LOEBNER v. FRANCHISE TAX BOARD (1986)

Plaintiffs Egon and Sonya Loebner appeal from a judgment of dismissal entered after the trial court sustained without leave to amend the demurrer of defendant Franchise Tax Board (the Board) to their complaint for a judicial determination that a personal income tax deficiency assessment by the Board was illegal.   The principal issue presented is whether plaintiffs could institute this action without first paying the amount of the disputed assessment.   We conclude that this question must be answered in the negative and that the trial court consequently acted properly in sustaining the Board's demurrer and dismissing the complaint.

I

We must treat the Board's demurrer as admitting all of the material factual allegations of plaintiffs' complaint, with the exception of contentions, deductions, or conclusions of either fact or law.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58;  Serrano v. Priest (1971) 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241.)   Our aim is to decide whether the complaint suffices to state a cause of action.  (Glaire v. La Lanne Paris-Health Spa, Inc. (1974) 12 Cal.3d 915, 918, 117 Cal.Rptr. 541, 528 P.2d 357.)

In their verified “Complaint for Determination of Residency,” plaintiffs alleged as follow:  Plaintiffs were residents of California until December of 1974, at which time they left in order that Mr. Loebner could begin serving as a member of the United States embassy in the Soviet Union.   They “engaged a real estate agent to look after their residence” in Palo Alto.   Their household effects and personal belongings were “liquidated,” shipped to Moscow, or stored in “a State Department designated location.”   Mr. Loebner terminated various personal and professional associations in California.   Plaintiffs transferred their medical records, financial accounts, and their mailing address, to locations outside of the state.   They did not vote in California in 1975, nor did they file a California personal income tax return for that year.   Plaintiffs returned to California in November of 1976.   Thereafter they and the Board engaged in administrative proceedings which culminated with a determination that plaintiffs owed tax and interest for the calendar year 1976 amounting to approximately $3,400.

Plaintiffs' complaint ended in this fashion:  “This action is brought against the ․ Board on the grounds that its ruling ․ disallowing in its entirety plaintiffs' protest of [the Board's] Deficiency Assessment for calendar year 1976 based on Plaintiffs' alleged California residency is erroneous, unconstitutional, and without authority of law.   By reason thereof, Plaintiffs allege that the ․ proposed deficiency assessment ․ is illegal and hence subject to cancellation by this action.  [¶ ] WHEREFORE, Plaintiffs pray for judgment against the ․ Board dismissing the Deficiency Assessment and declaring plaintiffs to be [sic ] nonresidents of California for the first ten months of calendar year 1976.

 The Board demurred to the complaint on the grounds that (1) the trial court “has no jurisdiction over the subject of the action” and (2) the complaint failed to state facts sufficient to constitute a cause of action against the Board.   After conducting a hearing on the demurrer, the trial court sustained it on both of these grounds.   A judgment of dismissal followed, prompting this timely appeal.¹

REVIEW

II

Article XIII, section 32 of the California Constitution (hereinafter referred to as section 32) 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 manner as may be provided by the Legislature.”

 The Board's position, steadfastly maintained in both the trial court and here, is that section 32 is an absolute barrier against any type of attempt to secure any form of judicial relief regarding tax-related matters unless and until the tax has been paid.   Plaintiffs contend that section 32 is by its express terms limited to actions for “collection of any tax” and does not affect their complaint for declaratory relief to determine the validity of an assessment.   The trial court believed itself bound to accept the Board's argument.   So do we.

In Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 165 Cal.Rptr. 122, 611 P.2d 463, the supreme court considered whether section 32 barred an attempt to compel the Board of Equalization to reassess property in accordance with the then recently enacted Proposition 13 (Cal. Const., art. XIII A).   The means chosen by the taxpayers to effect this reassessment was a petition for a writ of mandamus.   The court, in the course of holding that this form of relief was precluded by section 32, made the following statements which possess a particular pertinency to this appeal:

“On its face the provision [section 32] appears to bar actions of the type before us.   It is certainly true that the assessment of real property is an integral part of the taxing process, and a court order invalidating an assessment will in effect ‘prevent or enjoin the collection’ of the tax.   [Citations.]  It is also true that a taxpayer may not circumvent restraints on prepayment tax litigation by seeking only declaratory relief.”  (27 Cal.3d 277 at p. 280, 165 Cal.Rptr. 122, 611 P.2d 463.)

