Untitled California Attorney General Opinion

Opinion

TO BE PUBLISHED IN THE OFFICIAL REPORTS

OFFICE OF THE ATTORNEY GENERAL

State of California

DANIEL E. LUNGREN

Attorney General

______________________________________

OPINION :

: No. 90-928

of :

: JUNE 12, 1991

DANIEL E. LUNGREN :

Attorney General :

:

RODNEY O. LILYQUIST :

Deputy Attorney General :

:

__________________________________________________________________

THE STATE BOARD OF EQUALIZATION has requested an opinion

on the following question:

Is the San Diego City "transient transportation tax" a

sales or use tax or is it a substantially different tax for

purposes of administering local sales and use tax ordinances?

CONCLUSION

The San Diego City "transient transportation tax" is a

use tax for purposes of administering local sales and use tax

ordinances.

ANALYSIS

Revenue and Taxation Code section 7203.51 provides:

"The State Board of Equalization shall not

administer and shall terminate its contract to administer

any sales or use tax ordinance of a city, county,

redevelopment agency, or city and county, if such city,

county, redevelopment agency, or city and county imposes

a sales or use tax in addition to the sales and use taxes

imposed under an ordinance conforming to the provisions

of Sections 7202 and 7203.

All section references are to the Revenue and Taxation

Code unless otherwise specified.

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"The board shall give such city, county,

redevelopment agency, or city and county written notice

of termination, stating the reasons therefor .... If the

cause for termination is not cured within the time

specified in the notice, the board shall not administer

the ordinance until the cause for termination is removed

....

"Nothing in this section shall be construed as

prohibiting the levy or collection by a city, county,

redevelopment agency, or city and county of any other

substantially different tax authorized by the

Constitution of California or by statute or by the

charter of any chartered city." (Emphasis added.)

The City of San Diego imposes a use tax upon persons

leasing automobiles from car rental agencies located within the

city. (§ 7202, subd. (a)(8)(A) ["... a use tax of 1 percent or

less ... upon the storage, use, or other consumption of tangible

personal property ... in the city"], see also §§ 6006.3, 6009,

6010, 6010.1, 6201; Cal. Code of Regs., tit. 18, § 1660.) This 1

percent use tax is imposed upon total rental charges, collected by

the rental agency at the same time as other rental charges, and

becomes the obligation of the rental agency if not collected from

the customer or transmitted to the Board. (See §§ 6011, 6201­

6204.)

San Diego also imposes a "transient transportation tax"

upon persons renting automobiles for a period of 30 or fewer days

from car rental agencies located within the city. The tax rate is

3 percent of the total rental charges, and the tax is collected by

the rental agency at the same time as the other rental charges. The

tax becomes the obligation of the rental agency if not collected

from the customer or transmitted to the city. It is deposited in

the city's general fund for general governmental services.

The question presented for analysis is whether the

"transient transportation tax" adopted by the City of San Diego is

an additional "sales or use tax" or a "substantially different tax"

as those terms are used in section 7203.5. If the former, the

State Board of Equalization ("Board") must notify the city that the

contract to administer the city's sales and use tax ordinances will

be terminated unless the transient transportation tax ordinance is

rescinded. We conclude that the city's transient transportation

tax constitutes a use tax.

The Sales and Use Tax Law (§§ 6001-7176) imposes a state

sales tax (§ 6051) on retail sellers and a state use tax (§ 6201)

on persons storing, using, or consuming tangible personal property

within the state. (See generally Rivera v. City of Fresno (1971)

6 Cal.3d 132, 137; Century Plaza Hotel Co. v. City of Los Angeles

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(1971) 7 Cal.App.3d 616, 623.) These taxes are administered by the

Board. (§ 7051.)

The Bradley-Burns Uniform Local Sales and Use Tax Law (§§

7200-7212) provides a mechanism for the imposition of sales and use

taxes by cities and counties in addition to the state taxes.

(§§ 7202-7203.) All local sales and use tax ordinances are

administered by the Board. (See §§ 7203.5-7204.3, 7209-7211.) As

explained in Geiger v. Board of Supervisors (1957) 48 Cal.2d 832,

837:

"The act contemplates an integrated, uniform system

of city and county sales and use taxation. The counties

are given authority to impose sales and use taxes as a

means of raising additional revenue, and the cities are

furnished with a plan of state administration which will

relieve them from operating collection systems of their

own. The taxpayers will receive the benefit of a scheme

which will free them from the burden of complying with

differing regulations of state and local taxes, avoid the

necessity of making payments and reports to several

governmental bodies, and permit all auditing to be done

by a single agency."

Returning to the provisions of section 7203.5, we find

that it limits the amount of local sales and use taxes that may be

imposed, but has no effect upon the authority of a city or county

to impose a "substantially different tax." The legislative

purposes of section 7203.5 are to prevent "situations which

complicated tax collection, reporting, auditing and accounting" for

local businesses and "varying and conflicting sales tax rates

[that] have an adverse effect on the general business climate in

California." (Stats. 1968, ch. 1265, § 2; see Rivera v. City of

Fresno, supra, 6 Cal.3d 132, 136-138; Century Plaza Hotel Co. v.

City of Los Angeles, supra, 7 Cal.App.3d 616, 624-625, fn. 6.)2

2 The full text of the declared purposes is as follows:

"The Legislature finds that the overlapping tax

structures of the federal, state and local governments

are seriously hampering the functioning of the State of

California. Due to the high rate of the federal income

tax, the state is precluded from making the personal

income tax and bank and corporation taxes its chief

sources of revenue, as high state taxes, when combined

with the high federal tax, would make the income and

franchise taxes prohibitive in this state. Moreover, the

state in the past has allowed local government to make

the property tax its chief source of revenue and for the

state again to rely on this source of revenue would cause

great consternation among property owners.

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"Therefore, the state must rely on sales and use

taxes as its chief source of revenue.

"In addition, the Legislature is well aware that

prior to the enactment of the Bradley-Burns Uniform Local

Sales and Use Tax Law in 1955 the differences in the

amount of sales tax levied among the various communities

of the state created a very difficult situation not only

for retailers but also created fiscal problems for the

cities and counties. The retailer was faced with many

situations which complicated tax collection, reporting,

auditing and accounting. Because of the differences in

taxes between areas, the retailer was affected

competitively. Many areas advertised `no city sales tax,

if you buy in this area.' This factor distorted what

would otherwise have been logical economic advantages or

disadvantages. It is apparent that enactment of the

Bradley-Burns Law has brought about reduced costs to the

retailer and has corrected illogical competitive

situations.

"Moreover, the Legislature finds that recent

amendments to the state's Sales and Use Tax Law, which

are incorporated into the ordinances of local government

operating under the Bradley-Burns Law, have complicated

the administration of sales and use taxes in such areas

as prepayments and the taxing of certain occasional sales

and leases. The increasing complexity of these taxes has

made it more and more apparent that a return to the

conflicting systems in existence prior to the adoption of

the Bradley-Burns Law would be disastrous in California

today.

"In the big metropolitan areas where most taxable

sales occur, local officials have shown the most interest

in returning to the older system of independent sales and

use tax administration. And it is in these areas that

most of the poor and the minority groups are

concentrated, and it is these persons who are least able

to pay increased consumer taxes. In addition, the recent

trend of business to locate outside of metropolitan areas

can only be accelerated by a system which grants them a

competitive advantage by locating in the suburbs. And

the fact should not be overlooked that varying and

conflicting sales tax rates will have an adverse effect

on the general business climate in California.

"Therefore, the Legislature declares that the state,

by enactment of the Sales and Use Tax Law and the

Bradley-Burns Uniform Local Sales and Use Tax Law, has

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With this general background in mind, we examine the

"transient transportation tax" ordinance adopted by the San Diego

City Council. First, the label placed upon the tax is not

controlling as to its basic character. In Flynn v. San Francisco

(1941) 18 Cal.2d 210, 214-215, the Supreme Court observed:

"The character of a tax must be determined by its

incidents, and from the natural and legal effect of the

language employed in the act. [Citations.] The

nomenclature is of minor importance, for the court will

look beyond the mere title or the bare legislative

assertion ... to see and determine the real object,

purpose and result of the enactment. [Citations.]"

