PEOPLE v. UNION OIL COMPANY OF CALIFORNIA (1956)

Plaintiff commenced an action against defendant to recover $6,781.69, paid by plaintiff as interest on certain overpayments of franchise tax refunded to defendant for the income years 1942, 1943 and 1944. The first cause of action alleges that the interest was erroneously and improperly paid to defendant, and the second cause of action was for money had and received.

The case was presented to the trial court upon an agreed and stipulated statement of facts, supplemented by evidence at the trial. There is substantially no dispute in the evidence and the facts may be summarized as follows: Defendant overpaid its taxes for the income years 1942, 1943, and 1944; the overpayments were made without error or mistake on the part of the taxpayer or on the part of the commissioner; subsequently, defendant filed applications for refunds for the overpayment of its taxes, with interest thereon at 6 per cent per annum; State Controller warrants for the overpayments were drawn on August 13, 1948, and forwarded to defendant on August 18, 1948; the warrants included the amount of the overpayments, plus interest at 6 per cent per annum from the taxable income year to April 30, and May 15, 1948.

At the time the overpayments were made, and at all times thereafter, prior to July 10, 1947 section 27(c) of the Bank and Corporation Franchise Tax Act (now section 26080, Revenue and Taxation Code) provided as follows:

‘Interest shall be allowed and paid upon any overpayment of any tax, if the overpayment was not made because of an error or mistake on the part of the taxpayer, at the rate of 6 per centum per annum * * *.’ (Emphasis added.) St.1945, p. 1827.

In 1947, St.1947, p. 2862, the legislature amended section 27(c) to read in part as follows:

‘Interest shall be allowed and paid upon any overpayment of any tax, if the overpayment was made because of an error or mistake on the part of the commissioner, at the rate of 6 percentum per annum * * *.’ (Emphasis added.)

The amendment went into effect on July 10, 1947. Therefore, for the period of time subsequent to July 9, 1947, there was no statute authorizing the payment of interest on refunds for overpayment of taxes unless the overpayment was the error or mistake of the Commissioner. Thus the principal question presented for consideration was whether the 1947 amendment operated from its effective date to prevent the running of interest on overpayments of tax made prior thereto. Also, in a counterclaim, defendant claimed that it was entitled to recover additional interest by virtue of the fact that the Commissioner, in computing the interest payable on defendant's refunds, failed to follow the statutory requirement of computing interest to a date preceding the date of the refund warrants by not more than thirty days, which would be not earlier than July 13, 1948.

The trial court held that the 1947 amendment prevented the running of interest after its effective date and rendered judgment in favor of plaintiff as prayed for, and defendant has appealed from said judgment.

Appellant first contends that the court erred in making retroactive application of the 1947 amendment because it operates prospectively and applies only to overpayments of tax made after its effective date. Appellant argues that the word ‘overpayment’ is the operative or key word in the amendment and therefore the amendment must apply only to cases where the basic determinative factor, namely, an overpayment, is made on or after the effective date, July 10, 1947, and does not apply to overpayments which occurred, as in the within matter, prior to July 10, 1947. In other words, because the language spells out that ‘upon any overpayment of any tax,’ rather than ‘upon an allowance of a refund,’ interest shall be allowed and paid, there is a clear expression of the legislature that the 1947 amendment was to apply only to overpayments made after its effective date.

We have concluded that the court erred in making a retroactive application of the 1947 amendment, section 27(c). There is a presumption against the retroactive application of a statute, a presumption that where not expressly so declared or declared by necessary implication the legislature did not intend legislation to be given a retroactive effect.

As this court said in Botts v. Simpson, 73 Cal.App.2d 648, at page 650, 167 P.2d 231, at page 232:

‘It is a general rule of statutory interpretation that a statute will always be given prospective effect unless the intention is clearly shown that it should be considered to operate retroactively. Berg v. Traeger, 210 Cal. 323, 292 P. 495; O'Dea v. Cook, 176 Cal. 659, 169 P. 366.’

And as stated by Chief Justice Gibson in Aetna Casualty & Surety Co. v. Industrial Accident Commission, 30 Cal.2d 388, at page 393, 182 P.2d 159, at page 161;

‘It is an established canon of interpretation that statutes are not to be given a retrospective operation unless it is clearly made to appear that such was the legislative intent.’

The amendatory legislation reading out of section 27(c) the provision for interest payment did not expressly declare that interest theretofore authorized by the preceding form of the section should not be paid thereafter, where the obligation to pay interest arose prior to the passage of the amendment.

