Appendix — Loebner v. Franchise Tax Board

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ta

Keg Supreme Court, US.

FILED

JUL 26 1988

No. JOSEPH F. SPANIOL, Uk,

a

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM 1988

EGON and SONYA LOEBNER,

PETITIONERS,

Vv.

FRANCHISE TAX BOARD OF CALIFORNIA,

RESPONDENT.

APPENDIX TO PETITION FOR WRIT OF

CERTIORARI TO THE CALIFORNIA COURT

OF APPEAL FOR THE FIRST APPELLATE

DISTRICT, DIVISION FOUR,

CASE A030189 (SF 25067,

CALIFORNIA SUPREME COURT)

EGON E. LOEBNER ;

SONYA S. LOEBNER

2934 Alexis Drive

Palo Alto, CA 94304

(415) 941-8785

Attorneys in Pro Se for

Petitioners

INDEX TO APPENDICES

Page

A OPINION SOUGHT TO BE

REVIEWED 3a

B CERTIFICATION FOR PUBLICATION

OF A 31a

REMITTITUR FINALIZING DECISION

IN A 33a

D REVIEW GRANTED BY STATE SUPREME

COURT 35a

E DISMISSAL OF D 37a

F TRIAL COURT’S DISMISSAL 39a

G ORDER SUSTAINING DEMURRER 43a

H RESPONDENT’S AFFIRMATION OF

ACTION 47a

I DENIAL OF REVIEW OF CORBETT 51a

OPINION OF CORBETT COURT 53a

K FIRST DENIAL TO REPUBLISH

CORBETT 99a

L SECOND DENIAL TO REPUBLISH

CORBETT 101la

M PRESIDENTIAL APPOINTMENT OF

LOEBNER 103a

N EXCERPT FROM DEMURRER HEARING

TRANSCRIPT 107a

la

2a

APPENDIX A

COPY OF OPINION OF THE CALIFORNIA COURT

OF APPEAL WHOSE DECISION IS SOUGHT TO BE

REVIEWED (FILED JUNE 23, 1986)

°

NOT TO BE PUBLISHED

IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF

THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

EGON and SONYA LOEBNER,

Plaintiffs and Appellants,

Vv.

FRANCHISE TAX BOARD,

Defendant and Respondent.

A030289

(San Francisco

City and County

Sup. Ct. No. 826409)

5a

[193 Cal.App.3d 67}

Plaintiffs Egon and Sonya Loebner appeal

from a judgment of dismissdl entered

after the trial court sustained without

leave to amend the demurrer of defendant

Franchise Tax Board (the Board) to their

complaint for a judicial determination

that a personal income tax deficiency

assessment by the Board was illegal. The

principal issue presented is whether

plaintiffs could institute this action

without first paying the amount of the

disputed assessment. We conclude that

this question must be answered in the

negative and that the trial court

consequently acted properly in sustaining

the Board’s demurrer and dismissing the

complaint.

I

We must creat the Board’s demurrer as

admitting all of the material factual

allegations of plaintiffs’ complaint,

6a

ee A GG ES OAS

with the exception of contentions, deduc-

tions, or conclusions of either fact or

law. (Blank v. Kirwan (1985) 39 Cal.3d

311, 318 [216 Cal.Rptr. 718, 703 P.2d

58]; Serrano v. Priest (1971) 5 Cal.3d

584, 591 [96 Cal.Rptr. 601, 487 P.2d

1241, 41 A.L.R.3d 1187].) Our aim is to

decide whether the complaint suffices to

state a cause of action. (Glaire v. La

Lanne Paris-Health Spa, Inc. (1974) 12

Cal.3d 915, 918 [117 Cal.Rptr. 541, 528

P.2d 357]}.)

