Grosz v. Cal. Dept. of Tax & Fee Administration

Filed 1/9/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
STANLEY E. GROSZ, B309418
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No.
v. 19STCV27757)
CALIFORNIA DEPARTMENT
OF TAX AND FEE
ADMINISTRATION, et al.,
Defendants and
Respondents;
AMAZON SERVICES, LLC, et
al.,
Real Parties in Interest
and Respondents.
APPEAL from orders of the Superior Court of Los Angeles
County, Elaine Lu, Judge. Affirmed.
Dakessian Law, Mardiros H. Dakessian; Capstone Law,
Ryan H. Wu, 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, Moez M. Kaba,
Joseph A. Reiter, and Michael H. Todisco for Real Parties in
Interest and Respondents.
____________________________
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
1The Real Parties in Interest are Amazon.com, Inc.,
Amazon Services, LLC, Amazon Fulfillment Services, Inc.,
Amazon Payments, Inc., and Amazon Capital Services, Inc.
According to the operative complaint, these parties act in concert
to administer the FBA program.
2 On its Web site, Amazon summarizes the program this
way: “Fulfillment by Amazon (FBA) is a service that allows
businesses to outsource order fulfillment to Amazon. Businesses
send products to Amazon fulfillment centers and when a
customer makes a purchase, [Amazon] pick[s], pack[s], and
ship[s] the order. [Amazon] can also provide customer service
and process returns for those orders.”
2
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
( [as of January
6, 2023].)
3Before July 1, 2017, the agency responsible for collecting
sales and use taxes was the State Board of Equalization. The
Taxpayer Transparency and Fairness Act of 2017 created the
DTFA and transferred the Board of Equalization’s authority and
responsibility for sales and use taxes (among other things) to the
DTFA. (Stats. 2017, ch. 16, §§ 5, 14, 15; Gov. Code, §§ 15570,
15570.20, 15570.22; Rev. & Tax. Code, § 20.)
4 In his opening brief, Stanley Grosz—the taxpayer who
filed suit against the DTFA—explains that this appeal is limited
to DTFA’s “failure to collect tax from Amazon on FBA [s]ales
transacted prior to October 1, 2019 . . . .” In 2019, the
Legislature passed and the Governor signed Assembly Bill No.
147, which the Legislature called the Marketplace Facilitator Act
(MFA). (Stats. 2019, ch. 5, § 2.) The bill made the MFA
operative on October 1, 2019. (Stats. 2019, ch. 5, § 2; Rev. & Tax.
Code, § 6049.5, subd. (a).) The MFA appears on its face to relate
to transactions like the FBA transactions alleged in the FAC. We
do not construe any part of the MFA here, but note only that it
appears that Grosz has attempted to expressly exclude from his
lawsuit any transactions occurring after the MFA’s operative
date.
3
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 (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
5 We refer to the DTFA and Maduro collectively as the
DTFA.
4
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
5
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
6 Again, the arguments in this case focus on transactions
that occurred before the enactment of Marketplace Facilitator Act
in 2019.
6
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
7 Amazon filed and the trial court granted a request for
judicial notice of a 2012 letter from the State Board of
Equalization (BOE) concluding that under the facts as explained
to the BOE and detailed in the letter, neither Amazon nor any of
its related entities was a “retailer” under Regulation 1569. The
BOE’s determination in its advice letter appears to have been
based largely on its understanding that in order to effectuate a
sale from an FBA Merchant to a consumer in most instances,
Amazon had to submit the order to the FBA Merchant and the
FBA Merchant had to approve the order. On that basis, Amazon
did not have the power to transfer title or cause title to be
transferred from the FBA Merchant to the consumer without
action by the FBA Merchant. In other instances, one of the
Amazon entities that did not have physical possession of the
property (and was therefore not a “retailer” under Regulation
1569) had authority to transfer title, and another Amazon entity
without authority to transfer title (and therefore not a “retailer”
under Regulation 1569) had physical possession of the property.
The BOE’s letter is based on many BOE communications
with Amazon’s accountants and contains facts different from
those alleged in the FAC. While we recognize that the BOE
interpreted the statutes and regulations at issue in this case the
way it did in 2012 based on the facts before it at that time, we
also recognize that the BOE’s letter goes to great lengths to limit
itself to the facts recited in the letter. Judicial notice of what the
BOE did is judicial notice only of the BOE’s action, and not of the
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, 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 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
facts in the BOE’s letter, which are different than the facts
asserted in the FAC. (See Chacon v. Union Pacific Railroad
(2020) 56 Cal.App.5th 565, 573 [judicial notice may be taken of a
document, but not the truth of its contents].)
