collect a license tax for revenue, stated 8 Cal.App.2d at page 396, 48 P.2d at page 73: “We therefore conclude that when section 22 of article XX of the Constitution provided that the state ‘shall have the exclusive right and power to control, license and regulate the manufacture, sale, purchase, possession, transportation and disposition of intoxicating liquor within the State’ it took away from the political subdivisions of the state the right to impose a license tax for the purpose of revenue upon any such business.” (Emphasis added.) The ordinance imposing the tax was declared invalid. See Vitale v. City of Los Angeles, 13 Cal.App.2d 704, 57 P.2d 993, to the same effect.

It is interesting to note that the court in the Los Angeles Brewing Co. case, supra, was passing on the provisions of section 22 as it stood in 1933. In 1934 the section was amended and there was added, among other provisions, the following: “The State Board of Equalization shall have the exclusive power to license the manufacture, importation and sale of intoxicating liquors in this State, and to collect license fees or occupation taxes on account thereof *.” “The Legislature shall provide for apportioning the amounts collected for license fees or occupation taxes under the provisions hereof between the State and the cities, counties and cities and counties of the State, in such manner as the Legislature may deem proper.” The reasoning in that case, applied to the section as amended, makes even stronger the position that the state was reserving to itself the power attempted to be used here.

In Roehm v. County of Orange, 32 Cal.2d 280, 196 P.2d 550, the county had assessed as personal property plaintiff's on-sale general liquor license issued by the State Board of Equalization. The court held that such licenses were not to be regarded as personal property for ad valorum taxation purposes because not included in the list of intangibles specified in section 14 of article XIII of the Constitution and in section 111 of the Revenue and Taxation Code. It then stated, 32 Cal.2d at page 290, 196 P.2d at page 556: “Although liquor licenses are not taxable as property and the licensees are not subject to local license or occupation taxes for the selling of intoxicating liquor (Cal. Const. article XX, section 22; Los Angeles Brewing Co. v. Los Angeles, 8 Cal.App.2d 391, 48 P.2d 71), cities, counties, and cities and counties receive substantial revenue from the fees imposed for such licenses.” (Emphasis added.)

In Three G Distillery Corp. v. County of Los Angeles, 46 Cal.App.2d 498, 116 P.2d 143, plaintiff brought suit against the county to recover taxes assessed and paid on a large amount of intoxicating liquors stored in its distillery and warehouse. The court upheld the power of the county to levy such a tax because article XX, section 22 of the Constitution made no mention of “ownership” of intoxicating liquors. The court said, 46 Cal.App.2d at page 502, 116 P.2d at page 145: “The very fact that article XX, section 22, reserves to the state the exclusive right and power to license and regulate ‘the manufacture, sale, purchase, possession and transportation of intoxicating liquor within the State’ and the significant failure to include as well the power to license and regulate the ownership thereof, i.e., omission of a reservation of power to the state with regard to the common and usual basis of assessment and taxation, is most significant against appellant's contention herein that the reservation also includes a reservation of the power to tax.” It is apparent from this decision that had the section included the word “ownership” with “manufacture, sale, purchase,” etc., the tax would not have been upheld.

In California it has uniformly been held that the power to license and regulate includes the power to impose privilege or occupation taxes even for revenue only. Ex parte Frank, 52 Cal. 606, 28 Am.Rep. 642, stated that a statute giving the board of supervisors of San Francisco the power to license and regulate “callings, trades, and employments” 52 Cal. at page 609, included the power to exact license fees for purposes of revenue, although it held the ordinance imposing a “Sample–Sellers' Ordinance” void on other grounds.

In Re Nowak, 184 Cal. 701, 195 P. 402, the contention was made that the city of Los Angeles did not have the power under its charter to levy an occupation tax upon retail grocers. It was contended that the charter expressly restricted the city's power in this respect to licensing and regulating. The court upheld the tax holding that a grant by the Legislature of authority to “license and regulate” includes “authority to impose a license tax for revenue only.” 184 Cal. at page 705, 195 P. at page 403.

The decision in Re Galusha, 184 Cal. 697, 195 P. 406, is not contrary to our holding. There, the court held that the state had delegated to municipalities “the power to impose a tax for the privilege of following the practice of the profession.” 184 Cal. at page 699, 195 P. at page 407, of law, by a provision in the Los Angeles charter which provided that the city might “license and regulate * any lawful business or calling” and that “the power ‘to license and regulate’ includes the power to impose a tax for revenue purposes only.” 184 Cal. at page 700, 195 P. at page 407.

