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OA
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO
Document Scanning Lead Sheet
May-25-2012 11:25 am
Case Number: CGC-11-515643
Filing Date: May-25-2012 11:23
Filed by: DANIAL LEMIRE
Juke Box: 001 Image: 03630320
ORDER
WEILI DAI VS. FRANCHISE TAX BOARD, AN AGENCY OF THE STATE OF
001003630320
Instructions:
Please place this sheet on top of the document to be scanned.SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
Weili Dai, Case No. CGC — 11-515643
Plaintiff,
ORDER OVERRULING DEFENDANT
vs. FTB’S DEMURRERS
Franchise Tax Board,
Defendants.
Plaintiff sues for declaratory relief under Gov. Code § 11350 that the "FTB Stock Option
Regulation" as defined at FAC 48 is an invalid regulation.
Following the issuance of a written tentative ruling, the parties appeared by counsel
before the undersigned this date. On the basis of the papers and argument, the following ruling
are made.
The Franchise Tax Board demurs based on lack of jurisdiction (CCP § 430.10(a));
(2) failure to plead sufficient facts (CCP § 430.10(e)); and (3) uncertainty (CCP § 430.10(#)).
1. Jurisdiction
Prepayment of Taxes: Overruled. Plaintiff is not required to pre-pay the assessments, because
they are not final. "Under the 'pay now, litigate later’ rule a taxpayer may not obtain judicial
review of the validity of a tax which is due but has not been paid." (Milhous v. Franchise TaxBd. (2005) 131 Cal.App.4th 1260, 1265-1266, emphasis added.) However, a Notice of Proposed
Assessment ("NPA") is not an assessed tax that is claimed due. (City Nat. Corp. v. Franchise Tax
Bd. (2007) 146 Cal.App.4th 1040, 1045 (attached) ["[T]axpayer's refund action was not barred
by Cal. Const., Art. XIII, § 32, where taxpayer had paid all taxes that were subject of refund
action; taxpayer was not required to pay proposed assessments that were not yet due, and rule
requiring al! tax liabilities for single time period to be litigated in single action did not convert
proposed assessments into final assessments" 9 B. Witkin, SUMMARY OF CALIFORNIA Law,
Tax, § 297 (10 ed. 2011 supp.) Here, the FTB agrees that it has not taken any action on
plaintiff's protests because "the same subject is being audited at the federal level, [FTB] has
placed [the] protest on hold pending the resolution of the federal audit." (RJN, Exhibit E.)
Further. FTB stipulates that "the Board's proposed assessment is not a final assessment... ."
(P&A, p. 5:21-22.) Therefore, as in City Nat'l Corp., "the proposed assessments were not final
and [plaintiffs] have no obligation at that time to pay them." (/d. at p. 415.)
Exhaust Administrative Remedies: Overruled. Plaintiff is correct that it need not exhaust
administrative remedies under § 11350. "Any interested person may obtain a judicial declaration
as to the validity of any regulation or order of repeal by bringing an action for declaratory relief’
in the superior court in accordance with the Code of Civil Procedure. (§ 11350(a).)
Regulation’ means every rule, regulation, order, or standard of general application or the
amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any
state agency to implement, interpret, or make specific the law enforced or administered by it, or
to govern its procedure." (§ 11342.600.) In Pacific Motor Transport Co. v. State Bd. of
Equalization (1972) 28 Cal.App.3d 230, 231, the court held "[T]he validity of an administrative
tax regulation . . . may be determined by a declaratory relief action commenced under
Government Code section 11440." (/d, at p. 236 [§ 11440 is the predecessor to § 11350].) The
2Pacific Motor Transport court applied this holding to the case and found that "no administrative
remedy was available to obtain the judicial declaration authorized by section 11440." (/d. at p.
237, original italics.) Unlike the plaintiffs in Pacific Motor Transport who sought both
declaratory relief and other relief that would have interfered with the tax assessment and
collection efforts, here, here only declaratory relief is at stake. Contrast, Pacific Motor
Transport, supra, 28 Cal.App.3d at 236.