“The policy behind section 32 is to allow revenue collection to continue during litigation so that essential services dependent on the funds are not unnecessarily interrupted.  [Citation.]  ‘Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public.’  [Citations.]  To implement this policy, a specific statutory refund procedure has been provided for taxpayers whose property has been improperly assessed.  [Citations.]  And to compensate a taxpayer who has been wrongfully required to pay, interest will be awarded on the refunded money.  [Citation.]  The utilities have attempted to circumvent this statutory scheme in an effort to obtain adjudication of their claims before payment.  [¶ ] We hold that section 32 means what it says.   Nothing in the policy underlying the section, its history, or the cases construing it, would support an exception․”  (27 Cal.3d 277 at pp. 283–284, 165 Cal.Rptr. 122, 611 P.2d 463.)

The court in Pacific Gas & Electric Co. termed section 32 an “unequivocal constitutional prohibition against prepayment tax litigation.”   (27 Cal.3d 277 at p. 281, 165 Cal.Rptr. 122, 611 P.2d 463.)   Plaintiffs have marshalled an impressive array of materials relating to the current and predecessor versions of section 32 to support a variety of arguments that this decision misperceived the intent of the voters who enacted the versions of section 32;  that the court misconstrued previous decisions;  and that Pacific Gas & Electric Co. should not be followed because it is “erroneous.”   These arguments are not persuasive.  Pacific Gas & Electric Co. must be applied and followed without regard to our opinion as to its soundness.  (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.)  Pacific Gas & Electric Co. has recently been reiterated by the supreme court (State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638–640, 217 Cal.Rptr. 238, 703 P.2d 1131) and accepted without hesitation by other courts.  (People ex rel. Franchise Tax Bd. v. Superior Court (1985) 164 Cal.App.3d 526, 543–546, 210 Cal.Rptr. 695;  United States Steel Corp. v. Franchise Tax Board (1983) 144 Cal.App.3d 473, 481–482, 192 Cal.Rptr. 677;  Hunter-Reay v. Franchise Tax Board (1983) 140 Cal.App.3d 875, 878–881, 189 Cal.Rptr. 810.)

The final paragraphs of plaintiffs' complaint were quoted ante to demonstrate that they are in effect seeking declaratory relief that the Board's deficiency assessment is illegal.   This they do not dispute.  “An action for declaratory relief is an equitable proceeding.”  (Fowler v. Ross (1983) 142 Cal.App.3d 472, 478, 191 Cal.Rptr. 183;  see 3 Witkin, Cal. Procedure (3d ed. 1985) Actions, § 87, ¶ (8), p. 15;  5 id., Pleading, § 800, ¶ (c), p. 244.)   As such, plaintiffs' complaint is within the express terms of section 32 (“No ․ equitable process shall issue ․”) and likewise encompassed by the supreme court's construction of that provision to prohibit declaratory relief actions against assessments.  (Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d 277 at p. 280, 165 Cal.Rptr. 122, 611 P.2d 463.)   It thus appears that plaintiffs' complaint is premature and barred by section 32 until they have paid the Board's assessment.

III

In apparent anticipation of this conclusion, plaintiffs make several arguments in support of their claim that section 32 is “voidable,” which we take to mean that it is ineffective.   As will be demonstrated, plaintiffs' arguments are unpersuasive.

(A)

In 1971 the California Constitutional Revision Commission submitted to the Legislature a report recommending changes in article XIII of the constitution, which governed taxation.   The commission specifically recommended that the substance of article XIII, section 15, paragraph 3—the predecessor version of section 32—should be deleted from the proposed text of the revised article XIII and dealt with by statute.   In May of 1974, the Assembly Committee on Revenue and Taxation received a report from the “Constitutional Revision Task Force on Article XIII” which included a recommendation that section 32 should be set forth in its current constitutional form.   The latter recommendation was adopted by the Legislature when it voted to submit to the electorate an amendment proposal to revise and reorganize article XIII.   This measure was approved by the voters at the November 1974 general election.

Plaintiffs now contend that because representatives of the Franchise Tax Board and the State Board of Equalization were members of the task force which drafted section 32 they thus encroached upon the legislative prerogatives of the Legislature.   Plaintiffs ask us to hold that this violated article III, section 3 of the California Constitution, which reads:  “The powers of state government are legislative, executive, and judicial.   Persons charged with the exercise of one power may not exercise either of the others except as permitted by the Constitution.”

