Justia Tax Law Opinion Summaries

Medtronic USA, Inc. (Medtronic) manufactures insertable cardiac monitors (RICMs) that are implanted in a patient's chest to monitor heart rhythms and detect cardiac arrhythmias. The California Department of Tax and Fee Administration (Tax Department) collected sales tax on these devices. Medtronic argued that the devices should be exempt from sales tax under Revenue and Taxation Code section 6369 and Regulation 1591, which define "medicines" exempt from tax. After exhausting administrative remedies, Medtronic filed a lawsuit seeking a refund of the collected taxes, totaling $3,329,195.79, but the trial court granted summary judgment in favor of the Tax Department.The trial court ruled that the RICMs did not qualify as "medicines" under the relevant tax exemption statutes and regulations. Medtronic appealed the decision, arguing that both the Tax Department and the trial court misinterpreted the law. The appeal was heard by the Court of Appeal of the State of California, First Appellate District, Division Two.The Court of Appeal affirmed the trial court's decision, holding that the RICMs are not exempt from sales tax. The court found that the devices are classified as "instruments, apparatus, contrivances, appliances, devices, or other mechanical, electronic, optical, or physical equipment," which are explicitly excluded from the definition of "medicines" under section 6369, subdivision (b)(2). Additionally, the court determined that the RICMs do not "assist the functioning of any natural organ" as required by subdivision (c)(2) for exemption, as their primary function is diagnostic rather than directly aiding organ function. The court emphasized that tax exemptions must be clearly mandated by statute and are strictly construed against the taxpayer. View "Medtronic USA v. Department of Tax and Fee Administration" on Justia Law

Carlos and Ana Carachure filed a lawsuit against the City of Azusa, claiming the City violated article XIII D of the California Constitution by charging sewer and trash franchise fees that exceeded the cost of providing those services and using the fees to fund general city services. The City argued that the Carachures failed to exhaust their administrative remedies because they did not follow the statutory procedures for a refund, which require paying the fees under protest and filing a claim for a refund. The trial court agreed with the City and entered judgment in its favor.The Superior Court of Los Angeles County ruled that the Carachures were required to file a claim for a refund with the City before seeking judicial relief, as they claimed the fees were illegally collected or assessed. The court denied the Carachures' petition for a writ of mandate and entered judgment for the City. The Carachures filed a motion for a new trial and to vacate the judgment, arguing the trial court relied on inapplicable property tax cases and the current version of the Revenue and Taxation Code. The trial court denied the motion.The Court of Appeal of the State of California, Second Appellate District, Division Seven, reviewed the case and reversed the trial court's judgment. The appellate court held that the Carachures' constitutional challenge to the City's collection and use of franchise fees seeks relief outside the scope of the statutory claims procedure for refunds. The court concluded that the Carachures did not have to file a claim for a refund before bringing this action, as their challenge was not an action for a refund governed by section 5472 and Article 2 of the Revenue and Taxation Code. The judgment was reversed, allowing the Carachures to proceed with their constitutional claims. View "Carachure v. City of Azusa" on Justia Law

Great Oaks Water Company, a private water retailer, sued the Santa Clara Valley Water District, alleging that the district’s groundwater pumping charges were unlawful taxes levied without voter approval, violating Proposition 26. Great Oaks argued that the charges exceeded the reasonable costs of the governmental activity and were unfairly allocated, benefiting other water users to which Great Oaks had no access. Additionally, Great Oaks contended that the district’s use of ad valorem property taxes to subsidize agricultural groundwater pumping charges was unconstitutional.The trial court ruled in favor of the water district, finding that the groundwater charges did not exceed the costs of the district’s overall water management program. The court held that it was reasonable to use these charges to pay for the program because non-agricultural groundwater pumpers, like Great Oaks, received significant benefits from it. The charges were deemed reasonably allocated on a volumetric basis, and the agricultural discount was found constitutionally valid as it was funded by ad valorem property taxes, not by non-agricultural pumpers.The California Court of Appeal for the Sixth Appellate District affirmed the trial court’s decision. The appellate court concluded that the groundwater charges were not “taxes” under Proposition 26 because they fell under exceptions for specific benefits conferred or government services provided directly to the payor. The court found that the water district proved by a preponderance of the evidence that the charges were no more than necessary to cover the reasonable costs of the governmental activity and that the costs were fairly allocated to Great Oaks. The court also upheld the use of ad valorem taxes to fund the agricultural discount, finding no violation of the California Constitution or the Water Code. View "Great Oaks Water Co. v. Santa Clara Valley Water Dist." on Justia Law

