AGNEW v. STATE BOARD OF EQUALIZATION (1997)

This case presents the question whether a taxpayer is required to pay the accrued interest on the tax deficiency, as well as the tax claimed due and owing, as a necessary precondition for review by the State Board of Equalization of a claim for refund of an alleged overpayment of sales or use tax.

In this case the taxpayer paid the amount of the sales and use tax claimed to be owed.   He then filed an action in the superior court for a declaration neither the applicable constitutional nor statutory provisions expressly required the payment of anything other than the amount of tax claimed to be due as a necessary condition for Board review of a refund claim.   The State Board of Equalization (Board) demurred to the taxpayer's complaint claiming the taxpayer had failed to exhaust his administrative remedies, and as a consequence, both the California Constitution and statutory law prohibited the filing of any legal or equitable action to review the claimed tax deficiency.   The trial court sustained the demurrer without leave to amend and dismissed the action.

We conclude nothing in the constitutional nor statutory provisions requires payment of accrued interest on the tax deficiency-in addition to the tax-as a prerequisite to either review of a claim for refund by the Board, or as a prerequisite to filing an action in the superior court for a declaration of the legality of the Board's de facto policy of requiring payment of both tax and accrued interest as a prerequisite to taking action on a taxpayer's claim for refund.   Accordingly, we reverse the judgment of dismissal and remand to the trial court with directions to overrule the demurrer.

FACTS AND PROCEEDINGS BELOW

Appellant, Dan J. Agnew, is a resident of the State of Washington.   In 1984 Agnew purchased a 25 percent interest in a thoroughbred racehorse named Hail Bold King. In September 1991, Agnew received a statutory “notice of determination” from the Board of a use tax assessment on the purchase of his interest in Hail Bold King. In October 1991, Agnew filed a petition for redetermination of the assessment.

In April 1992, Agnew received another “notice of determination” with regard to assessment of a sales tax on the sale of syndicate shares of the thoroughbred racehorse Desert Wine. A few weeks later Agnew filed a petition for redetermination of the sales tax assessment for the Desert Wine syndicate sale.

In February 1994, both requests for redetermination were reviewed by the Board's appellate review section.   Staff counsel for the Board issued their decision and recommendation in August 1994, confirming the propriety of the tax assessments.   In June 1995, Agnew sought a hearing before the Board.   On September 7, 1995, the Board issued a statutory “notice of redetermination” and assessed $48,000 in use tax and $64,313.42 in accrued interest for the Hail Bold King transaction.

Later in September 1995, Agnew paid the amount of tax claimed due and owing on the Hail Bold King transaction-as well as the accrued interest-and filed a claim for refund of overpayment of use tax with the Board.¹

Also in September 1995, the Board issued its “notice of redetermination” of unpaid sales taxes in the Desert Wine transaction.   The Board assessed $516,750 as due and owing in sales tax plus $708,648.86 in accrued interest through September 30, 1995.

On October 6, 1995, Agnew paid the full amount of the tax claimed due and owing on the Desert Wine transaction.   He did not, however, pay the interest which had accrued on the tax deficiency.   Agnew then filed a claim for refund for overpayment of sales tax with the Board.²

In November 1995, Agnew filed a first amended complaint for declaratory relief.   Agnew's complaint sought a declaration barring the Board from requiring payment of accrued interest on a sales or use tax determination-in addition to the tax-prior to acting on a taxpayer's claim for a refund of sales or use taxes.   Agnew's complaint alleged the Board's policy of requiring the payment of interest in addition to the tax prior to filing a claim for refund was in contravention of the sales and use tax law and the California Constitution.

The Board demurred to the complaint.   The Board claimed the facts alleged in the complaint failed to state a cause of action because (1) article XIII, section 32 of the California Constitution and section 6931 of the Revenue and Taxation Code preclude any legal or equitable action to prevent or enjoin the collection of sales and use tax;  and because (2) Agnew had failed to exhaust administrative remedies prescribed by the Revenue and Taxation Code prior to filing a lawsuit concerning a tax matter.

