STATE BOARD OF EQUALIZATION v. HARA KENDALL AVIATION INC (1984)

OPINION AND ORDER FOR PEREMPTORY WRIT OF MANDATE

Petitioner State Board of Equalization (“the Board”) challenges the propriety of a suit for refund of taxes brought by real party in interest O'Hara & Kendall Aviation, Inc. (“O'Hara”).  O'Hara's complaint seeks a refund of $250 that O'Hara has paid the Board on account of over $180,000 in sales taxes the Board determined to be due upon numerous aircraft sales transactions.   When making its de minimis payment, O'Hara also invoked the administrative remedy of petitioning the Board for redetermination of its notice of determination of the taxes.

Demurring to the complaint, the Board established before respondent court that O'Hara's petition for redetermination—the filing of which prevented the Board's determination from becoming final (Rev. & Tax. Code, § 6561)—was yet pending and unresolved when O'Hara filed and the Board challenged the action below.   O'Hara concedes that this administrative process remains uncompleted.

Respondent court overruled the Board's demurrer in reliance upon Schaffer v. State Board of Equalization (1952) 109 Cal.App.2d 574, 241 P.2d 46 and Snoozie Shavings, Inc. v. State Board of Equalization (1979) 97 Cal.App.3d 771, 158 Cal.Rptr. 866, which hold that suits for refund of sales or use taxes may be maintained with respect to partial or installment payments accepted by the Board as such.   In both of those cases, however, the plaintiff taxpayer had exhausted its administrative remedy upon petition for redetermination before commencing suit.   In the present case O'Hara has not exhausted that administrative remedy, and this critical fact not only distinguishes Schaffer and Snoozie but renders them beside the point, because O'Hara's action is jurisdictionally deficient.

 Failure to exhaust administrative remedies creates a lack of judicial subject matter jurisdiction.  (E.g., People v. Coit Ranch, Inc. (1962) 204 Cal.App.2d 52, 57–58, 21 Cal.Rptr. 875.)   Where, as here, parties “have instituted proceedings to pursue their administrative remedies ․ [but] had not exhausted such remedies at the time they sought relief from the court ․ the conclusion that the court below was acting in excess of its jurisdiction ․ is inescapable.”  (Horack v. Franchise Tax Board (1971) 18 Cal.App.3d 363, 368, 95 Cal.Rptr. 717.)

O'Hara's effort to avoid this impact of the exhaustion doctrine is without force.   O'Hara's claim for refund, which was incorporated into the complaint below as its substantive basis, in turn was grounded upon the “contentions as set forth in [O'Hara's] petition for redetermination,” and O'Hara directly admits to this court the intention and expectation “that, in ruling on the merits of the suit for refund, [respondent] court will likely determine issues ․ still in contention at the administrative level.”

 Respondent court accordingly should have sustained the Board's demurrer for lack of subject matter jurisdiction.   The matter being clear, a peremptory writ of mandate so requiring will issue in the first instance.  (Code Civ.Proc., § 1088.)

Let a peremptory writ of mandate issue, requiring respondent court to vacate its November 23, 1983 order overruling the Board's demurrer to O'Hara's complaint in case no. C468829 and enter a new order sustaining the demurrer without leave to amend.

THE COURT: