Filed 12/30/19 Dummer v. Contractors’ State License Board CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

—-

TIMOTHY JAMES DUMMER,

Plaintiff and Appellant,

v.

CONTRACTORS’ STATE LICENSE BOARD et al.,

Defendants and Respondents.

C087240

(Super. Ct. No. 34-2016-00200378-CU-MC-GDS)

Plaintiff Timothy James Dummer appeals from a trial court judgment that the Franchise Tax Board (FTB) lawfully assessed taxes against him, the Contractors State License Board (CSLB) lawfully suspended his contractor’s license due to his outstanding state tax liability, and he was not entitled to a pre-suspension hearing before the CSLB because he failed to protest the tax assessments before the FTB. On appeal, plaintiff claims that the trial court misinterpreted the statutory scheme under which the FTB assessed taxes against him. We disagree and affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Factual Background

During tax years 2006, 2010, and 2011, plaintiff earned income from construction work performed in California, but did not file state income tax returns. The FTB issued proposed tax assessments for the relevant years using estimates of plaintiff’s income from other sources. The FTB mailed notice of the proposed assessments to the address Dummer had on file with the CSLB. At trial, the court found that plaintiff received notice of the proposed assessments.

Plaintiff did not protest the FTB’s proposed assessment for 2006 or 2011. Plaintiff responded to the FTB’s proposed assessment for 2010, but the FTB did not recognize his response as a protest. The FTB sent a protest clarification letter stating that if plaintiff did not respond within 30 days, no hearing would occur and the proposed assessment would become final. Plaintiff did not respond to the FTB’s clarification letter, and the assessments for 2006, 2010, and 2011 became final.

Plaintiff did not pay the assessed taxes. Per the FTB’s request, the CSLB suspended plaintiff’s contractor’s license for failure to pay the assessed taxes.

Procedural Background

Plaintiff filed a complaint seeking injunctive relief. He alleged the CSLB violated his right to due process by suspending his contractor’s license without a hearing, and the FTB violated Revenue and Taxation Code section 19044, which authorizes taxpayers to file written protests challenging the FTB’s proposed assessments.

Defendants FTB and CSLB argued in a series of demurrers that the trial court lacked jurisdiction to consider plaintiff’s claims and that plaintiff’s allegations did not state a valid cause of action. (Code Civ. Proc., § 430.10, subds. (a), (e).) Defendants asserted plaintiff was required to file timely protests and pay the tax assessments and then he could seek a refund. (Cal. Const., art. XIII, § 32; § 19381.)

The trial court sustained with leave to amend defendants’ demurrer to plaintiff’s claim that he was entitled to a hearing before the CSLB suspended his contractor’s license. The court determined that statutory law afforded plaintiff sufficient procedures to challenge the proposed tax assessment through the FTB such that due process did not necessitate a pre-suspension hearing before the CSLB.

The trial court also sustained with leave to amend defendants’ demurrer to plaintiff’s claim that the FTB did not comply with section 19044 due to plaintiff’s failure to file a timely protest, which would have triggered the FTB’s duty to reconsider the proposed tax assessment.

Plaintiff filed a first amended complaint that amended his due process claim to include allegations the FTB violated his due process rights by failing to properly serve him with notice of their intent to take his property, failing to set a hearing before an impartial body, and failing to adjudicate the matter. Defendants again demurred on the grounds that the trial court lacked jurisdiction to hear plaintiff’s claims due to his failure to pay and protest. The court overruled defendants’ demurrer, explaining that it could not resolve factual questions of whether the FTB provided adequate notice or ignored plaintiff’s protests. The court also concluded that plaintiff had sufficiently alleged he was entitled to litigate the issue of his residency by claiming he properly protested the FTB’s proposed assessments. Finally, the court again sustained with leave to amend defendants’ demurrer to plaintiff’s facial challenge to Business and Professions Code section 7145.5 (authorizing the CSLB to suspend his contractor’s license), which plaintiff claimed unconstitutionally violated his right to due process.

In his second amended complaint, plaintiff amended his challenge to Business and Professions Code section 7145.5 to label it “as applied.” The trial court overruled the demurrer because sustaining it would have required the court to review extrinsic evidence.

Following a bench trial on the second amended complaint, the trial court issued a Notice of Decision. The court found that the FTB’s process for issuing assessments followed normal statutory procedures, which included estimating plaintiff’s income. The court also found that the CSLB’s suspension of plaintiff’s contractor’s license was valid and that he was not entitled to a pre-suspension hearing before the CSLB because he was afforded multiple opportunities to challenge the FTB’s proposed assessments before they became final.

Plaintiff timely appeals from the ensuing judgment in defendants’ favor.