Agnew opposed the demurrer.   He claimed neither the constitutional nor statutory provision was a bar to a declaratory relief action because the lawsuit did not impede or prevent the collection of taxes.   He had already paid the tax assessments.   He pointed out his lawsuit was instead directed at the Board's unwritten policy of requiring payment of both taxes and accrued interest prior to reviewing claims for refund and sought a declaration the policy was not authorized by the California Constitution nor the Revenue and Taxation Code.

The trial court sustained the Board's demurrer without leave to amend and dismissed the action.   Agnew appeals from the judgment of dismissal.

DISCUSSION

I. STANDARD OF REVIEW.

 “A demurrer tests the sufficiency of a complaint as a matter of law.  (Buford v. State of California (1980) 104 Cal.App.3d 811, 818, 164 Cal.Rptr. 264.)   The allegations of fact contained in the complaint must normally be accepted as true.  (Strang v. Cabrol (1984) 37 Cal.3d 720, 722, 209 Cal.Rptr. 347, 691 P.2d 1013;  Noguera v. North Monterey County Unified Sch. Dist. (1980) 106 Cal.App.3d 64, 66, 164 Cal.Rptr. 808.)   However, a reviewing court may also consider judicially noticeable facts which the trial court did notice or properly could have noticed, such as government resolutions and other official acts.  (Long Beach Equities, Inc. v. County of Ventura (1991) 231 Cal.App.3d 1016, 1024, 282 Cal.Rptr. 877;  Eldridge v. City of Palo Alto (1976) 57 Cal.App.3d 613, 621, 129 Cal.Rptr. 575, disapproved on other grounds as stated in Agins v. City of Tiburon (1979) 24 Cal.3d 266, 273, 157 Cal.Rptr. 372, 598 P.2d 25.)  ․” (City of Chula Vista v. County of San Diego (1994) 23 Cal.App.4th 1713, 1718-1719, 29 Cal.Rptr.2d 89.)

 “Since the issues here involve the application of a taxing statute to stipulated facts, we are confronted solely with a question of law and are not bound by the trial court's conclusions.  [Citation.]”  (GTE Sprint Communications Corp. v. State Bd. of Equalization (1991) 1 Cal.App.4th 827, 832, 2 Cal.Rptr.2d 441.)

In construing statutes, we must determine and effectuate legislative intent, looking first to the words of the statutes, and giving them their usual and ordinary meaning.  (Lennane v. Franchise Tax Bd. (1994) 9 Cal.4th 263, 268, 36 Cal.Rptr.2d 563, 885 P.2d 976.)   If there is no ambiguity in the language of the statute, the Legislature is presumed to have meant what it said, and the plain meaning of the language governs.   Courts will not interpret away clear language in favor of an ambiguity which does not exist.  (Ibid.)

 Significance should be attributed to every word and phrase of a statute, and a construction which makes some words surplusage should be avoided.  (Seidler v. Municipal Court (1993) 12 Cal.App.4th 1229, 1234, 16 Cal.Rptr.2d 90.)   Nor is a court authorized to insert qualifying provisions and exceptions which have not been expressly included by the Legislature.   In addition, a court may not rewrite a statute to conform to an intention which does not appear in the statutory language.  (California Real Estate Loans, Inc. v. Wallace (1993) 18 Cal.App.4th 1575, 1582, 23 Cal.Rptr.2d 462.)

“[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.”  (Edison California Stores v. McColgan (1947) 30 Cal.2d 472, 476, 183 P.2d 16;  see also Dreyer's Grand Ice Cream, Inc. v. County of Alameda (1986) 178 Cal.App.3d 1174, 1182, 224 Cal.Rptr. 285 [“It is, of course, well settled that in case of doubt statutes levying taxes are construed most strongly against the government and in favor of the taxpayer”].)

We review the issues raised in this appeal with these standards in mind.

II. IT WAS NOT NECESSARY TO EXHAUST ADMINISTRATIVE REMEDIES BEFORE SEEKING A JUDICIAL DETERMINATION OF THE VALIDITY OF THE BOARD'S DE FACTO POLICY OF REQUIRING PAYMENT OF BOTH THE TAX CLAIMED DUE AND OWING AS WELL AS THE ACCRUED INTEREST ON THAT AMOUNT PRIOR TO GRANTING ADMINISTRATIVE REVIEW.