In their verified "Complaint for

Determination of Residency," plaintiffs

alleged as follows: Plaintiffs were

residents of California until December of

1974, at which time they left in order

that Mr. Loebner could begin serving as a

member of the United States embassy in

the Soviet Union. They "engaged a real

estate agent to look after their resi-

dence" in Palo Alto. Their household

7a

effects and personal belongings were

"liquidated," shipped to Moscow, or

stored in "a State Department designated

location." Mr. Loebner terminated vari-

ous personal and professional associa-

tions in California. Plaintiffs trans-

ferred their medical records, financial

accounts, and their mailing address, to

locations outside of the state. They did

not vote in California in 1975, nor did

they file a California personal income

tax return for that year. Plaintiffs

returned to California in November of

1976. Thereafter they and the Board

engaged in administrative proceedings

which culminated with a determination

that plaintiffs >»wed tax and interest for

the calendar year 1976 amounting to

approximately $3,400.

Plaintiffs’ complaint ended in this

fashion: "This action is brought against

the . . . Board on the grounds that its

8a

ruling . . . disallowing in its entirety

plaintiffs’ protest of [the Board’s]

Deficiency Assessment for calendar year

1976 based on Plaintiffs’ alleged

California residency is erroneous,

unconstitutional, and without authority

of law. By reason thereof, Plaintiffs

[193 Cal.App.3d 68]

allege that the . . . proposed deficiency

assessment . . . is illegal and hence

subject to cancellation by this action.

[{] WHEREFORE, Plaintiffs pray for judg-

ment against the . . . Board dismissing

the Deficiency Assessment and declaring

plaintiffs to be [sic] nonresidents of

California for the first ten months of

calendar year 1976."

The Board demurred to the complaint

on the grounds that (1) the trial court

"has no jurisdiction over the subject of

the action" and (2) the complaint failed

to state facts sufficient to constitute oc

9a

er

cause of action against the Board. After

conducting a hearing on the demurrer, the

trial court sustained it on both of these

grounds. A judgment of dismissal

followed, prompting this timely appeal.?

1. In their notice of appeal plaintiffs, who

at all times have proceeded in propria persona,

purport to appeal from "the order of the Court

sustaining the demurrer of [the] Board." That

order is not appealable (I. J. Weinrot & Son, Inc.

v. Jackson (1985) 40 Cal.3d 327, 331 [220

Cal.Rptr. 103, 708 P.2d 682]; Youngblood v. Board

of Supervisors (1978) 22 Cal.3d 644, 651 [150

Cal.Rptr. 242, 586 P.2d 556]), but its merits can

be reviewed on an appeal from the ensuing judgment

of dismissal. (Selleck v. Globe International

(1985) 166 Cal.App.3d 1123, 1128, fn. 1 [212

Cal.Rptr. 838]; Gibson v. Government Employees

Ins. Co. (1984) 162 Cal.App.3d 441, 444 [208

Cal.Rptr. 511].) Pursuant to the rule requiring

that a notice of appeal be liberally construed in

favor of its sufficiency (Cal. Rules of Court,

rule 1(a)), we treat plaintiffs’ notice as having

taken a valid appeal from the subsequently entered

judgment of dismissal. (Id., rule 2(c); Turpin v.

Sortini (1982) 31 Cal.3d 220, 224, fn. 2 [182

Cal.Rptr. 337, 643 P.2d 954]; Battle v. Kessler

(1983) 149 Cal.App.3d 853, 855 [197 Cal.Rtpr.

170]; Joffe v. United California Bank (1983) 141

Cal.App.3d 541, 547, fn. 1 [190 Cal.Rptr. 443].)

10a

REVIEW

II

Article XIII, section 32 of the

California Constitution (hereinafter

referred to as section 32) provides:

"No legal or equitable process shall

issue in any proceeding in any court

against the State or any officer

thereof to prevent or enjoin the

collection of any tax. After payment

of a tax claimed to be illegal, an

action may be maintained to recover

the tax paid, with interest, in such

manner as may be provided by the

Legislature."

The Board’s position, steadfastly

maintained in both the trial court and

here, is that section 32 is an absolute

barrier against any type of attempt to

secure any form of judicial relief

regarding tax-related matters unless and

until the tax has been paid. Plaintiffs

contend that section 32 is by its express

terms limited to actions for "collection

of any tax" and does not affect their

complaint for declaratory relief to

lla

determine the validity of an assessment.