City of Coos Bay v. Aerie No. 538, 179 Or. 83, 170 P.2d 389, held that the authority granted to the city by the Oregon Legislature to impose an occupational or privilege tax did not include the right to levy such tax upon a bona fide social club, on the ground that such a club is not a “business.” The court at some length stated that the ordinance requiring an occupational tax from retail liquor dealers was not repugnant to the Oregon Liquor Control Act, which provided for the issuance of liquor licenses, and that the control act was purely a regulatory measure involving the exercise of the police power. There was no constitutional question involved, as the court held that by the enactment of the prohibition amendments to the state Constitution, the original section dealing with intoxicating liquors had been repealed and was not revived by the repeal of the amendments. This holding as well as that in Bardon v. Nudelman, 369 Ill. 214, 15 N.E.2d 836, 117 A.L.R. 683, referred to in the Coos Bay case (and in which likewise no constitutional question was involved), is directly contrary to that in Los Angeles Brewing Co. v. Los Angeles, supra, 8 Cal.App.2d 391, 48 P.2d 71, and hence must be disregarded. That a city occupational tax on liquor retailers is invalid in California is impliedly recognized by defendants, by the fact that they insist that the tax here is not an occupational one, but is one on the purchaser alone.

Section 22 gives the state the exclusive power to license and regulate the sale and purchase of intoxicating liquor within the state. The tax here is imposed upon the privilege of selling or purchasing intoxicating liquor in San Francisco, which power is expressly reserved to the state under its exclusive power to license and regulate such purchase and sale. The state has the right to levy such tax but not a municipality. It is not and could not be contended that the mere failure of the state to exercise this power reserved to it, grants the municipality such power.

Defendants contend that the tax here is a municipal affair and that the power to impose it is conferred on the municipality by section 6, article XI, of the Constitution, and site the following language in West Coast Advertising Co. v. San Francisco, 14 Cal.2d 516, 524, 95 P.2d 138, 143: “No doubt is entertained upon the proposition that the levy of taxes by a municipality for revenue purposes, including license taxes, is strictly a municipal affair.” To the same effect, Ex parte Braun, 141 Cal. 204, 74 P. 780. This same argument was made in Los Angeles Brewing Co. v. Los Angeles, supra. The court said that prior to the operative date of section 22 of article XX of the Constitution the licensing of businesses within a chartered city for the purpose of revenue had always been held to be a municipal affair, citing section 6 of article XI, but then went on to say: “There is no precise, lasting, and inflexible definition of a municipal affair. Changes in the circumstances of life may transfer that which is strictly a municipal affair today into something of general state-wide concern tomorrow. [Citing cases.] It is logical to conclude that in adopting section 22 of article 20 of the Constitution the people intended to and did change the power to impose a license tax for revenue upon those engaged in the liquor business from a municipal affair to one of general state-wide concern, and therefore removed such power from the protection of section 6 of article 11 of the Constitution when they gave the state ‘exclusive right and power to control, license and regulate’ such business.”

Defendants further argue that the exclusive power reserved by the state under section 22 is primarily a police power, and quote language in Yosemite Park & Curry Co. v. Collins, D.C., 20 F.Supp. 1009, to the effect that the primary purpose of California's Alcoholic Beverage Control Act “is the regulation of the intoxicating liquor business” and that the measure “cannot bestow upon California the power to collect license taxes from plaintiff for the importation and sale of liquors.” 20 F.Supp. at page 1015. This language, however, was based not upon a construction of either section 22 or the Alcoholic Beverage Control Act but upon the holding that any exercise of police or other power within Yosemite Park was beyond the jurisdiction of the state, jurisdiction of the park having been assumed by the United States in 1902. But if the language in the Yosemite Park case is to be given the construction placed upon it by defendants, it is contrary to the holding in the later case of Empire Vintage Co. v. Collins, 40 Cal.App.2d 612, at page 620, 105 P.2d 391, at page 395, where the court stated: “Bearing in mind that the Act of 1935 [the Alcoholic Beverage Control Act] was a revenue act, that the very gist of it was to collect revenue *.”

Cases cited by defendants such as Wiggins Ferry Co. v. East St. Louis, 107 U.S. 365, 2 S.Ct. 257, 27 L.Ed. 419, and Ramaley v. City of St. Paul, 226 Minn. 406, 33 N.W.2d 19, to the effect that immunity and exemption from taxation are not to be presumed, have no application here, as this is not a question of either immunity or exemption from taxation, but rather whether the state has reserved to itself the exclusive right to tax.

Defendants call the tax in question an excise, purchase and use tax, and point out that it is purely for revenue purposes covering all lines of retail business within the the city, and that retailers of intoxicating liquors become subject to it, not because they sell intoxicating liquor, but because they sell tangible personal property. What the tax is called is unimportant, but even under defendants' own definition the tax is imposed because plaintiff sells a certain type of tangible personal property, to wit, alcoholic liquors, and as before pointed out, the Constitution reserves the licensing and regulation of the sale and purchase of intoxicating liquors, and such reservation includes the right to tax.

The retailer of intoxicating liquors is in a different category than other retailers. The fees or taxes which he pays to the state under the liquor control act are returned in some degree to the city and county. The fact that other retailers who are not in his classification are subject to the San Francisco tax does not in any way affect the power of the state to reserve to itself all taxation concerning the purchase and sale of the commodity which the liquor retailer dispenses.