California's sales and use tax law (Rev. & Tax Code, §§ 6001, et seq.) ³ embodies a comprehensive tax system to impose an excise tax on the sale, use, storage or consumption of tangible personal property within the state. (§ 6201.)  “The two taxes, sales and use, are mutually exclusive but complementary, and are designed to exact an equal tax based on a percentage of the purchase price of the property in question.   In essence ‘ “ ‘[a] sales tax is a tax on the freedom of purchase ․ [a] use tax is a tax on the enjoyment of that which was purchased.’ ” '  (Union Oil Co. v. State Bd. of Equalization (1963) 60 Cal.2d 441, 452, 34 Cal.Rptr. 872, 386 P.2d 496, quoting McLeod v. J.E. Dilworth Co. (1944) 322 U.S. 327, 330, 64 S.Ct. 1023, 1025-26, 88 L.Ed. 1304.)”  (Wallace Berrie & Co., Inc. v. State Bd. of Equalization (1985) 40 Cal.3d 60, 66-67, 219 Cal.Rptr. 142, 707 P.2d 204.)

 Our Supreme Court has held on numerous occasions the prompt collection of tax revenue is so vital to the existence of government, “the sole legal avenue for resolving tax disputes is a postpayment refund action.   A taxpayer may not go into court and obtain adjudication of the validity of a tax which is due but not yet paid.”  (State Board of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638, 217 Cal.Rptr. 238, 703 P.2d 1131.)   Moreover, a postpayment refund action does not offend the requirements of the due process clause of the Fourteenth Amendment of the United States Constitution, provided the state affords a meaningful postpayment remedy for taxes paid pursuant to an unconstitutional tax scheme.  (See McKesson Corp. v. Florida Alcohol & Tobacco Div. (1990) 496 U.S. 18, 31-49, 110 S.Ct. 2238, 2247-57, 110 L.Ed.2d 17.) ⁴

The remedy of a postpayment refund action “ ‘is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted.’  (Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283, 165 Cal.Rptr. 122, 611 P.2d 463.)  ‘The fear that persistent interference with the collection of public revenues, for whatever reason, will destroy the effectiveness of government has been expressed in many judicial opinions.  [Citation.]  As was said by Mr. Justice Field in Dows v. City of Chicago, 11 Wall. (78 U.S.) 108, 110, 20 L.Ed. 65, “Any delay in the proceedings of the officer, upon whom the duty is devolved of collecting taxes, may derange the operations of government, and thereby cause serious detriment to the public.” ’ ”  (Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 731-732, 192 P.2d 916.)

“ ‘ “The prompt payment of taxes is always important to the public welfare.   It may be vital to the existence of a government.   The idea that every taxpayer is entitled to the delays of litigation is unreason[able].”   (Springer v. United States [1881] 102 U.S. 586, 594, 26 L.Ed. 253;  cited with approval in People v. Skinner [1941] 18 Cal.2d 349, 355, 115 P.2d 488.)’  (Sherman v. Quinn (1948) 31 Cal.2d 661, 665, 192 P.2d 17.)”   (State Board of Equalization v. Superior Court, supra, 39 Cal.3d 633, 638-639, 217 Cal.Rptr. 238, 703 P.2d 1131.)

Article XIII, section 32 of the California Constitution is the provision which restricts a taxpayer's remedy to a postpayment refund action.   This constitutional provision provides:  “No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof 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, with interest, in such a manner as may be provided by the Legislature.”  (Italics added.)

The Legislature implemented this constitutional provision by enacting section 6931 which states:  “No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against this State or against any officer of the State to prevent or enjoin the collection under this part of any tax or any amount of tax required to be collected.”  (Italics added.)

 Thus, prior to filing a lawsuit to challenge the merits of a tax deficiency assessment and to request a refund of an alleged overpayment of tax, a taxpayer must first exhaust his administrative remedies as a prerequisite to filing suit for refund.  (See, e.g., Philips and Ober Electric Co. v. State Bd. of Equalization (1991) 231 Cal.App.3d 723, 728, 282 Cal.Rptr. 338;  Chahine v. State Bd. of Equalization (1990) 222 Cal.App.3d 485, 489, 272 Cal.Rptr. 56;  Barnes v. State Bd. of Equalization (1981) 118 Cal.App.3d 994, 1001-1002, 173 Cal.Rptr. 742;  see also Shiseido Cosmetics (America) Ltd. v. Franchise Tax Bd. (1991) 235 Cal.App.3d 478, 487-489, 286 Cal.Rptr. 690;  Patane v. Kiddoo (1985) 167 Cal.App.3d 1207, 1213-1214, 214 Cal.Rptr. 9.)