8
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] 1569 in
isolation and at the exclusion of all other provisions of the
statutory scheme in determining which party—Amazon or the
FBA Merchants—were the retailers for purposes of the sales and
use taxes.”
The trial court declined to do so, explaining: “The
determination of which party—FBA Merchants or Amazon—was
the retailer necessarily entailed consideration of all sections of
the vast statutory scheme and required discretion especially
considering ‘the “highly technical,” “intensely detailed and fact-
specific sales tax system governing an enormous universe of
transactions.” ’ ” The trial court understood the statutes to mean
that “[b]ecause there is but one transaction or sale of the product
9
to the customer, [the DTFA] may collect the sales and use taxes
either from Amazon or from the FBA Merchants, but not both.
Because the definition of ‘retailer’ set forth in the statutes cited
by [Grosz] . . . apply with equal or greater force to the FBA
Merchants, [Grosz] has merely demonstrated at best that [the
DTFA] could have chosen either Amazon or the FBA Merchants
as the ‘retailer’ liable for sales and use taxes for each FBA sale,
meaning that [the DTFA] had the discretion to choose either
one.” “The mere fact that [Grosz] disagrees with the outcome of
[the DTFA]’s discretionary determination,” the trial court
explained, “does not mean that [the DTFA] violated a mandatory
duty.”
Because the trial court concluded that the determination
whether Amazon or a given FBA Merchant was the “retailer” for
purposes of sales and use tax was discretionary and not
ministerial, the trial court concluded that Grosz did not have
standing to challenge the DTFA’s determination. And because
Grosz’s lawsuit was premised on the alleged failure of the DTFA
to perform a duty that was discretionary, rather than mandatory,
the trial court concluded that there was no reasonable possibility
that Grosz could amend his complaint to state a viable cause of
action. On that basis, the trial court denied Grosz leave to
amend his complaint.
Based on its order sustaining the DTFA’s and Amazon’s
demurrers without leave to amend, the trial court directed the
clerk to enter an order dismissing the matter. Grosz filed a
timely notice of appeal.
10
DISCUSSION
A. The Law
1. Demurrer
“A demurrer tests the sufficiency of the allegations in a
complaint as a matter of law. [Citation.] We review the
sufficiency of the challenged complaint de novo. [Citation.] We
accept as true the properly pleaded allegations of fact in the
complaint, but not the contentions, deductions or conclusions of
fact or law. [Citation.] We also accept as true facts which may be
inferred from those expressly alleged. [Citation.] We consider
matters which may be judicially noticed, and we ‘give the
complaint a reasonable interpretation, reading it as a whole and
its parts in their context.’ [Citation.] . . . The complaint’s
‘allegations must be liberally construed, with a view to
substantial justice between the parties.’ [Citation.] The
judgment or order of dismissal entered after the demurrer is
sustained must be affirmed if any of the grounds for demurrer
raised by the defendant is well taken and disposes of the
complaint. [Citation.] But it is error to sustain a general
demurrer if the complaint states a cause of action under any
possible legal theory.” (In re Electric Refund Cases (2010) 184
Cal.App.4th 1490, 1500.)
2. Code of Civil Procedure Section 526a
“The purpose of [S]ection 526a, ‘which applies to citizen and
corporate taxpayers alike, is to permit a large body of persons to
challenge wasteful government action that otherwise would go
unchallenged because of the standing requirement.
[Citation.] . . . [A]lthough by its terms the statute applies to local
governments, it has been judicially extended to all state and local
agencies and officials. [Citations.]’ [Citation.] ‘ “[T]he individual
11
citizen must be able to take the initiative through taxpayers’
suits to keep government accountable on the state as well as on
the local level.” ’ ” (Vasquez v. State of California (2003) 105
Cal.App.4th 849, 854, fn. omitted.)