Plaintiffs' argument evidences a fundamental misperception of the nature of the process by which section 32 was enacted.   It has been said that an act is “legislative” if it declares a public purpose or policy and makes provisions for its accomplishment.  (See Merriman v. Board of Supervisors (1983) 138 Cal.App.3d 889, 891, 188 Cal.Rptr. 343.)   Legislative power is exercised when such a policy is adopted, thus giving it the force of law.  (Cf. Yost v. Thomas (1984) 36 Cal.3d 561, 570–571, 205 Cal.Rptr. 801, 685 P.2d 1152;  Horn v. County of Ventura (1979) 24 Cal.3d 605, 613, 156 Cal.Rptr. 718, 596 P.2d 1134.)   Within the context of constitutional amendments, adoption is by the people.  (See Cal. Const., art. XVIII, § 4.)   The Legislature may propose constitutional amendments, but only the people can enact them.   In this sense, the ultimate “legislative” power is retained by the people.  (See Carlson v. Cory (1983) 139 Cal.App.3d 724, 728, 189 Cal.Rptr. 185;  Citizens Against a New Jail v. Board of Supervisors (1976) 63 Cal.App.3d 559, 563, 134 Cal.Rptr. 36;  cf. Cal. Const., preamble [“We, the People of the State of California ․ do establish this Constitution”];  id., art. II, § 1 [“All political power is inherent in the people.   Government is instituted for their protection, security, and benefit, and they have the right to alter or reform it when the public good may require.”].)

 Viewed from this perspective, plaintiffs' conception of the separation of powers, in the ordinary trilateral division of executive, judicial, and legislative, is incorrect.  Section 32 was enacted by the people in the exercise of their legislative power.   The fact that certain representatives of taxing bodies may have participated in the drafting of the proposed constitutional amendment has no tainting effect because these persons had no influence in the people's legislative decision to enact and give the binding force of law to that proposal.

(B)

Plaintiffs next assert that, in effect, the people did not know what they were doing by enacting the revisions to article XIII because they were “misinformed and misled” by the ballot pamphlet materials.

 The amendment passed by the voters in 1974 completely revised the constitutional provisions relating to taxation, one of the most complicated yet necessary powers of modern government.   The changes between the immediate predecessor of section 32 and section 32 were minimal.²  The predecessor version had been judicially construed in the same manner as would section 32.  (See Aronoff v. Franchise Tax Board (1963) 60 Cal.2d 177, 178–180, 32 Cal.Rptr. 1, 383 P.2d 409.)   In these circumstances, the minor changes embodied in section 32 obviously did not qualify as a chief purpose which had to be included in the ballot summary.  (Elec.Code, § 3503;  Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 242–244, 149 Cal.Rptr. 239, 583 P.2d 1281;  Epperson v. Jordan (1938) 12 Cal.2d 61, 65–71, 82 P.2d 445;  Tinsley v. Superior Court (1983) 150 Cal.App.3d 90, 108–109, 197 Cal.Rptr. 643.)

Plaintiffs' contention that the voters did not know what they were doing merits only brief comment.   This type of claim seems to be routinely made against any enactment passed by the voters.   It is invariably rejected.  (See e.g., Brosnahan v. Brown (1982) 32 Cal.3d 236, 251–252, 186 Cal.Rptr. 30, 651 P.2d 274;  Fair Political Practices Com. v. Superior Court (1979) 25 Cal.3d 33, 42, 157 Cal.Rptr. 855, 599 P.2d 46;  Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d 208 at pp. 231, 243–244, 149 Cal.Rptr. 239, 583 P.2d 1281.)   We do likewise.

IV

Plaintiffs have not pinned all of their hopes on their full-out assault on section 32.   They have a fall-back position, which is that their complaint is authorized by certain statutes which remove their complaint from the prohibitory ambit of section 32.

 The statutes upon which plaintiffs rely are Revenue and Taxation Code section 19081 and Code of Civil Procedure section 1060.5.³  The former is the more important.   The first clause of Revenue and Taxation section 19081 is substantially identical to the first sentence of section 32.   Where this statute differs from section 32 is it does not include section 32's express requirement of payment preceding judicial proceedings, and in the statute's clearly expressed application to assessments.   These differences do not, however, warrant sustaining plaintiffs' contention.

It is true that section 32 does not expressly refer to assessments, but the supreme court has unmistakably held that it does.  (See part, II, ante.)   Erroneously believing that the application of section 32 to assessments is an “ambiguity” which remains an open question, plaintiffs assert that an “unclear” constitutional provision “must yield to [a] clear statute.”   The supremacy of a constitution over a statute has been unchallenged since Marbury v. Madison (1803) 5 U.S. (1 Cranch) 137, 2 L.Ed. 60.   It applies in California.  (People v. Navarro (1972) 7 Cal.3d 248, 260, 102 Cal.Rptr. 137, 497 P.2d 481;  Molar v. Gates (1979) 98 Cal.App.3d 1, 24, 159 Cal.Rptr. 239.)   In California, a general constitutional provision prevails over a specific statute.  (See Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 595, 135 Cal.Rptr. 41, 557 P.2d 473.)