This requires a taxpayer to comply with the procedures designated by the Legislature for filing a valid claim for refund with the Board.  (See § 6902 [claim must be timely];  § 6904 [claim must be in writing and must state the specific grounds on which the claim is founded];  § 6932 [taxpayer may not file suit for refund unless a claim for refund has been filed ];  § 6933 [an action for refund may only be brought on the grounds stated in the claim];  see also, A & M Records, Inc. v. State Bd. of Equalization (1988) 204 Cal.App.3d 358, 368, 250 Cal.Rptr. 915 [no other claim or theory, however valid, may be entertained in a suit for refund].)

 The Board claims the trial court properly sustained its demurrer and dismissed Agnew's complaint because it did not have jurisdiction to grant declaratory relief until after the Board processed his claims for refund.   However, in this case the taxpayer's suit does not challenge the merits of the assessment nor seek a refund of taxes already paid.   Instead, Agnew sought a declaration of the validity of the Board's unwritten policy of requiring payment of both taxes and the accrued interest on those taxes prior to even reviewing a claim for refund.   Because Agnew has already paid the claimed tax deficiencies his declaratory relief action clearly does not “prevent or enjoin” the collection of taxes and the constitutional and statutory prohibitions do not apply in this situation.

Because the point of Agnew's complaint is not to determine the ultimate validity of the assessment, we reject the Board's contention these provisions bar all challenges to the Board's authority prior to completion of the administrative procedures.  (See, e.g., Western Oil & Gas Assn. v. State Bd. of Equalization (1988) 44 Cal.3d 208, 212-214, 242 Cal.Rptr. 334, 745 P.2d 1360 [recognizing even some prepayment challenges may be appropriate for judicial intervention].)

For example, these provisions do not bar actions for declaratory relief to determine the validity of an administrative tax regulation.  (See, Gov.Code, § 11350.) ⁵  As the court stated in Pacific Motor Transport Co. v. State Bd. of Equalization (1972) 28 Cal.App.3d 230, 104 Cal.Rptr. 558, “The policy behind Revenue and Taxation Code section [6931] proscribes judicial interference in the tax collection process.   No sound reason appears why an interested party should not have the question of a tax regulation's validity determined, so long as the tax collector is not hindered in his duties thereby.   State and federal courts are frequently, in one way or another, passing upon the validity of tax regulations after payment of the required tax.   These determinations then affect taxpayers and tax collections in other pending and future cases.   Rather than an impediment, such decisions must be considered as in aid of tax collection, for they tend to add certainty and conclusive legality to the process․”  (28 Cal.App.3d at p. 236, 104 Cal.Rptr. 558, italics in original.)

 Agnew is not seeking a declaration regarding the validity and effect of a specific tax regulation because the Board has not adopted a formal regulation requiring payment of accrued interest as well as the delinquent tax as a necessary precondition to filing a valid claim for refund.   However, the failure to adopt a formal regulation does not immunize the Board from judicial scrutiny of its long-standing de facto policy of requiring payment in full of all taxes, penalties and interest claimed due before it will process a claim for refund.  (See, e.g., Californians for Native Salmon & Steelhead Assn. v. Dept. of Forestry (1990) 221 Cal.App.3d 1419, 1426-1428, 271 Cal.Rptr. 270 [valid declaratory relief challenge to agency's policies alleged to be contrary to statutes, regulations and judicial decisions];  Bess v. Park (1955) 132 Cal.App.2d 49, 53, 281 P.2d 556 [action for declaratory relief proper because it raised a recurring issue involving the interpretations of a statute];  Alameda County Land Use Assn. v. City of Hayward (1995) 38 Cal.App.4th 1716, 1723, 45 Cal.Rptr.2d 752 [“An action for declaratory relief lies when the parties are in fundamental disagreement over the construction of particular legislation, or they dispute whether a public entity has engaged in conduct or established policies in violation of applicable law”].)