DISCUSSION

I

Statutory Framework

A. Introduction

Everyone who owes California state income tax must file a return for the relevant tax year. (§ 18501.) If a taxpayer files a return the FTB determines is deficient, the FTB will issue a notice of proposed assessment for the additional tax owed. (§§ 19031-19036, 19043.) The taxpayer has the right to submit a written protest to the FTB within 60 days of the notice of the proposed assessment specifying the grounds on which the protest is based. (§ 19041.) If the FTB receives a response to a notice of proposed assessment that is deemed not to constitute a proper protest, the FTB may send a letter explaining that the response was not a proper protest and extend the protest deadline. Proper protests received before the extended deadline are treated like any other protest. If no protest is filed, the proposed deficiency assessment becomes final. (§ 19042.)

If a proper protest is filed, the FTB must reconsider the deficiency assessment and hold an oral hearing if the taxpayer so requests. (§ 19044.) If the taxpayer does not request a hearing, the FTB’s action upon protest becomes final 30 days from the date the FTB mails notice of its action to the taxpayer, unless the taxpayer appeals to the State Board of Equalization (SBE). (§§ 19045, 19046.) If the taxpayer appeals the FTB’s decision to the SBE, the SBE hears the appeal and then notifies the parties of its determination. (§19047.) The taxpayer may petition the SBE for rehearing. (§ 19048.)

In some circumstances, the FTB may determine that an assessment and collection of tax will be jeopardized by delay. (§§ 19081-19086.) In those situations, which are relatively rare and often occur when the taxpayer is engaged in illegal activity, the FTB may issue a jeopardy assessment, which is a demand for immediate payment. (§§ 19081-19083.) (RT 80, 112) Because jeopardy assessments authorize the immediate seizure of property, they are subject to strict internal procedures, including securing the written consent of the FTB’s chief counsel. (§ 19084.)

Sections 19031 through 19067 govern the procedures for deficiency assessments and are in article 3 (entitled Deficiency Assessments) of chapter 4 of part 10.2 of division 2 of the Revenue and Taxation code. The procedures related to jeopardy assessments are set forth in article 5 (entitled Jeopardy Assessments) of chapter 4 of part 10.2 of division 2 of the Revenue and Taxation Code.

B. Section 19087

Section 19087 is within article 5, entitled Jeopardy Assessments. The relevance of this placement is discussed at length post. Section 19087 establishes the FTB’s authority to issue a deficiency assessment if a taxpayer fails to file a return, providing: “(a) If any taxpayer fails to file a return, or files a false or fraudulent return with intent to evade the tax, for any taxable year, the [FTB], at any time, may require a return or an amended return under penalties of perjury or may make an estimate of the net income, from any available information, and may propose to assess the amount of tax, interest, and penalties due. All the provisions of this part relative to delinquent taxes shall be applicable to the tax, interest, and penalties computed hereunder.

“(b) When any assessment is proposed under subdivision (a), the taxpayer shall have the right to protest the same and to have an oral hearing thereon if requested, and also to appeal to the board from the [FTB’s] action on the protest; the taxpayer must proceed in the manner and within the time prescribed by Sections 19041 to 19048, inclusive.” (Referring to the deficiency assessment protest provisions described, ante.)

II

California Constitution Article XIII, Section 32: “Pay Now, Litigate Later”

Plaintiff contests the trial court’s interpretation of the statutory framework, which authorized the FTB to issue tax assessments against him. Defendants respond that article XIII, section 32 of the California Constitution, known as the “pay now, litigate later” rule in tax cases, bars the challenge. The rule, which is codified in sections 19381 and 19382, limits the ability of the courts to hear matters and issue relief that would interfere with the state’s collection of taxes. (Western Oil & Gas Assn. v. State Bd. of Equalization (1987) 44 Cal.3d 208, 213.) The rule’s prohibition on pre-payment litigation is intended “to allow revenue collection to continue during litigation so that essential public services dependent on the [taxes] are not unnecessarily interrupted. [Citation.]” (Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283.) Accordingly, in determining whether the rule prohibits a taxpayer’s prepayment tax-related action, “ ‘[t]he relevant issue is whether granting the relief sought would have the effect of impeding the collection of a tax.’ ” (Water Replenishment Dist. of Southern California v. City of Cerritos (2013) 220 Cal.App.4th 1450, 1465.)

Our Supreme Court has recognized a narrow exception to the “pay first, litigate later” rule. “The ban on prepayment judicial review found in the state Constitution must yield . . . to the requirements of the federal Constitution [citation] . . . .” (Western Oil & Gas Assn. v. State Bd. of Equalization (1987) 44 Cal.3d 208, 213 [as modified Mar. 10, 1988] (Western Oil) [superior court had jurisdiction to determine whether the SBE’s request for information offended the prohibition against unreasonable searches and seizures or violated the right of privacy or the privilege against self-incrimination].) “The court’s inquiry necessarily must be limited, however, to avoid undue interference with the collection of taxes.” (Western Oil, supra, 44 Cal.3d at p. 214.) For example, in Western Oil, our Supreme Court concluded, “The role of the court in assessing the propriety of a prepayment challenge to [an SBE] request for information is not to determine the ultimate validity of the assessment to which the [SBE’s] inquiry is directed; the exclusive remedy for that relief is the suit for refund after payment. [Citation.] The court at this preliminary stage may only examine the [SBE’s] authority to undertake the inquiry.” (Ibid.)

