Cal. Dept. of Tax and Fee Administration v. Super. Ct.
Yesterday, the California Court of Appeals in the Second Appellate District decided that California taxpayers cannot avoid paying taxes they find unjust. The plaintiff, Jeremy Daniel Kintner, attempted to do so by invoking Gov. Code section 11350 (“any interested person” may sue for declaratory relief “as to the validity of any regulation”).
“Pay Up or Shut Up”
Article 13, section 32 of the California Constitution provides that taxpayers must pay a tax before challenging its validity. Cal. Const., art. XIII, section 32. The Court found that section 11350 cannot be used to circumvent Article XIII, section 32. The Court went so far as to contest precedent, saying that the panel disagreed with the holding in Pacific Motor Transport Co. v. State Bd. of Equalization. (1972) 28 Cal.App.3d 230.
Kintner was an officer and shareholder of HK Architectural Supply, Inc., which refused to pay its sales tax in the last three quarters of 2009. As a closely-held corporation, its officers and shareholders are liable in California for its unpaid sales tax. 18 Cal. Cod. Reg., section 1702.6. Kintner claimed that disallowing him from challenging the tax before paying it was a violation of due process.
The Court is not without a sense of humor. The California Appellate has referred to section 32 as the “pay first, litigate later” rule, or better yet, the “pay up or shut up” rule. Flying Dutchman Park, Inc. v. City and County of San Francisco (2001) 93 Cal.App.4th 1129, 1132; Andal v. City of Stockton (2006) 137 Cam.App.4th 86, 90.
Ultimately, the Court quoted extensive precedent in finding that if it were to allow plaintiffs to challenge a tax before paying it, the “life blood” of the State would cease to flow. As to section 11350, it does not provide relief from section 32 because the plain language of 11350 does not state as much, the CA Supreme Court has already suggested that it does not, and the legislative intent behind 11350 doesn’t support it.
There you have it. Pay up or shut up. Charming.