 When the taxing authority has adopted a formal regulation, the court gives great weight to the agency's interpretation of its own regulation.   On the other hand, “[w]here the Board has not adopted a formal regulation addressing a particular tax question, its interpretation of the statutes and existing regulations in assessing taxes due is subject to broad judicial review.”  (Wallace Berrie & Co., Inc. v. State Bd. of Equalization, supra, 40 Cal.3d at p. 65, 219 Cal.Rptr. 142, 707 P.2d 204.)   This standard should apply with equal force to judicial review of an issue having no direct impact on the assessment or collection of taxes per se, but only on the procedural aspects of securing review by the Board of a refund claim.

 Nevertheless, declaratory relief actions “may not be used to prevent the state from collecting taxes or, by parity of reasoning, to compel the state to refund taxes.  (Pacific Motor Transport Co. v. State Bd. of Equalization (1972) 28 Cal.App.3d 230, 236, 104 Cal.Rptr. 558.)”  (Woosley v. State of California (1992) 3 Cal.4th 758, 785, fn. 20, 13 Cal.Rptr.2d 30, 838 P.2d 758.) ⁶  Because the present action seeks neither to prevent the collection of tax nor to compel a refund of taxes already paid it does not violate the directives of section 6931 nor the California Constitution.   Accordingly, we conclude, the trial court had jurisdiction to determine the validity of the Board's de facto policy of requiring payment of both tax and accrued interest claimed to be due and owing as a precondition for review of a claim for refund.  (Pacific Motor Transport Co. v. State Bd. of Equalization, supra, 28 Cal.App.3d at p. 237, 104 Cal.Rptr. 558 [if a complaint is sustainable on any theory it is not vulnerable to a general demurer].)

Consequently, the trial court erred in sustaining the Board's demurrer without leave to amend and in dismissing the action.   However, because the validity of the questioned practice is wholly a question of law we find it feasible here to decide the issue of its validity.

III. NEITHER THE CONSTITUTIONAL NOR STATUTORY PROVISION EXPRESSLY REQUIRES PAYMENT OF THE ACCRUED INTEREST AS WELL AS THE ASSESSED TAX AS A PREREQUISITE FOR FILING A VALID CLAIM FOR REFUND.

Agnew contends nothing in the California Constitution nor Revenue and Taxation Code requires the payment of accrued interest in addition to the tax claimed to be due and owing as a condition for filing a valid claim for refund of sales and use taxes with the Board.   The Board argues collection of accrued interest together with delinquent taxes should be considered mandatory because interest is such an “integral part of the taxing process.”

We have no doubt the collection of accrued interest on delinquent sales and use taxes represents a significant portion of revenues collected by the Board each year.   We also have no doubt liability for interest on delinquent sale and use taxes operates as an effective tool to encourage prompt and accurate remittances.   However, neither the constitutional provision nor sections 6931 or 6932 actually specifies payment of accrued interest is a condition for filing a valid claim for refund with the Board.

In addition, the parties have referred us to no reported decisions, and we have found none, which interpret these provisions to require payment of both the delinquent tax as well as the accrued interest on that amount as a necessary precondition for filing a valid claim for refund of sales and use taxes with the Board.⁷  The only authority we could find to support the Board's position was a statement in a treatise on California taxation regarding challenges to a deficiency determination.   In the treatise the author states-and without citation to authority-“Probably, the tax, penalty and interest must first be paid, and then claims and suits for refund filed.”  (11 Lane, Cal. Practice (2d ed.   1987) Cal. State and Local Taxation, § 296, p. 268, italics added.)   It is not surprising the treatise states no authority for this tentative assertion.   Nor is the substance of the statement surprising given the Board's de facto policy of requiring both payment of the deficiency and accrued interest before reviewing a claim for refund.   However, we have found nothing in the statutes nor Constitution to support the validity of the Board's policy.⁸

As noted, article XIII, section 32 of the California Constitution provides:  “No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof 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, with interest, in such a manner as may be provided by the Legislature.”  (Italics added.)

Section 6931 similarly provides:  “No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against this State or against any officer of the State to prevent or enjoin the collection under this part of any tax or any amount of tax required to be collected.”  (Italics added.)

Both of these provisions expressly require only the payment of the tax as a condition for seeking judicial review of a claim for refund, and as a preliminary step, Board review of a claim for refund.