The parties make other contentions which we do not reach because they could have no effect upon our decision.

V

It has been shown that California's fundamental law, as expressed in its constitution and by its highest court, prohibits prepayment tax litigation.   An allegation that plaintiffs had paid the tax assessed by the Board was essential to their complaint.  (See McHugh v. County of Santa Cruz (1973) 33 Cal.App.3d 533, 544, 109 Cal.Rptr. 149.)   Without it they failed to state a cause of action.   Such an allegation was also essential to the trial court's jurisdiction.  (See Aronoff v. Franchise Tax Board, supra, 60 Cal.2d 177 at pp. 178–181, 32 Cal.Rptr. 1, 383 P.2d 409;  Estate of Schneider (1944) 62 Cal.App.2d 463, 465–466, 145 P.2d 90.)   It thus appears that both grounds of the Board's demurrer were sound.   There being no possibility that plaintiffs could cure this defect by amending their complaint, the trial court properly sustained the demurrer without granting leave to amend.  (Blank v. Kirwan, supra, 39 Cal.3d 311 at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58;  Martinez v. Socoma Cos. (1974) 11 Cal.3d 394, 400, 113 Cal.Rptr. 585, 521 P.2d 841.)

The judgment of dismissal is affirmed.

FOOTNOTES

1.   In their notice of appeal plaintiffs, who at all times have proceeded in propria persona, purport to appeal from “the order of the Court sustaining the demurrer of [the] Board.”   That order is not appealable (I.J. Weinrot & Son, Inc. v. Jackson (1985) 40 Cal.3d 327, 331, 220 Cal.Rptr. 103, 708 P.2d 682;  Youngblood v. Board of Supervisors (1978) 22 Cal.3d 644, 651, 150 Cal.Rptr. 242, 586 P.2d 556), but its merits can be reviewed on an appeal from the ensuing judgment of dismissal.  (Selleck v. Globe International, Inc. (1985) 166 Cal.App.3d 1123, 1128, fn. 1, 166 Cal.Rptr. 838;  Gibson v. Government Employees Ins. Co. (1984) 162 Cal.App.3d 441, 444, 208 Cal.Rptr. 511.)   Pursuant to the rule requiring that a notice of appeal be liberally construed in favor of its sufficiency (Cal. Rules of Court, rule 1(a)), we treat plaintiffs' notice as having taken a valid appeal from the subsequently entered judgment of dismissal.  (Id., rule 2(c);  Turpin v. Sortini (1982) 31 Cal.3d 220, 224, fn. 2, 182 Cal.Rptr. 337, 643 P.2d 954;  Battle v. Kessler (1983) 149 Cal.App.3d 853, 855, 197 Cal.Rptr. 170;  Joffe v. United California Bank (1983) 141 Cal.App.3d 541, 547, fn. 1, 190 Cal.Rptr. 443.)

2.   The earlier version provided:  “No injunction or writ of mandate or other legal or equitable process shall ever issue in any suit, action, or proceeding in any court against this State, or any officer thereof, to prevent or enjoin the collection of any tax levied under the provisions of this article, but after payment thereof [an] action may be maintained to recover, with interest, in such manner as may be provided by law, any tax claimed to have been illegally collected.”  (Former Cal. Const., art. XIII, § 15, ¶ 3.)

3.   Revenue and Taxation Code section 19081 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 this State to prevent or enjoin the assessment or collection of any tax under this part;  provided, however, that any individual after protesting a notice or notices of deficiency assessment issued because of his alleged residence in this State and after appealing from the action of the Franchise Tax Board to the State Board of Equalization, may within 60 days after the action of the State Board of Equalization becomes final commence an action, on the grounds set forth in his protest, in the Superior Court of the County of Sacramento, in the County of Los Angeles or in the City and County of San Francisco against the Franchise Tax Board to determine the fact of his residence in this State during the year or years set forth in the notice or notices of deficiency assessment.   No tax under this part based solely upon the residence of such an individual shall be collected from such individual until 60 days after the action of the State Board of Equalization becomes final and, if he commences an action pursuant to this section, during the pendency of such action, other than by way of or under the jeopardy assessment provisions of this part.”Code of Civil Procedure section 1060.5 provides:  “Any individual claiming to be a nonresident of the State of California for the purposes of the Personal Income Tax Law may commence an action in the Superior Court in the County of Sacramento, or in the County of Los Angeles, or in the City and County of San Francisco, against the Franchise Tax Board to determine the fact of his residence in this State under the conditions and circumstances set forth in Section 19081 of the Revenue and Taxation Code.”

SABRAW, Associate Justice.

ANDERSON, P.J., and POCHÉ, J., concur.