“[T]he appropriate standard for judicial intervention [is] that invoked under the similar anti-injunction statute for federal tax matters[;] . . . prepayment relief must be limited to those situations in which it is clear that ‘ “under no circumstances” can the government prevail.’ [Citation.] ‘Only if it is . . . apparent that, under the most liberal view of the law and the facts, the [government] cannot establish its claim, may the suit for an injunction be maintained.’ [Citation] Put another way, if the [SBE] has no conceivable basis in law or fact for assessing a tax on a given piece of property, then it cannot constitutionally demand information from a taxpayer that would be relevant only to such a tax.” (Western Oil, supra, 44 Cal.3d at p. 214, fn. omitted.)

Defendants appear to argue that we lack appellate jurisdiction to hear plaintiff’s appeal; they argue that plaintiff “should be required to pay the tax and complete the administrative process before this or any other court addresses his arguments.” But they do not argue this appeal should be dismissed, nor do they explain why the general rule that an aggrieved party may appeal a final judgment does not apply here. (See Code Civ. Proc., § 904.1, subd. (a) [authorizing appeals from final judgments]; Gibson v. Savings & Loan Commissioner (1970) 6 Cal.App.3d 269, 271 [final judgment is “a judgment terminating the proceeding below and finally determining the rights of the parties therein”; Code Civ. Proc., § 902 [party taking appeal must be “aggrieved”]; County of Riverside v. Public Employment Relations Bd. (2016) 246 Cal.App.4th 20, 27 [party against whom an appealable order or judgment is entered is an “aggrieved” party].) Indeed, defendants point us to no authority supporting their suggestion that plaintiff is prohibited from appealing the judgment here, thus any intended argument in that regard is forfeited. (Ewald v. Nationstar Mortgage, LLC (2017) 13 Cal.App.5th 947, 948 [“We repeatedly have held that the failure to provide legal authorities to support arguments forfeits contentions of error”].)

To the extent that defendants intended to argue that the trial court lacked jurisdiction to hear plaintiff’s claims, they do not make the only argument available without filing a cross appeal: that the trial court erred in overruling their demurrers. (See, e.g., Casterson v. Superior Court (2002) 101 Cal.App.4th 177, 182 [order overruling demurrer is not directly appealable but may be reviewed on appeal from the final judgment].) Defendants failed to explicitly state that argument, identify the applicable standard of review, or tailor their argument to that standard. (See, e.g., Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465 [“ ‘Arguments should be tailored according to the applicable standard of appellate review’ ” and “[f]ailure to acknowledge the proper scope of review is a concession of a lack of merit”].) Indeed, defendants never articulate that argument.

Thus defendants have forfeited any arguments regarding jurisdiction and we next consider plaintiff’s claims on their merits.

III

Interpretation of Deficiency Assessment Statutes

Plaintiff disputes defendants’ and the trial court’s interpretation of the legal framework governing the FTB’s authority to issue assessments for deficient tax returns, tax returns not filed, and jeopardy assessments.

A. Permissible Deficiency Assessments Pursuant to Section 19087

Plaintiff first argues that the FTB may not issue a deficiency assessment under section 19087 where the assessment is not in jeopardy. He bases that argument on section 19087’s placement in article 5 (Jeopardy Assessments), rather than article 3 (Deficiency Assessments).

The construction and interpretation of a statute is a question of law that we consider de novo on appeal. (Burden v. Snowden (1992) 2 Cal.4th 556, 562.) “ ‘ “ ‘[A]s with any statute, we strive to ascertain and effectuate the Legislature’s intent.’ ” [Citations.] “Because statutory language ‘generally provide[s] the most reliable indicator’ of that intent [citations], we turn to the words themselves, giving them their ‘usual and ordinary meanings’ and construing them in context [citation].” [Citation.] If the language contains no ambiguity, we presume the Legislature meant what it said, and the plain meaning of the statute governs. [Citation.] If, however, the statutory language is susceptible of more than one reasonable construction, we can look to legislative history in aid of ascertaining legislative intent.’ ” (People v. Allegheny Casualty Co. (2007) 41 Cal.4th 704, 708-709.)