“It is established that an action lies under [S]ection 526a
not only to enjoin wasteful expenditures, but also to enforce the
government’s duty to collect funds due the State. ‘ “A taxpayer
may sue a governmental body in a representative capacity in
cases involving [its] . . . failure . . . to perform a duty specifically
enjoined.” [Citation.] This well-established rule ensures that the
California courts, by entertaining only those taxpayers’ suits that
seek to measure governmental performance against a legal
standard, do not trespass into the domain of legislative or
executive discretion. [Citations.] This rule similarly serves to
prevent the courts from hearing complaints which seek relief that
the courts cannot effectively render; the courts cannot formulate
decrees that involve the exercise of indefinable discretion; their
decrees can only restrict conduct that can be tested against legal
standards. [Citations.]’ ” (Vasquez v. State of California, supra,
105 Cal.App.4th at pp. 854-855, italics added.)
“The cases have . . . been careful to note that [S]ection 526a
has its limits. In particular, the courts have stressed that the
statute should not be applied to principally ‘political’ issues or
issues involving the exercise of the discretion of either the
legislative or executive branches of government.” (Humane Society
of the United States v. State Bd. of Equalization (2007) 152
Cal.App.4th 349, 356, italics added; see Silver, supra, 26
Cal.App.3d at p. 909 [“[i]f the governing body has discretion in
the matter, the taxpayer may not interfere”].)
12
3. Sales and Use Tax “Retailer”
“The California Sales and Use Tax Law (Rev. & Tax. Code,
§ 6001 et seq.) embodies a comprehensive tax system created to
impose an excise tax, for the support of state and local
government, on the sale, use, storage or consumption of tangible
personal property within the state. [Citation.] The two taxes,
sales and use, are mutually exclusive but complementary, and
are designed to exact an equal tax based on a percentage of the
purchase price of the property in question. In essence ‘ “[a] sales
tax is a tax on the freedom of purchase . . . [a] use tax is a tax on
the enjoyment of that which was purchased.’ ” [Citations.] [¶]
The use tax supplements the sales tax by imposing on those
subject to it the same tax burden as would otherwise be assessed
under the sales tax.” (Wallace Berrie & Co. v. State Bd. of
Equalization (1985) 40 Cal.3d 60, 66-67, fns. omitted.)
Specifically, California law imposes a tax on “the gross
receipts of any retailer from the sale of all tangible personal
property sold at retail in this state . . . .” (Rev. & Tax. Code,
§ 6051.) The sales tax is imposed on and collected from
“retailers.” (Ibid.) California law also imposes a tax on the
“storage, use, or other consumption in this state of tangible
personal property purchased from any retailer . . . .” (Rev. & Tax.
Code, § 6201.) This tax is imposed on the retail purchaser, but is
collected from the purchaser by the “retailer” and remitted to the
state. (Rev. & Tax. Code, §§ 6202, 6203.)
Pertinent to this appeal, the Sales and Use Tax Law states
that “ ‘[r]etailer’ includes,” among other things, “[e]very seller
who makes any retail sale or sales of tangible personal property .
. .” and “[e]very person engaged in the business of making sales
for storage, use, or other consumption . . . .” (Rev. & Tax. Code,
13
§ 6015, subd. (a)(1) & (2).) A “ ‘[s]eller’ includes every person
engaged in the business of selling tangible personal property of a
kind the gross receipts from the retail sale of which are required
to be included in the measure of the sales tax.” (Rev. & Tax.
Code, § 6014.) “A ‘retail sale’ . . . means a sale for a purpose other
than resale in the regular course of business in the form of
tangible personal property.” (Rev. & Tax. Code, § 6007.) And a
“ ‘sale’ ” means, among other things, “[a]ny transfer of title or
possession, exchange, or barter, conditional or otherwise, in any
manner or by any means whatsoever, of tangible personal
property for a consideration. ‘Transfer of possession’ includes
only transactions found by the [DTFA] to be in lieu of a transfer
of title, exchange, or barter.” (Rev. & Tax. Code, § 6006, subd.
(a).)
The Sales and Use Tax Law expressly makes the DTFA
responsible to enforce its provisions and allows it to “prescribe,
adopt, and enforce rules and regulations relating to [its]
administration and enforcement.” (Rev. & Tax. Code, § 7051.)
The DTFA may also “prescribe the extent to which any ruling or
regulation shall be applied without retroactive effect.” (Ibid.)
One such regulation—the regulation that Grosz contends
disposes of this matter—is Regulation 1569, which states in full:
“A person who has possession of property owned by another, and
also the power to cause title to that property to be transferred to
a third person without any further action on the part of its owner,
and who exercises such power, is a retailer when the party to
whom title is transferred is a consumer. Tax applies to his gross
receipts from such a sale. [¶] Pawnbrokers, storage men,
mechanics, artisans, or others selling the property to enforce a
14
lien thereon, are retailers with respect to sales of the property to
consumers and tax applies to the receipts from such sales.”