2. Failure to State a Claim
Overruled. Plaintiff alleges that the FTB adopted a general policy referred to as “the FTB
Stock Option Regulation." (FAC, {| 8.) All facts pled are assumed true on a demurrer. To the
extent that FTB contends that this policy is not a “regulation,” the FTB may raise this as a
defense.
At argument, the FTB suggested that § 11350 was unavailable because the statute only
permits declaratory relief for failure to adhere to the APA, whereas the complaint makes
challenges beyond that scope, that is, that the underground regulation violates some other law.
As Plaintiff counters, this argument was not made in the demurrers, and in any event the
complaint at /eas? alleges, among other things, a violation of the APA.
3. Uncertainty
Overruled. The pleadings do not appear uncertain.
sf
Boor AS
Dated: May 25, 2012 l
Curtis E.A. Karnow
Judge Of The Superior Court
woCGC-11-515643 WEILI DAI VS. FRANCHISE TAX BOARD, AN AGENCY OF THE
STATE OF
1, the undersigned, certify that I am an employee of the Superior Court of California, County Of San Francisco and not
a party to the above-entitled cause and that on May 25, 2012 | served the foregoing on each counsel of record or party
appearing in propria persona by causing a copy thereof to be enclosed in a postage paid sealed envelope and deposited
in the United States Postal Service mail box located at 400 McAllister Street, San Francisco CA 94102-4514 pursuant
to standard court practice.
Date: May 25.2012 By: DANIAL LEMIRE
GLENN A. SMITH, Esq.
459 Hamilton Ave, Ste. 20
Palo Alto, CA 94301
JEFFREY A. LEON, Esq.
Leon & Leon
1970 Broadway, Ste 1250
Oakland, CA 94612
MARGUERITE STRICKLIN, Dep. Attomey General
State of Califomia Dept. of Justice
1515 Clay St, 20" Floor
Oakland, CA 94612-1413
NATASHA SHERWOOD PAGE, Tax Counsel II
California Franchise Tax Board
General Tax Law Bureau MS A260
P.O. Box 1720
Rancho Cordova, CA 95741-1720
Certificate of Service — Form C00005010
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OA SUPERIOR COURT OF CALIFORNIA COUNTY OF SAN FRANCISCO Document Scanning Lead Sheet May-25-2012 11:25 am Case Number: CGC-11-515643 Filing Date: May-25-2012 11:23 Filed by: DANIAL LEMIRE Juke Box: 001 Image: 03630320 ORDER WEILI DAI VS. FRANCHISE TAX BOARD, AN AGENCY OF THE STATE OF 001003630320 Instructions: Please place this sheet on top of the document to be scanned.SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO Weili Dai, Case No. CGC — 11-515643 Plaintiff, ORDER OVERRULING DEFENDANT vs. FTB’S DEMURRERS Franchise Tax Board, Defendants. Plaintiff sues for declaratory relief under Gov. Code § 11350 that the "FTB Stock Option Regulation" as defined at FAC 48 is an invalid regulation. Following the issuance of a written tentative ruling, the parties appeared by counsel before the undersigned this date. On the basis of the papers and argument, the following ruling are made. The Franchise Tax Board demurs based on lack of jurisdiction (CCP § 430.10(a)); (2) failure to plead sufficient facts (CCP § 430.10(e)); and (3) uncertainty (CCP § 430.10(#)). 1. Jurisdiction Prepayment of Taxes: Overruled. Plaintiff is not required to pre-pay the assessments, because they are not final. "Under the 'pay now, litigate later’ rule a taxpayer may not obtain judicial review of the validity of a tax which is due but has not been paid." (Milhous v. Franchise TaxBd. (2005) 131 Cal.App.4th 1260, 1265-1266, emphasis added.) However, a Notice of Proposed Assessment ("NPA") is not an assessed tax that is claimed due. (City Nat. Corp. v. Franchise Tax Bd. (2007) 146 Cal.App.4th 1040, 1045 (attached) ["[T]axpayer's refund action was not barred by Cal. Const., Art. XIII, § 32, where taxpayer had paid all taxes that were subject of refund action; taxpayer was not required to pay proposed assessments that were not yet due, and rule requiring al! tax liabilities for single time period to be litigated in single action did not convert