Grosz v. Cal. Dep't of Tax & Fee Admin.

87 Cal.App.5th 428

303 Cal.Rptr.3d 550

Stanley E. GROSZ, Plaintiff and Appellant,

v.CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION, et al., Defendants and Respondents;

Amazon Services, LLC, et al., Real Parties in Interest and Respondents.

B309418

Court of Appeal, Second District, Division 1, California.

Filed January 9, 2023

As Modified on Denial of Rehearing January 23, 2023

Dakessian Law, Mardiros H. Dakessian, Los Angeles; Capstone Law, Ryan H. Wu, Los Angeles, and Tyler Anderson for Plaintiff and Appellant.

Rob Bonta, Attorney General, Tamar Pachter, Assistant Attorney General, Lisa W. Chao, and Douglas J. Beteta, Deputy Attorneys General, for Defendants and Respondents.

Hueston Hennigan, John C. Hueston, Newport Beach, Moez M. Kaba, Los Angeles, Joseph A. Reiter, and Michael H. Todisco, Los Angeles, for Real Parties in Interest and Respondents.

CHANEY, J.

In addition to its own products, Amazon fulfills orders for products sold by third-party merchants through a program it calls "Fulfillment by Amazon" (FBA).¹ The trial court in this action described the program as alleged in the First Amended Complaint (FAC): "To support this program, Amazon contracts with merchants (‘FBA Merchants’) who supply the products ordered by consumers through Amazon's website. [Citation.] Amazon provides advertising, packaging, [and] delivery of the products supplied by the FBA Merchants. [Citation.] Amazon also processes payments for sales on behalf of the FBA Merchants."² According to the FAC, the state agency responsible for collecting sales and use tax (currently the California Department of Tax and Fee Administration (DTFA))³ has historically not collected from Amazon sales and use taxes for products sold through the FBA program.⁴

Stanley Grosz filed a taxpayer action under Code of Civil Procedure section 526a ( Section 526a ) seeking a declaration that the DTFA "has a mandatory duty to assess and collect" sales and use tax specifically from Amazon for products sold through the FBA program, and an injunction requiring the DTFA to do so. The DTFA and its Director, Nicolas Maduro,⁵ and the Amazon entities that Grosz named in his FAC as Real Parties in Interest all demurred to the FAC.

The trial court sustained the respondents’ demurrers without leave to amend.

The trial court reasoned that the Revenue and Taxation Code vests the DTFA with discretion to determine whether the FBA Merchant or Amazon is the "retailer" in any given FBA transaction for purposes of collecting sales and use tax. Because the determination is discretionary and not ministerial, the trial court reasoned that Grosz had no standing to pursue his action. (See Silver v. Watson (1972) 26 Cal.App.3d 905, 909, 103 Cal.Rptr. 576 ( Silver ).)

We agree with the trial court, and will affirm the trial court's order sustaining the respondents’ demurrers without leave to amend.

BACKGROUND

Because this case is before us after a trial court sustained demurrers, and because we must accept the factual allegations in the operative complaint as true for purposes of our review of the trial court's order, the facts we recite here are drawn from the allegations in Grosz's FAC.

The FAC alleged that in addition to selling its own products, Amazon "contracts with FBA Merchants in order to offer various products supplied by FBA Merchants for sale on www.amazon.com." According to the FAC, FBA Merchants send their goods to Amazon fulfillment centers, where Amazon stores the goods until they are sold to consumers. Amazon "handle[s] all the storing, packaging, and shipping of property held" in its fulfillment centers and "controls which fulfillment centers are used for the storage of products supplied by FBA Merchants." Amazon handles payment processing services for FBA Merchants’ goods that are sold on the Amazon Web site, and "processes transactions for invoiced orders, as well as payments, refunds, and adjustments" on the FBA transactions. According to the FAC, Amazon "receives and holds sales proceeds on behalf of FBA Merchants."

According to the FAC, California imposes sales and use taxes (see Rev. & Tax. Code, §§ 6051, 6201 ) on "retailers." "Under California law," the FAC states, "the ‘retailer’ is responsible for paying to the State of California sales tax on qualifying transactions" and "is also responsible for collecting use tax on qualifying transactions from purchasers and remitting it to the State."

Citing California Code of Regulations, Title 18, section 1569 (Regulation 1569), the FAC stated that "Amazon is the ‘retailer’ for FBA [s]ales in California ...."

According to the FAC, Amazon "has not [paid] and does not pay sales tax or collect and remit use tax to California for sales in California of [goods] supplied by FBA Merchants." The FAC further alleged that the DTFA "has not [collected] and does not attempt to collect sales and use tax from Amazon for sales of [goods] in California supplied by FBA Merchants."