B. Analysis
Because taxpayers have no authority to enjoin
discretionary government activity under Section 526a (Silver,
supra, 26 Cal.App.3d at p. 909), the outcome of Grosz’s appeal
turns on whether the DTFA has discretion to determine who the
“retailer” is for purposes of a transaction subject to the Sales and
Use Tax Law. 8
Grosz contends that the trial court erred when it concluded
that the determination of who is a “retailer” under the Sales and
Use Tax Law for purposes of Amazon’s FBA program involves an
exercise of discretion, and therefore is not properly the subject of
a Section 526a suit. According to Grosz, Regulation 1569 governs
the outcome of the suit, because it requires the DTFA to conclude
that Amazon was the retailer for purposes of FBA sales in
California, to the exclusion of FBA Merchants.
At the outset, we address what appears in Grosz’s briefing
to be an argument Grosz intended to make (but ultimately did
not make) about the proper function of both the trial court and
this court in reviewing the sufficiency of a complaint on
demurrer. Grosz alludes to, but never develops, an argument
that the FAC “alleges that, under the Revenue and Tax[ation]
Code . . . Amazon is the ‘retailer’ liable for payment of sales and
use tax on FBA [s]ales.” Grosz then characterizes the trial court’s
conclusion on the central question in this case as “a merits
8 Grosz concedes that a sales or use tax can only be applied
once to a retail transaction—that Amazon and any particular
FBA Merchant “cannot both be held liable for tax on the same . . .
sale.”
15
determination that is impermissible on a demurrer.” Grosz
contends that the trial court “committed two principle errors.
First,” Grosz argues, “the trial court misapplied the law.” (Italics
added.) Grosz continues: “Second, the trial court’s reasoning
crosses into merits issues that must be resolved on an evidentiary
record . . . [because] [t]he trial court made a merits finding that
the FBA Merchants were in fact ‘retailers’ under the [Revenue
and Taxation Code] with respect to FBA [s]ales.” Grosz argues
that this “merits finding” turns on “factually contested issues.” 9
In his FAC, Grosz made several statements, in a section
entitled “factual allegations,” that he appears to allude to as facts
that the trial court should have taken (and we should take) as
true. Namely, he contends that California imposes sales and use
taxes under certain circumstances and that “retailers” are
responsible for paying sales tax and collecting and remitting use
tax. In the same “factual allegations” section, the FAC selectively
quotes from Revenue and Taxation Code sections 6014 and 6015
and Regulation 1569 to define “retailer” and “seller.” And
ultimately—again in the same “factual allegations” section—the
FAC states: “Amazon is the ‘retailer’ for FBA [s]ales in California
because, among other reasons, one or more Amazon entities—
either individually or collectively—satisfies the requirements of
California Revenue and Taxation Code [sections] 6014, 6015 and
[Regulation] 1569. Amazon is also the ‘retailer’ because, among
other reasons, one or more Amazon entities is/are the
9This characterization, of course, undermines Grosz’s
argument on appeal. If something is a “ministerial” task, it is
counterintuitive to suggest that the resolution of the question
would ultimately turn on “factually contested issues” that require
the development of a factual record.
16
‘retailer(s)’—either individually or collectively—under California
Revenue and Taxation Code [section] 6007, regarding sales in
California of Products supplied by FBA Merchants that are not
otherwise engaged in business in California. Notably, ownership
of property is not required for one to be considered a ‘retailer.’ ”
These are not factual allegations. They are legal
conclusions.
To the extent Grosz’s allusions to “determination[s] that
[are] impermissible on a demurrer” refer to the trial court’s
interpretation of the Revenue and Taxation Code and its
associated regulatory scheme to determine whether the identity
of a “retailer” is a discretionary question for the DTFA, we reject
Grosz’s characterization. The DTFA’s, Amazon’s, and Grosz’s
arguments both in the trial court and here center exclusively on
questions of statutory interpretation. Statutory construction
questions are “pure questions of law.” (Regents of University of
California v. Superior Court (1999) 20 Cal.4th 509, 531.)
Specifically—and more to the point—the determination
whether the question of who is a retailer under the Sales and Use
Tax Law is discretionary or ministerial is a question of law.