Prior to the three years under which Union Oil's taxes accrued, that is years 1942, 1943 and 1944, the Franchise Tax Act provided that a taxpayer could elect to claim a deduction for amortization of emergency facilities under regulations prescribed by the Franchise Tax Commissioner. On November 11, 1945, the Commissioner issued an office regulation under the authority of said section 8(f) (now Rev. & Tax.Code, § 24355) dealing with the acceleration of amortization of emergency facilities and providing that the election to accelerate such amortization should be made by filing with him a statement of such election, and further providing that a taxpayer could file a claim for a refund based upon such acceleration within the later of (1) four years of the due date of the return for the year of refund, or (2) one year of September 29, 1945, and providing further that the provisions of the regulation were applicable to income years ending after October 6, 1940, for the purposes of the Bank and Corporation Franchise Tax Act. On December 21, 1945, the defendant duly filed with the Commissioner a statement of its election to accelerate such amortization for the amortization period ending September 30, 1945. Subsequently, and on the following dates the defendant herein filed its claims for refunds of franchise taxes overpaid for the income years 1942, 1943 and 1944. After some adjustments based not upon the election but upon claimed improper computations of the basic tax as paid, the office of the Commissioner commenced checking the company's claims for refunds, and by process which appears in the stipulation of facts, arrived at the proper amount of refund and obtained and mailed the warrants of the State Controller to the Oil Company on August 18, 1948. These warrants included in their amounts interest computed to sometime before August 18, 1948, and the total interest was computed as not having been cut off by the legislation effective July 10, 1947. The state then made a demand that it be reimbursed for what it claimed to be the excess interest, and upon refusal this action was begun.

It was not until the Oil Company elected to accelerate its amortizations on certain facilities that it had any claim against the state for overpayment of its taxes. Until it so elected, the state had no obligation to refund any of the taxes paid. The right to claim a refund, therefore, arose coincidentally with and because of the exercise of the election to accelerate amortization. The assumption is made, and the state has not argued otherwise, that section 27(c), the interest section, applied back to the time when the taxes were paid to the state, and the only argument between the parties is as to the cut-off date. We make the same assumption. By the statute giving the election to accelerate amortization and thereby to obtain a right to recompute taxes theretofore paid, the state made an offer to its taxpayers that if it did so, if they so elected, it would refund any amount of overpayment arrived at by the new basis of computation together with interest. The Union Oil Company's right to recoup from the state the overpayment plus interest under the new computation vested in it upon the service of its notice to the state that it elected to accelerate amortization. The state now says that by legislation passed thereafter it can cut interest off at the date of the last legislative act. Without regard to the constitutionality of such an attempt we do not believe that the legislature made the attempt. There is no express declaration in the statute to that effect, and we find no necessary implication that such intent existed. Herein, one can draw upon the familiar arguments that if the legislature had intended such a result, it would have said so, and if it did not, then it did not so intend. We believe the trial court erred in retroactively applying the amendatory legislation, and that the judgment must be reversed. Our conclusion upon this issue makes it unnecessary to discuss the other contentions of appellant as to the admissibility of testimony, the constitutionality of the legislation, or the statute of limitations.

In the stipulation of facts it was stipulated that in the event of final judgment for defendant said defendant would be entitled to additional interest as prayed for in its counter-claim in the sum of $1,743.59. In view of our conclusion that the judgment in favor of respondent must be reversed, appellant is entitled to judgment for said additional interest.

The judgment is reversed with directions that judgment be entered that respondent State of California take nothing by reason of said action and that appellant have judgment for the additional amount of interest in accordance with said stipulation.

On Petition for Rehearing.

Respondent has filed a petition for rehearing in which it contends that our decision is in conflict with the decision in Gregory v. State of California, 32 Cal.2d 700, 197 P.2d 728, 4 A.L.R.2d 924, and states that we have not distinguished or even cited the Gregory case.

We did not discuss the Gregory case because we did not consider that it had any relevance to the facts of the instant case, and also because we felt that out conclusion that the trial court erred in retroactively applying the amendatory legislation adequately disposed of the case.

We do not believe that there is any merit in respondent's contention that the case of Gregory v. State of California, 32 Cal.2d 700, 197 P.2d 728 demonstrates that the payment of interest to defendant subsequent to July 10, 1947, the effective date of the 1947 amendment to section 27(c), is unwarranted. In the Gregory case a gift tax recovery action was pending at the time the taxing act was amended to allow interest on overpayments, the payment of such interest not previously being permitted. It was held that the taxpayer in obtaining judgment for the amount of the tax was entitled to interest from the effective date of the amendment. In the course of its opinion the court said, 32 Cal.2d at page 703, 197 P.2d at page 729:

‘Moreover, it should be noted that whatever the law may be elsewhere it has always been the rule in California that there is no implied contract of any kind that the State will pay interest on its indebtedness for it is liable only when made so by statute.’

We agree with appellant that the facts in the case at bar differ significantly from the facts in Gregory v. State of California, supra. In the Gregory case there was involved only the general relationship between a government sovereign and a taxpayer who had sued to recover an asserted overpayment of taxes. At the time Gregory made the overpayment of gift tax on November 11, 1943, there was no statutory authorization for interest on refunds and in fact the statute then in effect positively prohibited interest, 1943 amendment. After Gregory commenced his action the statute was changed to provide for interest, 1945 amendment, Rev. & Tax.Code, § 16271, and the Supreme Court properly allowed interest from and after the effective date of the change, May 18, 1945.

When, however, as in the case at bar, there is a statute providing for the payment of interest upon overpayments of tax at the time the overpayments are made and the right to refunds is established by the taxpayer's performance of the acts prescribed by statute—which acts constitute the contractual acceptance of the continuing offer of the statute, secs. 8(f) and 27(c) of the Bank and Corporation Franchise Tax Act—then an express contract arises for the payment of interest as well as for payment of the refund itself. To this situation the decision in the Gregory case has no application.

The petition for rehearing is denied.

SCHOTTKY, Justice.

VAN DYKE, P. J., and PEEK, J., concur.