The case involves five public utilities operating in California, including Pacific Bell Telephone Company and AT&T Mobility LLC, which challenged the property tax rates imposed by Merced County for the fiscal years 2017-2018 and 2018-2019. The utilities argued that the tax rates applied to their properties exceeded the permissible rates under Section 19 of Article XIII of the California Constitution, which they interpreted as requiring utility property to be taxed at the same rate as non-utility property.In the Superior Court of Merced County, the utilities sought partial refunds of the property taxes paid, claiming that the tax rates levied on them were higher than the average tax rates in the county. The County demurred, relying on the precedent set by the Sixth District in County of Santa Clara v. Superior Court, which held that Section 19 does not mandate the same tax rate for utility property as for locally assessed property. The utilities conceded that Santa Clara was binding but sought to challenge its holding on appeal. The Superior Court dismissed the case, and the utilities filed a timely notice of appeal.The California Court of Appeal, Fifth Appellate District, reviewed the case de novo and affirmed the lower court's judgment. The court held that Section 19 of Article XIII of the California Constitution does not require utility property to be taxed at the same rate as non-utility property. Instead, the court interpreted the relevant language as an enabling clause, allowing utility property to be subject to taxation, rather than a limiting clause mandating equal tax rates. The court found that the historical context, language, and structure of Section 19 supported this interpretation, and thus, Merced County's application of the tax rates did not violate the constitutional provision. View "Pacific Bell Telephone Co. v. County of Merced" on Justia Law

Plaintiffs Ahmad Skouti and Faten M. Kour purchased a citrus orchard using proceeds from a jury award for the destruction of their grapevines. Under Internal Revenue Code section 1033, taxpayers can avoid recognizing gain from involuntary conversions if they purchase similar property. The Franchise Tax Board (Board) determined that the citrus orchard was not similar to the grapevines and denied the plaintiffs the benefit of section 1033. After exhausting administrative remedies, the plaintiffs filed a complaint in the trial court seeking a tax refund.The Superior Court of Sacramento County reviewed the case. Both parties filed motions for summary judgment. The trial court granted the Board’s motion and denied the plaintiffs’ motion, concluding that the citrus orchard, which included both land and mature trees, was not sufficiently similar to the grapevines to qualify for nonrecognition of gain under section 1033. The plaintiffs appealed this decision.The California Court of Appeal, Third Appellate District, reviewed the case. The court affirmed the trial court’s decision, agreeing with the Board that the properties were not similar under section 1033. The court held that the plaintiffs’ investment in grapevines, which are agricultural fixtures, was not equivalent to an investment in land with citrus trees. The court emphasized that the risks and management associated with grapevines were different from those associated with land containing citrus trees. Therefore, the plaintiffs did not achieve a sufficient continuity of investment to justify nonrecognition of the gain. The judgment of the trial court was affirmed, and the plaintiffs’ appeal was denied. View "Skouti v. Franchise Tax Board" on Justia Law

The case involves James B. Church & Associates, P.C. (the Church Firm), which served as legal counsel for Dennis Shogren, the personal representative of the estate of Loren R. Kirk, in a probate action. The estate beneficiaries, including Barbara Sagehorn and the Carter Beneficiaries, alleged that the Church Firm negligently failed to file a protective claim for a refund with the IRS or advise Shogren to do so. This failure purportedly resulted in the estate missing out on a potential $5,000,000 tax refund.The Superior Court of San Bernardino denied the Church Firm's special motion to strike the causes of action under the anti-SLAPP statute. The court found that the firm did not demonstrate that the causes of action arose from its constitutionally protected free speech or petitioning activities. The Church Firm appealed this decision.The Court of Appeal, Fourth Appellate District, Division One, State of California, reviewed the case. The court conducted an independent review and agreed with the lower court's ruling. It determined that the alleged acts forming the basis of the petitioners' causes of action—specifically, the Church Firm's failure to file a protective claim for a refund and failure to advise Shogren to file such a claim—were not protected activities under the anti-SLAPP statute. The court emphasized that the anti-SLAPP statute protects statements or writings made before or in connection with an issue under consideration by a judicial body, not failures to act or speak.Therefore, the Court of Appeal affirmed the order denying the anti-SLAPP motion, concluding that the Church Firm did not meet its burden of proving that the causes of action arose from protected conduct. View "Callister v. James B. Church & Associates" on Justia Law

In 2020, Bryce D. Hovannisian and Lindsay E. Hovannisian purchased several tax-defaulted properties at a tax sale from the City of Fresno. Prior to the sale, the City had recorded special assessments for nuisance abatement costs and unpaid penalties against these properties. After the purchase, the County of Fresno issued tax bills to the appellants, which included these special assessments. The appellants sought to pay only the portion of the tax bills excluding the special assessments, arguing that the tax sale should have removed these liens. The County rejected their partial payments, leading the appellants to sue the City and the County to quiet title to the properties.The Superior Court of Fresno County sustained three separate demurrers filed by the City and the County, asserting that Revenue and Taxation Code section 4807 barred the suit as it impeded tax collection. The court granted leave to amend after the first two demurrers but denied it after the third. The court found that the appellants were required to pay the taxes and then seek a refund, rather than challenging the assessments prepayment.The California Court of Appeal, Fifth Appellate District, reviewed the case and affirmed the trial court's ruling. The appellate court held that the special assessments were collected at the same time and in the same manner as county taxes, thus falling under the definition of "taxes" in section 4801. Consequently, section 4807 barred the appellants' prepayment suit. The court also found that the appellants had an adequate remedy at law through a refund action, which precluded them from seeking equitable relief. The judgment of the lower court was affirmed, and the appellants were directed to pay the taxes and seek a refund if necessary. View "Hovannisian v. City of Fresno" on Justia Law