(Alejo v. Torlakson (2013) 212 Cal.App.4th 768, 779-780 [“ ‘In
most cases, the appellate court must determine whether the
agency had a ministerial duty capable of direct enforcement or a
quasi-legislative duty entitled to a considerable degree of
deference. This question is generally subject to de novo review on
appeal because it is one of statutory interpretation’ ”].) As did
the trial court, we note that for purposes of a demurrer, “[t]he
court does not . . . assume the truth of contentions, deductions or
conclusions of law.” (Aubry v. Tri-City Hospital Dist. (1992) 2
Cal.4th 962, 967.)
17
On the statutory interpretation question, we conclude, as
did the trial court, that the determination of who is a “retailer”
under the Sales and Use Tax Law and relevant regulations is one
that invokes the discretion of the DTFA; making that designation
is not a ministerial task.
As Grosz confirmed at oral argument in this matter, courts
in Section 526a actions “can only restrict conduct that can be
tested against legal standards.” (Harman v. City and County of
San Francisco (1972) 7 Cal.3d 150, 161.) “[T]he courts cannot
formulate decrees that involve the exercise of indefinable
discretion . . . .” (Ibid.)
At oral argument, Grosz identified County of Sonoma v.
State Bd. of Equalization (1987) 195 Cal.App.3d 982 (Sonoma), as
the case most favorable to his argument. In that case, Grosz
argued, a taxpayer had standing under Section 526a to require
the BOE to collect a sales tax on geothermal steam even though
the BOE’s interpretation of a particular Revenue and Taxation
Code section was that the law exempted sales of geothermal
steam.
The nature of the dispute in Sonoma compared to the
nature of the dispute here highlights the context of a ministerial
action as opposed to a discretionary action, and provides us a
framework from which to analyze the statutes involved here. In
Sonoma, “[f]acilities to take advantage of the geothermal energy
resources in the area known as The Geysers in Sonoma County
were first construed in 1957. Several companies captured the
steam and sold it to utility companies which used it to spin
turbines, thereby generating electricity. . . . [Citation.] No sales
tax was collected by the Board on sales of the geothermal steam
in these circumstances because it considered the sales to be
18
exempt” under the Revenue and Taxation Code. (Sonoma, supra,
195 Cal.App.3d 982, 986.) The Court of Appeal determined that
the taxpayer who brought suit under Section 526a had standing
to sue because he was not challenging an exercise of discretion,
but rather the extent of the BOE’s authority in the first instance.
(Id. at p. 989.) In other words, the taxpayer was not challenging
an exercise of discretion, but rather was challenging whether the
BOE had any discretion to exercise.
Either there was, as the BOE argued, an exemption, in
which case no taxes were to be collected. Or there was no
exemption, and taxes were to be collected. The question was one
of statutory interpretation, and there was no BOE discretion to
be exercised. Here, by contrast, the question is not whether the
law imposes a tax, but rather on whom, based on language in
several interrelated statutes. The question here, as the trial
court pointed out, is not whether the DTFA has discretion, but
rather how it must exercise that discretion. That is the critical
distinction between this case and Sonoma.
Grosz attempts to overcome this distinction by arguing that
because of the language of Regulation 1569, there is only one
possible way the DTFA could exercise its discretion—that there is
only one conclusion to be drawn about who a “retailer” is under
the appropriate statutes. For Grosz to have standing, then, we
must interpret the language of Regulation 1569 in the same way
he does.
To be designated what Grosz terms “the” retailer under
Regulation 1569, Grosz contends, one must meet three
“elements”: “(1) the person [or entity] has possession of property
owned by another; (2) the person [or entity] has the power to
cause title to that property to be transferred to a third person
19
without any further action on the part of the owner; and (3) the
person [or entity] exercises that power.” Because Amazon meets
those three elements, Grosz argues, Regulation 1569 renders
Amazon the only retailer for purposes of FBA sales through the
words “[t]ax applies”: “Tax applies to his gross receipts from such
a sale.”
Grosz argues that the trial court should have limited its
analysis to Regulation 1569. Indeed, Grosz contends that “the
court erred in reaching for the wider statutory and
administrative Sales and Use Tax scheme to ignore the
application of the specific regulation” because “The FAC explains”
that FBA transactions “meet the elements of Regulation 1569.”