Article 1 of the Code, beginning with section 6901 concerns claims for refund.   Section 6901 authorizes the Board to refund overpayments of taxes, penalties and interest when paid, and similarly permits a taxpayer to claim a refund of alleged overpayments of taxes, penalties or interest, when paid.   This section specifies:  “If the board determines that any amount, penalty, or interest has been paid more than once or has been erroneously or illegally collected or computed ․ the excess amount collected or paid shall be credited by the board on any amounts then due and payable from the person from whom the excess amount was collected or by whom it was paid ․, and the balance shall be refunded to the person,․”  (Italics added.)

Presumably, use of the word “amount” in the statute refers to the use or sales tax because the Legislature has distinguished the term “amount” from either “penalties” or “interest.”

In addition, the statute which specifies when a suit for refund may be brought does not precondition such suit on paying both the delinquent tax and accrued interest on that amount when filing a claim for refund.  Section 6932 provides:  “No suit or proceeding shall be maintained in any court for the recovery of any amount alleged to have been erroneously or illegally determined or collected unless a claim for refund or credit has been duly filed pursuant to Article 1 (commencing with Section 6901.)”  (Italics added.) ⁹

Nowhere in the statutes is either the word “tax” or the word “amount” defined to mean “delinquent tax plus accrued interest.” ¹⁰  On the other hand, as noted (§ 6901), the Legislature has distinguished between the tax assessed and interest imposed in drafting several statutes dealing with sales and use taxes.  (See, e.g., § 6482 [“The amount of the (deficiency) determination ․ shall bear interest”];  § 6591 [nonpayment of tax requires a “penalty of 10 percent of the tax ․ plus interest”];  § 6736 [judgments for tax shall include “the amount required to be paid, together with interest and penalty”];  § 6740 [provides for liens on property to secure “the amount of tax, interest, and penalties”];  § 6796 [authorizes seizure and sale of property “to pay the amount due together with any interest or penalties imposed”].) ¹¹

Moreover, under certain circumstances the Board may grant relief from interest. (§ 6593.)   However, there is no similar provision to waive a taxpayer's liability for sales and use tax.

 Thus, when the Legislature has intended to include interest, as well as tax, within the ambit of a statutory provision, the Legislature has specifically included the language regarding interest.   The existence of such a statutory scheme, and the absence of any statute which purports to include interest within the definition of either “tax” or “amount” compels us to conclude the references to “tax” in article XIII, section 32 of the California Constitution and section 6931, and the references to “amount” in sections 6901 and 6932 do not include interest.   Had the Legislature intended to require payment of accrued interest as a prerequisite to filing a valid claim for refund of sales and use taxes, it would have expressly so provided.  (See fn. 9, supra.)   Further, to the extent these provisions may be ambiguous, we would be required under accepted principles of statutory construction to adopt the construction most favorable to the taxpayer.   (Edison California Stores v. McColgan, supra, 30 Cal.2d 472, 476, 183 P.2d 16.)

Accordingly, we conclude the trial court's order dismissing the action cannot be justified on the ground Agnew was required to pay both the sales and use tax deficiency plus accrued interest as a necessary precondition to filing a valid claim for refund and to filing the present action for declaratory relief.¹²  We therefore reverse the judgment of dismissal and remand to the trial court with directions to overrule the demurrer and permit the Board to answer the complaint.

DISPOSITION

The judgment is reversed.   On remand the trial court is directed to vacate the order sustaining the demurrer and to enter a new order overruling the demurrer and affording the Board time to file an answer to the complaint.   Agnew is awarded his costs on appeal.

FOOTNOTES

1.   Apparently the Board reviewed Agnew's refund claim and denied it on May 22, 1996.   In June 1996, Agnew filed a suit for refund of the claimed overpayment.

2.   Apparently, the Board denied this claim by operation of law by failing to mail a notice of action within six months after the claim was filed.  (Rev. & Tax.Code, § 6934;  see also 9 Witkin, Summary of Cal. Law (9th ed.   1989) Taxation, § 322, pp. 383-384, and cases cited.)We granted the Board's request to take judicial notice Agnew filed a refund action regarding this claim as well.  (Evid.Code, §§ 452, 459, subd. (a).)  However, we reject the Board's suggestion these refund actions somehow moot the entirely different issue raised in this appeal, namely, the propriety of a declaratory relief action to challenge the Board's de facto policy of requiring payment of the accrued interest of a tax deficiency, as well as the tax claimed due and owing, as a precondition for review by the Board.