Carlton Loeber, the trustor of an irrevocable trust owning two undeveloped properties within the Lakeside Joint School District, sought to place an initiative on the ballot to exempt taxpayers over 65 from any district parcel tax on undeveloped parcels. The district declined to call the election, citing cost concerns and legal objections. Loeber filed a petition for a writ of mandate to compel the district to place the initiative on the ballot. The trial court dismissed the petition, ruling that Loeber lacked standing.The trial court found that Loeber did not have a direct and substantial interest in the initiative because he did not personally own property in the district and failed to show that the trust could qualify for the exemption. The court also rejected Loeber’s public interest standing argument, noting the lack of public engagement and the significant cost to the district. The court concluded that the public need was not weighty enough to warrant the application of the public interest exception.The California Court of Appeal, Sixth Appellate District, reviewed the case and determined that Loeber had standing under the public interest exception, given the significant public right at issue concerning the initiative power. However, the court concluded that the proposed initiative did not fall within the scope of Article XIII C, Section 3 of the California Constitution, which allows initiatives to reduce or repeal local taxes. The court held that the initiative, which sought to create a new exemption for certain taxpayers, did not constitute "reducing" a tax within the meaning of the constitutional provision. Consequently, the district was not obligated to call an election on the initiative. The judgment was modified to deny the writ petition and affirmed as modified. View "Loeber v. Lakeside Joint School District" on Justia Law

In 2015, GPT Maple Avenue Owner, LP (GPT) purchased a property that was subject to a lease to Equinix, LLC (Equinix). At the time of GPT’s acquisition, the remaining term of the lease was 26 years. The Los Angeles County Assessor’s Office (Assessor) determined that GPT’s acquisition resulted in a “change in ownership” permitting reassessment for property tax purposes because, at the time of the sale, the remaining term of the lease was under 35 years. This was based on the statutes implementing Proposition 13, which state that whether the transfer of a lessor’s interest in taxable real property results in a change in ownership generally depends on the length of the remaining lease term at the time of the transfer.Equinix appealed the Assessor’s 2015 change in ownership determination to the Los Angeles County Assessment Appeals Board, which found in favor of the county. Equinix and GPT then presented a refund claim to the county, which the county denied. Equinix and GPT filed a lawsuit, and the trial court ruled in favor of the county, concluding that, under the “express language” of the relevant statutes, the sale of the Property to GPT in March 2015 resulted in a change in ownership because at the time of sale the remaining term of Equinix’s lease was less than 35 years.In the Court of Appeal of the State of California Second Appellate District Division One, the court affirmed the trial court’s decision. The court found that under the unambiguous language of the relevant statute, the 2015 transaction is a change in ownership permitting reassessment. The court rejected the appellants' arguments that the statute is inconsistent with Proposition 13 and another section in the statutory scheme. The court also rejected the appellants' argument that the statute is inconsistent with the overarching rules set forth in another section of the law. The court concluded that the Legislature was not required to adhere to the task force’s recommendations and that the statute as enacted did not render the law illogical. View "Equinix LLC v. County of Los Angeles" on Justia Law

This case involves a dispute over the taxation of cell phones sold in California as part of a "bundled transaction," in which a consumer purchases the phone at a reduced price from a wireless service provider in exchange for signing a contract for future wireless service. The plaintiffs challenged a state regulation that calculates sales tax on the full, unbundled price of the phone, rather than the discounted price paid by the consumer. They argued that this regulation violated the Revenue and Taxation Code and was not properly adopted under the Administrative Procedures Act.The Court of Appeal of the State of California, Third Appellate District, rejected these arguments. It concluded that the Department of Tax and Fee Administration could allocate a portion of the contract price in a bundled transaction to the cell phone and tax it accordingly. It also found that the regulation was properly adopted under the Administrative Procedures Act.The court noted that, while services are not taxable under California law, the sale of a cell phone as part of a bundled transaction is not a true discount because the wireless service provider recoups the cost of the phone through the service contract. Therefore, the Department could reasonably allocate a portion of the contract price to the phone and tax it accordingly. The court also concluded that the regulation had been properly adopted under the Administrative Procedures Act, rejecting the plaintiffs' arguments that the Department had failed to properly assess the regulation's economic impact and provide adequate notice to the public.As a result, the court reversed the portion of the lower court judgment that invalidated the regulation and prohibited the Department from applying it to bundled transactions. It remanded the case with instructions to deny the plaintiffs' petition for a writ of prohibition. View "Bekkerman v. California Department Of Tax and Fee Administration" on Justia Law