However, in urging us to adopt his argument (and his
reading of Regulation 1569, which we address below), Grosz
correctly tells us that “California courts apply the regular rules of
statutory construction when interpreting regulations.” (See Trejo
v. County of Los Angeles (2020) 50 Cal.App.5th 129, 140.) He
then tells us—again correctly—that “the words of a regulation are
to be interpreted ‘in context, harmonizing to the extent possible all
provisions relating to the same subject matter.’ ” (Quoting Simi
Corp. v. Garamendi (2003) 109 Cal.App.4th 1496, 1506, italics
added.)
As a matter of statutory interpretation, then, it would have
been inappropriate for the trial court to make its determination
in this matter by taking selected language in Regulation 1569 out
of context and ignoring other statutory provisions “relating to the
same subject matter”—provisions that Grosz cited in his FAC and
oppositions to the demurrers.
As in any case involving statutory interpretation, we begin
with the text of the statute. (Bruni v. The Edward Thomas
20
Hospitality Corp. (2021) 64 Cal.App.5th 247, 255.) Here, Grosz
argues that Regulation 1569 is dispositive. Regulation 1569
states: “A person who has possession of property owned by
another, and also the power to cause title to that property to be
transferred to a third person without any further action on the
part of its owner, and who exercises such power, is a retailer
when the party to whom title is transferred is a consumer. Tax
applies to his gross receipts from such a sale. [¶] Pawnbrokers,
storage men, mechanics, artisans, or others selling the property
to enforce a lien thereon, are retailers with respect to sales of the
property to consumers and tax applies to the receipts from such
sales.”
We do not interpret Regulation 1569 in the same way Grosz
urges. As an initial matter we note that the plain language of
Regulation 1569 does not designate any particular person or
entity as “the” retailer in any set of circumstances, but rather as
“a retailer.” And the language “[t]ax applies to his gross receipts
from such sales” does not lead us to a different conclusion. That
is because, as we understand from other portions of the Revenue
and Taxation Code, “tax” may “apply” in any given situation
covered by the Sales and Use Tax Law, but who collects it, from
whom it is due, and how and when it is paid are all questions,
among many others, that may have different answers depending
on the contours of an individual transaction. To say that a “tax
applies” is not the same as saying that the tax is owed by or
collectible from one particular person or entity as part of a multi-
party transaction. It is merely a statement that the transaction
in question is one to which either sales or use “tax applies.”
Consequently, even if we were to limit our review, as Grosz
urges, to the language of Regulation 1569, we would not conclude
21
that it commands the DTFA to tax Amazon to the exclusion of
any other participant in an FBA transaction. 10
Moreover, to determine whether the designation of a
taxpayer as a “retailer” under the Sales and Use Tax Law is
discretionary or ministerial requires us to examine more than
just Regulation 1569. The Sales and Use Tax Law itself
expressly defines “Retailer” in Revenue and Taxation Code
section 6015. According to section 6015, “ ‘Retailer’ includes: [¶]
(1) Every seller who makes any retail sale or sales of tangible
personal property, and every person engaged in the business of
making retail sales at auction of tangible personal property
owned by the person or others. [¶] (2) Every person engaged in
the business of making sales for storage, use, or other
consumption or in the business of making sales at auction of
tangible personal property owned by the person or others for
storage, use, or other consumption.” 11 (Rev. & Tax. Code, § 6015,
subd. (a)(1) & (2).) Section 6015 also provides that “[w]hen the
[DTFA] determines that it is necessary for the efficient
10 We also again note that it is the DTFA that is charged
with “prescrib[ing], adopt[ing], and enforc[ing] rules and
regulations relating to the administration and enforcement of”
the Sales and Use Tax Law, and the DTFA “may prescribe the
extent to which any ruling or regulation shall be applied without
retroactive effect.” (Rev. & Tax. Code, § 7051, italics added.)
Consequently, the DTFA is statutorily clothed with some
discretion regarding even the application of Regulation 1569.
11 The third definition of “retailer” is “[a]ny person
conducting a race meeting under Chapter 4 of Division 8 of the
Business and Professions Code, with respect to horses which are
claimed during such meeting.” (Rev. & Tax. Code, § 6015, subd.
(a)(3).)
