Could a retailer stop paying the San Francisco Educational Authority tax because a superior court had found it unconstitutional?

Plain-English summary

California legal staff concluded that a retailer could not stop paying the San Francisco Educational Authority transactions tax merely because a superior court had declared it unconstitutional.

California Constitution article III, section 3.5 barred the Board from refusing to enforce a tax ordinance on constitutional grounds until an appellate court ruled against it. The superior-court decision was on appeal, so staff treated the tax as valid and enforceable in the meantime.

The retailer also argued that it owed nothing because it had not collected tax reimbursement. Staff rejected that position under Revenue and Taxation Code section 6051, stating that retailers owed sales tax whether or not they collected reimbursement.

Common questions

Was the superior-court ruling enough to stop collection?

No.

What court ruling would matter under the memorandum?

An appellate-court ruling.

Did failure to collect reimbursement eliminate the retailer's tax?

No.

Citations and references

• California Constitution article III, section 3.5 — agency enforcement duty discussed
• California Revenue and Taxation Code section 6051 — retailer's sales-tax liability cited
• Hoogasian Flowers, Inc. v. State Board of Equalization, Sacramento Superior Court No. 530342 — trial-court decision then on appeal

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0280.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

170.0280

Memorandum
To:

From:

Subject:

Mr. Ralph Valencia, Jr. (MIC:35)
Return Review Section

Date:

March 1, 1994

John L. Waid
Tax Counsel
REDACTED TEXT
San Francisco Educational Authority (SFEA) Tax
I am responding to your memorandum dated January 18, 1994, to the Legal Division. You attached a copy of a letter to B. H. Watson, Supervisor of Return Review, dated November 12, 1993, from REDACTED TEXT, the taxpayer’s manager responding to Mr. Watson’s letter to the taxpayer dated September 3, 1993, a copy of which you also attached, noting that it had failed to remit SFEA tax for the Second Quarter 1993 and requesting it to remit the balance due. REDACTED TEXT replied that the taxpayer relied upon the recent superior court decision in Hoogasian Flowers, Inc. v. S.B.E., Sacramento Superior Court No. 530342, which declared the SFEA tax unconstitutional. He further indicated that the taxpayer did not collect reimbursement for the tax and stated the taxpayer’s position as follows: “Based upon the outcome of the case, we believe that the tax is not legally owed if the tax was not collected.” OPINION California Constitution Article III, section 3.5, prohibits the Board from failing or refusing to enforce any tax ordinance on the ground that it is unconstitutional until an appellate court has so ruled. Hoogasian Flowers was a superior court case that is now on appeal to the Third District Court of Appeal. Thus, the tax is valid and enforceable until the appeals court rules otherwise. Retailers owe sales tax whether or not they collect reimbursement therefor (§ 6051.) As a result, the taxpayer owes the transactions tax and/or a debt equivalent to the use tax. We expect an opinion from the appeals court on this case within the next few months.

JLW:es