The San Diego transient transportation tax and the city's

use tax have the same taxpayers (customers of the rental agencies),

taxable events (rentals of the automobiles), measure of the taxes

(total rental charges), collection mechanisms (rental agencies

collect and transmit the taxes), and ultimate city expenditure of

the funds (for general governmental purposes of the city).

It has been suggested, however, that certain differences

between these city taxes compel the conclusion that the transient

transportation tax is not an additional use tax. First, the city's

transient transportation tax is limited to automobile leases of 30

or fewer days, while its use tax ordinance is not so limited. The

transient transportation tax is imposed even though some of the

rental use may occur outside the boundaries of the city, whereas

the city's use tax only applies to rental use within the city's

jurisdictional limits. (See § 7202, subd. (a)(8)(A).) Third, the

transient transportation tax is imposed regardless of whether the

rental agency has paid sales tax reimbursement on the vehicle; the

city's use tax ordinance exempts vehicles for which sales tax

reimbursement has been paid. (See § 6010, subd. (e)(10).)3

We disagree with the proposed suggestion. These minor

differences do not transform the city's transient transportation

tax into something other than a use tax. It remains a tax upon the

use of tangible personal property. The differences do not change

the "real object, purpose and result of the enactment." (Flynn v.

San Francisco, supra, 18 Cal.2d 210, 218.)

preempted this area of taxation."

We are informed by the Board that car rental agencies do

not have an economic incentive to pay sales tax reimbursement at

the time they purchase their vehicles. Accordingly, a state and

local use tax is imposed upon their rental receipts in the ordinary

course of business.

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We find support for this conclusion in the cases that

have examined the provisions of section 7203.5. In Century Plaza

Hotel Co. v. City of Los Angeles, supra, 7 Cal.App.3d 616, the

court ruled that a tax of 5 percent upon the purchase price of

alcoholic beverages sold by a retailer for consumption on the

premises where sold was not authorized under the terms of

section 7203.5. The court concludes:

"... the taxes imposed by [the Sales and Use Tax

Law] are levied by the state not, as here, by a chartered

city. [The Bradley-Burns Uniform Local Sales and Use Tax

Law] allows a maximum 1 percent rate for sales and use

taxes, whereas the ordinance adopted by the city imposes

a 5 percent tax, thus failing to qualify ...." (Id., at

p. 623.)

Cases interpreting the phrase "substantially different tax" are

equally supportive of the conclusion reached herein. (See A.B.C.

Distributing Co. v. City and County of San Francisco (1975) 15

Cal.3d 566, 575 [payroll expense tax]; Rivera v. City of Fresno,

supra, 6 Cal.3d 132, 138-140 [utility user tax].)

In summary, we find that the transient transportation tax

in question is imposed upon the same use of tangible personal

property as is currently subject to taxation under the Sales and

Use Tax Law and the city's own sales and use tax ordinances. The

city is limited to a 1 percent tax upon car rental charges (§ 7202,

subd. (a)(8)(A)); it is not authorized to add an additional 3

percent. Section 7203.5 was designed to prevent such "increased

consumer taxes." (Stats. 1968, ch. 1265, § 2.)

Consequently, the Board has the statutory duty to give

the City of San Diego "written notice of termination" of its

contract to administer the city's sales and use tax ordinances, and

"[i]f the cause for termination is not cured within the time

specified in the notice, the Board shall not administer the

ordinance until the cause for termination is removed and a new

contract for the administration of the ordinance executed."

(§ 7203.5.)

In answer to the question presented, therefore, we

conclude that the San Diego City "transient transportation tax" is

a use tax for purposes of administering local sales and use tax

ordinances.

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