Defendants say further that the tax is not on the retailer but on the purchaser, and therefore is neither a license nor an occupational tax, citing Mouledoux v. Maestri, 197 La. 525, 2 So.2d 11, and Blauner's, Inc., v. Philadelphia, 330 Pa. 342, 198 A. 889. These cases held that a retail sales tax imposed by a municipality is not a tax on the retailer but on the purchaser. However, California has not adopted that theory in connection with sales taxes. The Retail Sales Tax Act, Stats.1935, pp. 1252, 1253, sec. 3 provides “For the privilege of selling tangible personal property at retail a tax is hereby imposed upon retailers *.” As said in De Aryan v. Akers, 12 Cal.2d 781, 783, 87 P.2d 695, 696: “The cases definitely establish that the Retail Sales Tax Act of California imposes an excise tax on the retailer and not on the consumer. They are referred to in National Ice & Cold Storage Co. v. Pacific Fruit Express Co., supra [11 Cal.2d 283, 79 P.2d 380], and other decisions. [[[Citing cases.] In view of those decisions the question is no longer an open one.” Again the reservation includes purchase as well as sale.

The ordinance, in its application to those engaged in the liquor business, is invalid in another respect. It attempts to impose certain regulations which conflict with the power to regulate reserved to the state under section 22. The retailer is required to register with the tax collector, procure a certificate of authority to collect the tax, display it prominently in his store, to keep records, receipts, invoices and “other pertinent papers” in such form as required by the collector, make quarterly returns, and is guilty of a misdemeanor for violating any provision of the ordinance, or failing to render a return, or a supplemental return, if required by the collector. In Standard Oil Co. v. Brodie, 153 Ark. 114, 239 S.E. 753, the court said that a state tax on the purchase of gasoline was twofold: (1) to impose a tax on the purchaser of gasoline, and (2) to regulate the business of the dealer by requiring him to collect the tax and pay it over to the county treasurer. In discussing a Washington sales tax in Morrow v. Henneford, 182 Wash. 625, 47 P.2d 1016, page 1020, the court said: “It is within the legitimate power of the Legislature to impose the duty of collecting upon the retailer as a reasonable regulation of his business.”

Cases like McGoldrick v. Berwind–White Co., 309 U.S. 33, 60 S.Ct. 388, 84 L.Ed. 565, 128 A.L.R. 876, and Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62, 59 S.Ct. 376, 83 L.Ed. 488, cited by defendants as holding that sales taxes are not regulatory, in the sense we are considering here, do not so hold. In the McGoldrick case the court was considering a sales tax of the city of New York in its relation to the commerce clause of the United States Constitution. It held that its only relation to interstate commerce was the fact that immediately preceding transfer of possession to the purchaser, the merchandise had been transported in interstate commerce and “brought to its journey's end.” 309 U.S. at page 49, 60 S.Ct. at page 394, 84 L.Ed. 565, 128 A.L.R. 876, and that the tax was valid and not an undue burden on interstate commerce. The same is true of the decision in the Felt case, where the court refused to find that the California Use Tax Act did not interfere with interstate commerce as the tax was “ ‘upon the privilege of use after commerce is at an end.’ ” 306 U.S. at page 67, 59 S.Ct. at page 378, 83 L.Ed. 488.

Plaintiff May Question the Validity of the Ordinance.

Defendants contend that plaintiff is not entitled to question the validity of the ordinance because the tax is paid by the purchaser. Among other cases cited by defendants on this point is Meyer Const. Co. v. Corbett, D.C., 7 F.Supp. 616. There plaintiffs were contractors having contracts with the United States to construct certain buildings at the Hamilton Field bombing base. They sued the California State Board of Equalization raising the constitutionality of the Retail Sales Tax Act as it applied to materials purchased for use at Hamilton Field. The court held that they could not raise the issue that the act affects the United States as they were not an agency or instrumentality of it; secondly, that the act was a tax on the retailer and not on the consumer, and as plaintiffs were not retailers they were not proper persons to be heard. The court went on to say 7 F.Supp. at page 618; “If the tax is imposed upon retailers for the privilege of selling tangible personal property at retail, calling for sale and delivery into, or sale in, territory within the exclusive jurisdiction of the federal government, the person whose constitutional right might be affected is the retailer whose privilege of doing a retail business is being taxed.” In view of our holding that the tax here is one on the privilege of selling intoxicating liquors, this case is authority for the proposition that plaintiff is a proper party to contest its validity. Moreover, plaintiff is affected by the many regulations governing the collection of the tax, which are so interrelated with the tax itself that he is entitled to attack the ordinance, even though the consumer is the one who, in fact, pays the tax. In Mountain Timber Co. v. Washington, 243 U.S. 219, 37 S.Ct. 260, 61 L.Ed. 685, Ann.Cas.1917D, 642, the Supreme Court of the United States upheld the right of an employer to attack the validity of a Workmen's Compensation Act, even as to its allegedly unfair application to employees, since the employer's exemption from liability to private action was “an essential part of the legislative scheme.” 243 U.S. at page 234, 37 S.Ct. at page 263.

The judgment is reversed.

BRAY, Justice.

PETERS, P.J., and WARD, J., concur.

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