2017-80002729-CU-WM

San Jose Cannabis Buyers Coll. vs. Dept of Tax & Fee Admin

Nature of Proceeding: Hearing on Demurrer to the 1st Amended Complaint

Filed By: Sapoznikow, Michael

Real party in interest the State of California, by and through defendant California Department of Tax and Fee Administration’s (“CDTFA”) demurrer to the First Amended Complaint (“FAC”) is OVERRULED.

Plaintiff San Jose Cannabis Buyers Collective, LLC (“SJCBC”) initiated this action on November 6, 2017, as a writ. The matter was assigned to Judge James P. Arguellas for all purposes. Following a demurrer by CDTFA, the parties filed a stipulation to reclassify this case as a civil action for a tax refund and to permit SJCBC to file an amended complaint. The Court signed the stipulation and Order on August 23, 2018. (ROA 28.) SJCBC then filed its FAC on August 30, 2018.

The FAC seeks a tax refund. SJCBC contends its cannabis transactions during the tax period were not taxable sales and, therefore, it is entitled to a refund. (FAC ¶17.) SJCBC alleges “ordinarily, a taxpayer must pay a tax before commencing a court action to challenge the collection of the tax. However, prepayment judicial intervention may be justified in cases where it is clear that under no circumstances can the government prevail.” (FAC ¶ 15.) SJCBC then alleges it “believes and hereby alleges the government cannot prevail as a matter of law.” (FAC ¶16.) SJCBC alleges it “has exhausted the available administrative remedies it is required to pursue.” (FAC ¶ 11.)

CDTFA now demurs to the FAC on the grounds that the Court lacks jurisdiction because plaintiff SJCBC has not paid all of the assessed sales tax and penalties for the tax period at issue and has not exhausted administrative remedies and the complaint is uncertain.

First, the demurrer for uncertainty is OVERRULED. The allegations are not so uncertain that CDTFA cannot frame a response. Demurrers for uncertainty are disfavored and are only granted where the complaint is so muddled that the defendant cannot reasonably respond. The favored approach is to clarify theories in the complaint through discovery. (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616; 1 Weil & Brown, Civil Procedure Before Trial (Rutter 2014), sec. 7:85, p. 7(l)-39.)

Second, the demurrer on the basis that CDTFA has not paid all of the assessed sales

tax is also OVERRULED for the reasons discussed below.

In support of this argument, CDTFA relies on documents for which it asks the Court to take judicial notice. Specifically, CDTFA requests the Court take judicial notice of records of the Board of Equalization and CDTFA (Exhibits A-E.). The request for judicial notice as to these items is UNOPPOSED and is GRANTED. The Court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” (Evid. Code § 452(c).) “Records and files of an administrative board are properly the subject of judicial notice” under Evidence Code § 452(c), as are official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States. (Hogen v. Valley Hosp. (1983) 147 Cal.App.3d 119, 125.) However, CDTFA’s request for judicial notice as to “facts” reflected within those documents (Facts 1 and 2 – summaries of the official acts) is DENIED.

Although the Court may take judicial notice of the existence of the above documents, it cannot take judicial notice of the truth of the contents of those documents or consider the parties interpretation of those documents. Indeed, a demurrer “tests the pleadings alone and not the evidence or other extrinsic matters.” (SKF Farms v.

Superior Court (1984) 153 Cal.App.3d 902, 905.) The only issue involved in a demurrer hearing is “whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (McKenney v. Purepac Pharm. Co. (2008) 162 Cal.App.4th 72, 79.) Extrinsic evidence may not properly be considered on demurrer. ( Ion Equipment Corp. v. Nelson (1980) 110 Cal. App. 3d 868, 881; Hibernia Savings & Loan Soc. v. Thornton (1897) 117 C. 481, 482.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (CCP §§ 430.30, 430.70.)

Here, CDTFA relies on the truth of the contents of those documents as evidence that SJCBC has failed to pay the full tax assessment and, therefore, is barred from bringing this action. However, the Court may not take judicial notice of the contents within the documents. Indeed, “a court cannot by means of judicial notice convert a demurrer into an incomplete evidentiary hearing in which the demurring party can present documentary evidence and the opposing party is bound by what that evidence appears to show.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 115; accord, C.R. v. Tenet Healthcare Corp. (2009) 169 Cal.App.4th 1094, 1103-1104.)

SJCBC has alleged it has exhausted its administrative remedies (FAC ¶ 11) and that it is exempt from paying the full amount of tax (FAC ¶¶ 15-16). On demurrer, the Court must accept these allegations as true. Accordingly, the demurrer is OVERRULED.

Defendants may file and serve their answer(s) by November 5, 2018.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required