Based on those allegations, the FAC alleged two causes of action. First, the FAC alleged in a cause of action for injunctive relief that "Amazon is liable for at least three years of past-due taxes, interest, and penalties" and that the DTFA "had a mandatory duty to assess and collect from Amazon sales and use tax" for sales of FBA Merchants’ products in California. Grosz seeks an injunction "mandating that [the DTFA] comply with its duty to enforce California's sales and use tax law by requiring Amazon to pay to the State sales and use tax on FBA [s]ales." In his second cause of action, Grosz seeks declaratory relief in the form of a "judicial determination of the rights and duties of [the DTFA] with respect to whether at all times relevant hereto Amazon is and was a retailer under California law responsible for paying sales and use tax to the State on FBA [s]ales and as such [the DTFA] has a mandatory duty to assess and collect such tax from Amazon."

Grosz alleged that he was bringing the action under Section 526a, which creates taxpayer standing under certain circumstances.

The DTFA and Amazon both demurred to the FAC. Among a host of other arguments, the DTFA argued that the determination about who is a "retailer" under the Revenue and Taxation Code or the accompanying regulations is left to the discretion of the DTFA.⁶ "Determinations that a party is a ‘retailer’ in California, liable for the sales tax or collection of the use tax, required to file a tax return, and collection is worth pursuing," the DTFA argued, "require the [DTFA] to act according to the dictates of its own judgment." The DTFA argued that under Section 526a, "a taxpayer must allege a governmental action was mandatory, not discretionary ...." "A mandatory duty to act," the DTFA argued, "is one where the government agency or officer has a clear, present and ‘ministerial duty’ to act ..., meaning the agency or officer ‘is required to perform in a prescribed manner in obedience to the mandate of legal authority and without regard to his own judgment or opinion concerning such act's propriety or impropriety, when a given state of facts exists.’ " Amazon joined in the DTFA's arguments, and included its own argument regarding Grosz's standing to enjoin the DTFA's discretionary acts.⁷

The trial court agreed with the DTFA's and Amazon's contention that Grosz lacked standing under Section 526a because his lawsuit sought an injunction directing the DTFA how to exercise its discretion. Quoting Silver , supra , 26 Cal.App.3d at page 909, 103 Cal.Rptr. 576, the trial court explained that " ‘[a] taxpayer may not bring an action on behalf of a public agency unless the governing body has a duty to act, and has refused to do so. If the governing body has discretion in the matter, the taxpayer may not interfere .’ " (Italics added by trial court.) The trial court explained the distinction between ministerial and discretionary acts, and explained, quoting Sonoma Ag Art v. Department of Food & Agriculture (2004) 125 Cal.App.4th 122, 127, 22 Cal.Rptr.3d 468 that " ‘[e]ven if mandatory language appears in [a] statute creating a duty, the duty is discretionary if the [public entity] must exercise significant discretion to perform the duty.’ " Citing a variety of Revenue and Taxation Code provisions, the trial court explained in depth that the DTFA "is the proper entity vested with authority to make the determination as to which party—FBA Merchants or Amazon—is the retailer" for purposes of sales and use tax on FBA transactions. "Indeed," the trial court reasoned, "by asserting that it was mandatory for the [DTFA] to determine that Amazon was the retailer for the transactions at issue, [Grosz] is conceding that [the DTFA] was the proper entity vested with the authority to make the determination of which party was the retailer." The trial court reasoned that Grosz's argument was not that the DTFA did not have the authority to determine the identity of the retailer under the applicable statutory scheme, but rather that "the statutory scheme mandated that [the DTFA] conclude that Amazon was the retailer ...."

The trial court then examined the legal authority that the parties identified as relevant—" Revenue and Tax[ation] Code [sections] 6014, 6015, and 6006, as well as [Regulation] 1569"—to determine whether those statutes "mandated the legal conclusion that Amazon (and not the FBA Merchants) were the retailer for the FBA [s]ales described in the FAC." On its examination, the trial court noted that "inasmuch as Amazon may qualify as a ‘retailer’ under Revenue and Tax[ation] Code sections 6014 and 6015, these definitions of ‘retailer’ apply with equal, if not greater, force to the FBA Merchants, who source and sell their products on Amazon.com." The trial court pointed out that Grosz's argument "appeared to urge that the [trial] court abandon Revenue and Tax[ation] Code sections 6014 and 6015 altogether in its analysis" and consider " Revenue and Tax[ation] Code section 6007 [, subdivision ](a)(2) and [Regulation]...