22
administration of this part to regard any salesmen,
representatives, peddlers, or canvassers as the agents of the
dealers, distributors, supervisors, or employers under whom they
operate or from whom they obtain the tangible personal property
sold by them, irrespective of whether they are making sales on
their own behalf or on behalf of the dealers, distributors,
supervisors, or employers the board may so regard them and may
regard the dealers, distributors, supervisors, or employers as
retailers for purposes of this part.” (Rev. & Tax. Code, § 6015,
subd. (b).)
In addition to expressly giving the DTFA discretion to
determine who “may [be] regard[ed] . . . as retailers” for purposes
of the Sales and Use Tax Law under the circumstances outlined
in Revenue and Taxation Code section 6015, subdivision (b), we
note the broad discretion the Legislature has given the DTFA
generally. (Gov. Code, §§ 15570 et seq.)
Before the BOE’s “duties, powers, and responsibilities”
under the Sales and Use Tax Law were transferred from the BOE
to the DTFA (upon the DTFA’s establishment) (Gov. Code, §
15570.2), we considered the discretion vested in the BOE (and
now the DTFA) to determine the identity of a “retailer” under the
Sales and Use Tax Law. (Associated Beverage Co. v. Board of
Equalization (1990) 224 Cal.App.3d 192.) At the time, there was
obviously record evidence before us about the BOE’s “usual
procedure in considering . . . on a case by case basis” whether to
classify any particular taxpayer as a “Section 6015 retailer.” (Id.
at p. 202.) “The essential determination,” we said in that case, “is
that the reclassification of certain taxpayers is necessary to the
efficient administration of the sales tax.” (Ibid.) We upheld a
regulation the BOE had promulgated that “treat[ed] all suppliers
23
of a certain class of vending machine operators as retailers.”
(Ibid.) We noted that “[g]enerally, [the BOE] does not apply . . .
section 6015 on an industry- or class-wide basis, but looks at an
individual business and determines whether it is appropriate to
regard the initial purveyor as the retailer, thereafter following” a
procedure to make a final determination about who constitutes
the “retailer” in a given scenario. (Id. at pp. 202-203.)
In requests for judicial notice in the trial court and here,
the parties provided us with several legal opinions issued by the
BOE regarding whether a taxpayer was a retailer under Revenue
and Taxation Code section 6015 and, in the case of one of Grosz’s
requests for judicial notice, under Regulation 1569. 12 As we
12 Grosz has filed three requests for judicial notice in this
court. The first, filed November 22, 2021, requested judicial
notice of three legal opinion letters from BOE counsel regarding
Regulation 1569 and the designation of taxpayers under that
regulation. The DTFA argues that the letters at issue are not
subject to judicial notice because they are opinions of BOE
counsel and are not “official acts,” but rather are merely
correspondence from BOE employees. Regardless of how the
letters are characterized, we grant the November 22, 2021
request for judicial notice.
Grosz filed a second request for judicial notice on February
2, 2022, this time requesting that we judicially notice a request
for judicial notice that the DTFA filed in a case in another Court
of Appeal that attached several documents. Although the
relevance to this appeal of a request for judicial notice filed in a
different appeal and any document attached to that request for
judicial notice is tenuous, at best, we nevertheless grant the
February 2, 2022 request for judicial notice.
On September 19, 2022, Grosz filed a third request for
judicial notice. This request asked us to judicially notice a
complaint that the State of California has filed against Amazon
24
noted in footnote 7 above, Amazon requested and in 2012 the
BOE provided a legal opinion regarding whether Amazon was a
retailer for purposes of FBA transactions.
“ ‘Taking judicial notice of a document is not the same as
accepting the truth of its contents or accepting a particular
in the San Francisco County Superior Court for alleged violations
of the Cartwright Act (Bus. & Prof. Code, §§ 16720 et seq.) and
the Unfair Competition Law (Bus. & Prof. Code, §§ 17200 et seq.).
The complaint discusses transactions that appear to fall within
the FBA program, among other transactions, and refers to
Amazon as a “retailer” in various places. The request also asks
us to judicially notice an opinion from the Commonwealth Court
of Pennsylvania purporting to decide “cross-applications for
summary relief.” The opinion refers to “[t]he key issue” in the
case as “whether non-Pennsylvania businesses that sell
merchandise through Amazon’s FBA Program must collect and
remit Pennsylvania sales tax pursuant to Section 237(b)(1) of the
Tax Reform Code of 1971 . . . .”
We grant Grosz’s third request for judicial notice as to the
complaint the State of California filed against Amazon in the San
Francisco County Superior Court.