3.   All further statutory references are to the Revenue and Taxation Code.

4.   In response to the United States Supreme Court's decision in McKesson Corp. v. Florida Alcohol & Tobacco Div., supra, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 the Legislature enacted section 7270.   This section provides in part that when a new tax is adopted by ordinance and a legal action is brought to challenge “the validity of the tax in its entirety, as opposed to its application to an individual taxpayer, the district shall place the tax proceeds into an interest-bearing escrow account until the legality of the tax is finally resolved by a final and nonappealable decision rendered by a court of competent jurisdiction.   That provision shall be enforceable by any interested person in a proceeding for a writ of mandate.” (§ 7270, subd. (c).)

5.   Government Code section 11350 authorizes declaratory relief actions to review the validity of administrative regulations.   This section provides in pertinent part:“(a) Any interested person may obtain a judicial declaration as to the validity of any regulation by bringing an action for declaratory relief in the superior court in accordance with the Code of Civil Procedure.   The right to judicial determination shall not be affected by the failure either to petition or to seek reconsideration of a petition filed pursuant to Section 11340.7 [for adoption, amendment or repeal of a regulation] before the agency promulgating the regulations․”

6.   Consequently, the only relief available in the present action is a declaration of the validity of the Board's de facto policy of requiring payment of the tax deficiency in addition to the accrued interest on that amount as a precondition for reviewing claims for refund.

7.   We are aware of the recent decision in Garg v. People ex rel. State Bd. of Equalization (1997) 53 Cal.App.4th 199, 61 Cal.Rptr.2d 376.   In Garg Division Three of this court held litigation expenses awarded to a taxpayer under section 7156 are not subject to an offset by the Board against sales or use tax owed, or claimed to be owed, by the taxpayer.   In its introduction to a discussion of the trial court's jurisdiction to hear the taxpayer's claims, the court stated it agreed with the Board the California Constitution forbids a court from adjudicating the validity of a tax “before the tax, together with interest and penalties, has been paid in full.”  (53 Cal.App.4th at p. 208, 61 Cal.Rptr.2d 376.)   The court cited no authority for this proposition.   Later in this discussion the court cites three decisions which it claims stand for the proposition “interest and penalties are a part of any tax claim, which must be paid before the taxpayer may litigate the validity of the tax.”  (53 Cal.App.4th. at p. 211, fn. 12, 61 Cal.Rptr.2d 376.)Two of the decisions do not even involve sales and use tax.   In any event, none stands for the proposition both the delinquent tax as well as the accrued interest on that amount must be paid in full before a taxpayer may file a valid claim with the Board.   Specifically, in People v. Pacific Employers Insurance Co. (1973) 36 Cal.App.3d 296, 111 Cal.Rptr. 350 the appellate court held a surety on a bond to secure payment of sales and use taxes remained liable on the bond for delinquent sales taxes, and resulting penalties and interest on transactions which occurred prior to cancellation of the bond.   The decision in Sonleitner v. Superior Court (1958) 158 Cal.App.2d 258, 322 P.2d 496 concerned section 7729 which expressly authorizes the Attorney General to bring an action against unlicensed fuel distributors “to collect the license tax, penalty and interest, or any part thereof, determined against an unlicensed distributor.”   The decision in Horack v. Franchise Tax Bd. (1971) 18 Cal.App.3d 363, 370, 95 Cal.Rptr. 717 concerned a jeopardy assessment against the taxpayer's contraband.   The appellate court held there was no right to judicial review of a taxpayer's tax liability prior to payment, and that California's postpayment refund action remedy did not violate due process.Accordingly, we do not find the Garg court's statements or authority persuasive reasons for reaching a contrary conclusion in this case.