The plain language of section 19087 is unambiguous. Section 19087, subdivision (a) unequivocally authorizes the FTB “at any time” “[i]f any taxpayer fails to file a return” to “require a return or an amended return under penalties of perjury” or “make an estimate of the net income, from any available information,” and to use that information to “propose to assess the amount of tax, interest, and penalties due.” (§ 19087, subd. (a).) If the FTB proposes an assessment under section 19087 subdivision (a), subdivision (b) provides that the taxpayer has the right to protest the proposed assessment and request a hearing and requires the taxpayer to “proceed in the manner and within the time prescribed by Sections 19041 to 19048, inclusive.” (§ 19087, subd. (b).) “Sections 19041 to 19048, inclusive,” unequivocally refer to the deficiency assessment protest, hearing, and appeal procedures set out in article 3. (§§ 19041-19048.) We presume the Legislature meant what it said, and we see no ambiguity or duplicity in the language of section 19087.

Contrary to plaintiff’s assertion, section 19087’s placement in article 5, rather than article 3, does not create ambiguity in the language of the statute. The general provisions of the Revenue and Taxation Code provide: “Division, part, chapter, article, and section headings do not in any manner affect the scope, meaning, or intent of the provisions in this code.” (§ 6.) The Legislature included a similar provision in division 2, part 10 of the Revenue and Taxation Code, of which the statutory provisions relevant here are a part: “Division, part, chapter, article, section and subsection headings contained herein shall not be deemed to govern, limit, modify, or in any manner affect the scope, meaning, or intent of the provisions of this part.” (§ 17032.) The mere fact that section 19087 is located within an article entitled Jeopardy Assessments does not affect the meaning or intent of the section.

The language of Jeopardy Assessment provisions found in sections 19081, 19082, and 19086 does not affect our analysis. Section 19086, for example, provides, “In any proceeding brought to enforce payment of taxes made due and payable by this article, the finding of the [FTB] under Section 19081, whether made after notice to the taxpayer or not, is for all purposes presumptive evidence that the assessment or collection of the tax or the deficiency was in jeopardy.” Plaintiff contends that the language of section 19086 necessarily means that any assessment under section 19087 must be in jeopardy. But section 19087 does not authorize the FTB to issue an assessment or otherwise make due or payable payment of taxes. Rather, section 19087 authorizes the FTB to “propose to assess the amount of tax, interest, and penalties due.” (§ 19087, subd. (a), italics added.) Such a proposed assessment only becomes a final assessment pursuant to the procedures set out in sections 19041 to 19048, which are in article 3.

B. Issuing a Deficiency Assessment if no Tax Return is Filed

Plaintiff next argues that the FTB lacks authority to issue a deficiency assessment where a taxpayer fails to file a tax return, relying on Wertin v. Franchise Tax Bd. (1998) 68 Cal.App.4th 961 (Wertin). We disagree.

In Wertin, the FTB issued an assessment based on federal adjustments to the Wertins’ tax returns without reviewing the state return the Wertins filed. (Wertin, supra, 68 Cal.App.4th at pp. 965-966.) The Second Appellate District, Division Seven held that the assessment was invalid because the Wertins’ return was available, and the FTB did not take reasonable steps to obtain it before preparing a proposed assessment. (Id. at pp. 966, 972, 975-976.) The court stated, “In summary, we hold where a taxpayer’s return is available, the FTB may not assess or collect a deficiency without relying on the return.” (Id. at p. 976.)

Wertin does not stand for the proposition that the FTB may not issue an assessment unless the taxpayer has filed a return. Rather, Wertin holds the FTB must review a taxpayer’s return before it issues an assessment if the return is available. (Wertin, supra, 68 Cal.App.4th at p. 976.) Therefore, we disagree with plaintiff that the FTB may not issue an assessment under article 3 unless the taxpayer has filed a return. Indeed, section 19087 specifically permits the FTB to issue a proposed assessment where a taxpayer failed to file a return, which the taxpayer may then protest by following the procedures set out in article 3, sections 19041 to 19048.

C. Compliance with Jeopardy Assessments

In the alternative, plaintiff argues that if the FTB is authorized to issue an assessment under section 19087, the FTB must comply with jeopardy assessment procedures set out in article 5. But as discussed, ante, nothing in section 19087 suggests that it concerns jeopardy assessments or that the procedural protections related to jeopardy assessments apply where the FTB proposes a deficiency assessment under that section. Rather, section 19087 authorizes the FTB to propose an assessment any time a taxpayer has failed to file a return, and it authorizes the taxpayer to appeal the proposed assessment according to the procedures set out in sections 19041 to 19048. (§ 19087.)

We conclude that section 19087 authorizes the FTB to issue a proposed assessment where a taxpayer has failed to file a return.

Having disagreed with each of defendant’s contentions of error, we decline to disturb the trial court’s decision after trial.

DISPOSITION

The judgment is affirmed.

/s/

Duarte, Acting P. J.

We concur:

/s/

Renner, J.

/s/

Krause, J.