We deny the request as to the Commonwealth Court of
Pennsylvania opinion. “[A] court will not take judicial notice of a
case that was not cited in the briefs.” Neither will appellate
courts “take judicial notice of matters irrelevant to the dispositive
point on appeal.” The interpretation of a sister state’s statute by
that state’s courts that was not discussed in the briefs is not
relevant to our consideration of the issues on this appeal. Indeed,
the question at issue on that appeal—whether non-Pennsylvania
businesses that sell merchandise through Amazon’s FBA
Program must collect and remit Pennsylvania sales tax—has no
bearing on whether the determination of who is a retailer under
California’s Sales and Use Tax Law is a ministerial task or
involves the exercise of DTFA discretion.
25
interpretation of its meaning.’ [Citation.] While courts take
judicial notice of public records, they do not take notice of the
truth of matters stated therein.” (Herrera v. Deutsche Bank
National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)
We make no comment on either the BOE’s analysis or any
party’s characterization of what the judicially noticed letters do
or do not establish vis-à-vis the Sales and Use Tax Law. Neither
do we endorse or reject any of the contents of any of the judicially
noticed documents. The letters attached to Grosz’s first request
for judicial notice in this court and to Amazon’s request for
judicial notice in the trial court do, however, demonstrate that
the determination about whether a taxpayer is a retailer under
the Sales and Use Tax Law involves analysis of a number of facts
and circumstances. The BOE, and now the DTFA, obviously
considered a host of factors and, in some cases, required
extensive communication with the taxpayer to develop an
understanding of relevant facts to ultimately determine whether
a particular taxpayer was a retailer under Revenue and Taxation
Code section 6015.
The BOE’s powers have shifted to the DTFA. But we have
no reason to believe that the scope of those powers or the
discretion vested the agency has changed in any way. To the
contrary, upon its creation, the DTFA was designated “the
successor to, and [was] vested with, all of the duties, powers, and
responsibilities” of the BOE. (Gov. Code, § 15570.22.)
In sum, and contrary to Grosz’s arguments here, there is no
statute or regulation that conclusively establishes that the DTFA
must pursue Amazon for sales and use taxes related to FBA
transactions. Indeed, the language of Revenue and Taxation
Code section 6015, subdivision (a) makes it clear that there may
26
be multiple “persons” (as that term is statutorily defined) who the
DTFA may regard as “retailers” for the purposes of a single
transaction. The statutory framework of the Sales and Use Tax
Law and the statutes vesting the DTFA with authority to
administer that statutory framework also generally lead us to
conclude that whether a taxpayer is a retailer for purposes of the
Sales and Use Tax Law is a discretionary determination and not
a ministerial task. Consistent with those conclusions, we agree
with the trial court that Grosz’s lawsuit may not proceed under
Section 526a. (Silver, supra, 26 Cal.App.3d at p. 909; cf. Sonoma,
supra, 195 Cal.App.3d at p. 989.)
At oral argument, Grosz forcefully contended that if we
were to reach the conclusion that we have reached, the DTFA’s
determination about the identity of a “retailer” under the Sales
and Use Tax Law would be “unreviewable.” There are, in fact, at
least two ways the DTFA’s determination can be reviewed. The
Sales and Use Tax Law gives the DTFA the authority to “bring
an action . . . in the name of the people of the State of California
to collect” delinquent taxes, for example. (Rev. & Tax. Code,
§ 6711.) In a collection action, “the provisions of the Code of Civil
Procedure relating to service of summons, pleadings, proofs,
trials, and appeals are applicable to the proceedings.” (Rev. &
Tax. Code, § 6712.) The Sales and Use Tax Law also has a
detailed procedure through which a taxpayer can challenge the
DTFA’s determinations through a refund process, and ultimately
in court. (Rev. & Tax. Code, §§ 6901 et seq., 6932.) It is not at all
accurate, then, that the DTFA’s exercise of discretion is
unreviewable simply because it is not subject to review in this
forum and by this mechanism.
27
We affirm the trial court’s order sustaining the DTFA’s and
Amazon’s demurrers and dismissing the lawsuit.
DISPOSITION
The trial court’s orders are affirmed. The respondents are
awarded their costs on appeal.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
BENDIX, Acting P. J.
BENKE, J. *
*Retired Associate Justice of the Court of Appeal, Fourth
Appellate District, Division One, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
28