8.   At appellant's request we agreed to take judicial notice of Franchise Tax Board Legal Ruling 402 issued in 1977.  (Evid.Code, §§ 452, 459, subd. (a).)  In this Legal Ruling the Board's sister agency concluded payment of assessed interest in addition to a tax deficiency is not a prerequisite to a valid claim for refund of income taxes.   Legal Ruling 402 states in part “payment of assessed interest is not a necessary element to a claim for refund predicated upon the overpayment of tax and/or penalties for any particular year․  [¶][¶] A protest or appeal of a deficiency may be recharacterized as a claim for refund if the statutory requirements of Revenue and Taxation Code Section 19061.1 and 27068 are satisfied.   These sections provide that in order for the change in status to take place the taxpayer must pay the tax protested.   Based on the foregoing analysis with respect to the requirements for a ‘valid claim’, the phrase ‘tax protested’ means the entire tax and penalties assessed or asserted for the year, but does not include any accrued interest.”  (Italics added.)Of course, formal Legal Rulings of the Franchise Tax Board do not directly control the State Board of Equalization's internal policies.   On the other hand, we find the Board's sister agency's interpretations of its substantially similar statutes illuminating.At oral argument the Board requested this court to take judicial notice of the Franchise Tax Board's Legal Ruling 92-1 which it claimed nullified Legal Ruling 402.   We grant the Board's request (Evid.Code, §§ 452, 459, subd. (a)).  However, we find Legal Ruling 92-1 does not modify or withdraw Legal Ruling 402.   It does not even mention Legal Ruling 402, let alone nullify it.   Legal Ruling 92-1 is simply a general provision explaining the continuing validity and effect of legal rulings.   It warns “[a]ll published Franchise Tax Board positions must be read in light of subsequent statutory, regulatory, administrative and judicial decisions.   In some cases, the holding of Legal Rulings may have been completely superseded.   In others, a particular statutory change or judicial interpretation may have modified the holding or ruling in some particular, but the balance of the reasoning or conclusion remains in effect.”The general proposition of Legal Ruling 92-1 does not support the Board's assertion the Franchise Tax Board has changed its policy permitting review of claims for refund without first paying accrued interest on the claimed deficiency.   Nor does the decision in Garg v. People ex rel. State Bd. of Equalization, supra, 53 Cal.App.4th 199, 61 Cal.Rptr.2d 376 alter the legal effect of Legal Ruling 402.   As we pointed out (fn.7, supra ), the unsupported dicta in the Garg decision is not authority for the proposition payment of the tax, interest and penalties is a prerequisite to review of a claim by the Board.   Furthermore, we note the Garg decision pertained to litigation expenses and attorney fees in connection with sales and use tax, not income tax.   As a result the decision cannot directly effect the Franchise Tax Board's policies and Legal Rulings.

9.   By contrast, when the Legislature intends a taxpayer to pay both the tax and accrued interest as a necessary precondition for filing a valid claim for refund with a taxing authority it expressly so states.   For example, in the case of a refund action for taxes assessed as employer contributions under the Unemployment Insurance Code, the Legislature has provided:  “Following a final decision denying a petition for reassessment pursuant to Article 11 ․, the employing unit ․ may file a claim for refund upon payment of the amount of the assessment, including interest and penalties, and thereafter may pursue all administrative and judicial review rights․”  (Unemp.Ins.Code, § 1178, subd. (d), italics added;  see also Masi v. Nagle (1992) 5 Cal.App.4th 608, 612-613, 7 Cal.Rptr.2d 423.)

10.   The Code does not define the word “tax” to mean sales and use tax, plus any accrued interest and penalties imposed.  (See §§ 6002, 6003, 6004.)   The California Code of Regulations, title 18, section 5070, subdivision (f) only defines “tax” to mean “any tax, fee, surcharge, assessment, assessment review, or exemption program administered by the Board.”

11.   Both sides cite numerous federal and extra-jurisdictional authorities in support of their arguments.   However, these decisions are not helpful to interpret or explain the specifics of California's statutory taxing scheme.

12.   Nothing we have said in this opinion means, nor should be construed to mean, a taxpayer does not remain liable for any interest imposed on a sales or use tax deficiency in the event the deficiency determination is ultimately found to be valid. (§§ 6482, 6513 [interest liability provisions];  see also 9 Witkin, Summary of Cal. Law (9th 3d.   1989) Taxation, § 318, pp. 380-381.)

JOHNSON, Associate Justice.

LILLIE, P.J., and WOODS, J., concur.