proposed assessments into final assessments" 9 B. Witkin, SUMMARY OF CALIFORNIA Law, Tax, § 297 (10 ed. 2011 supp.) Here, the FTB agrees that it has not taken any action on plaintiff's protests because "the same subject is being audited at the federal level, [FTB] has placed [the] protest on hold pending the resolution of the federal audit." (RJN, Exhibit E.) Further. FTB stipulates that "the Board's proposed assessment is not a final assessment... ." (P&A, p. 5:21-22.) Therefore, as in City Nat'l Corp., "the proposed assessments were not final and [plaintiffs] have no obligation at that time to pay them." (/d. at p. 415.) Exhaust Administrative Remedies: Overruled. Plaintiff is correct that it need not exhaust administrative remedies under § 11350. "Any interested person may obtain a judicial declaration as to the validity of any regulation or order of repeal by bringing an action for declaratory relief’ in the superior court in accordance with the Code of Civil Procedure. (§ 11350(a).) Regulation’ means every rule, regulation, order, or standard of general application or the amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure." (§ 11342.600.) In Pacific Motor Transport Co. v. State Bd. of Equalization (1972) 28 Cal.App.3d 230, 231, the court held "[T]he validity of an administrative tax regulation . . . may be determined by a declaratory relief action commenced under Government Code section 11440." (/d, at p. 236 [§ 11440 is the predecessor to § 11350].) The 2Pacific Motor Transport court applied this holding to the case and found that "no administrative remedy was available to obtain the judicial declaration authorized by section 11440." (/d. at p. 237, original italics.) Unlike the plaintiffs in Pacific Motor Transport who sought both declaratory relief and other relief that would have interfered with the tax assessment and collection efforts, here, here only declaratory relief is at stake. Contrast, Pacific Motor Transport, supra, 28 Cal.App.3d at 236. 2. Failure to State a Claim Overruled. Plaintiff alleges that the FTB adopted a general policy referred to as “the FTB Stock Option Regulation." (FAC, {| 8.) All facts pled are assumed true on a demurrer. To the extent that FTB contends that this policy is not a “regulation,” the FTB may raise this as a defense. At argument, the FTB suggested that § 11350 was unavailable because the statute only permits declaratory relief for failure to adhere to the APA, whereas the complaint makes challenges beyond that scope, that is, that the underground regulation violates some other law. As Plaintiff counters, this argument was not made in the demurrers, and in any event the complaint at /eas? alleges, among other things, a violation of the APA. 3. Uncertainty Overruled. The pleadings do not appear uncertain. sf Boor AS Dated: May 25, 2012 l Curtis E.A. Karnow Judge Of The Superior Court woCGC-11-515643 WEILI DAI VS. FRANCHISE TAX BOARD, AN AGENCY OF THE STATE OF 1, the undersigned, certify that I am an employee of the Superior Court of California, County Of San Francisco and not a party to the above-entitled cause and that on May 25, 2012 | served the foregoing on each counsel of record or party appearing in propria persona by causing a copy thereof to be enclosed in a postage paid sealed envelope and deposited in the United States Postal Service mail box located at 400 McAllister Street, San Francisco CA 94102-4514 pursuant to standard court practice. Date: May 25.2012 By: DANIAL LEMIRE GLENN A. SMITH, Esq. 459 Hamilton Ave, Ste. 20 Palo Alto, CA 94301 JEFFREY A. LEON, Esq. Leon & Leon 1970 Broadway, Ste 1250 Oakland, CA 94612 MARGUERITE STRICKLIN, Dep. Attomey General State of Califomia Dept. of Justice 1515 Clay St, 20" Floor Oakland, CA 94612-1413 NATASHA SHERWOOD PAGE, Tax Counsel II California Franchise Tax Board General Tax Law Bureau MS A260 P.O. Box 1720 Rancho Cordova, CA 95741-1720 Certificate of Service — Form C00005010