The trial court believed itself bound to

accept the Board’s argument So do we.

(193 Cal.App.3d 69]

In Pacific Gas & Electric Co. v.

State Bd. of Equalization (1980) 27

Cal.3d 277 [165 Cal.Retr. i22, 611 P.2¢

463], the supreme court considered

whether section 32 barred an attempt to

compel the Board of Equalization to

reassess property in accordance with the

then recently enacted Proposition 13

(Cal.Const., art. XIII A). The means

chosen by the taxpayers to effect this

reassessment was a petition for a writ of

mandamus. The court, in the course of

holding that this form of relief was

precluded by section 32, made the follow-

ing statements which possess a particular

pertinency to this appeal:

"On its face the provision [section

32] appears to bar actions of the type

12a

before us. It is certainly true that the

assessment of real property is an

integral part of the taxing process, and

a court order invalidating an assessment

will in effect ’prevent or enjoin the

collection’ of the tax. [Citations.] It

is also the rule that a taxpayer may not

circumvent restraints on prepayment tax

litigation by seeking only declaratory

POLser.- €27 Cai.3d 277 at p. 280.)

"The policy behind section 32 is to

allow revenue collection to continue

during litigation so that essential

public services dependent on the funds

are not unnecessarily interrupted.

[Citation.] ‘Any delay in the proceed-

ings of the officers, upon whom the duty

is devolved of collecting the taxes, may

derange the operations of government, and

thereby cause serious detriment to the

public.’ [Citations.] To implement this

policy, a specific statutory refund

13a

procedure has been provided for taxpayers

whose property has been improperly

assessed. [Citations.] And to compen-

sate a taxpayer who has been wrongfully

required to pay, interest will be awarded

on the refunded money. [Citation.] The

utilities have attempted to circumvent

this statutory scheme in an effort to

obtain adjudication of their claims

before payment. [4%] We hold that section

32 means what it says. Nothing in the

policy underlying the section, its

history, or the cases construing it,

would support an exception... ." (27

Cal.3d 277 at pp. 283-284.)

The court in Pacific Gas &

Electric Co. termed section 32 an

"unequivocal constitutional prohibition

against prepayment tax litigation." (27

Cal.3d 277 at p. 281.) Plaintiffs have

marshalled an impressive array of mate-

rials relating to the current and

14a

predecessor versions of section 32 to

support a variety of arguments that this

decision misperceived the intent of the

voters who enacted the versions of

section 32; that the court misconstrued

previous decisions; and that Pacific Gas

& Electric Co. should not be followed

because it is "erroneous." These argu-

ments are not persuasive. Pacific Gas &

Electric Co. must be applied and followed

without regard to our opinion as to its

soundness. (Auto Equity Sales, Inc. v.

Superior Court (1962) 57 Cal.2d 450, 455

[20 Cal.Rptr. 321, 259 P.2d 937]}.)

(193 Cal.App.3d 70]

Pacific Gas & Electric Co. has recently

been reiterated by the Supreme Court

(State Bd. of Equalization v. Superior

Court (1985) 39 Cal.3da 633, 638-640 [217

Cal.Rptr. 238, 703 P.2d 1131]) and

accepted without hesitation by other

courts. (People ex rel. Franchise Tax

15a

Bd. v. Superior Court (1985) 164

Cal.App.3d 526, 543-546 [210 Cal.Rptr.

695]; United States Steel Corp. v.

Franchise Tax Board (1983) 144 Cal.App.3d

473, 481-482 [192 Cal.Rtpr. 677}; Hunter-

Reay v. Franchise Tax Board (1983) 140

Cal.App.3d 875, 878-881 [189 Cal.Rptr.

810).)

The final paragraphs of plaintiffs’

complaint were quoted ante to demonstrate

that they are in effect seeking declara-

tory relief that the Board’s deficiency

assessment is illegal. This they de not

dispute. "An action for declaratory

relief is an equitable proceeding."

(Fowler v. Ross (1983) 142 Cal.App.3d

472, 478 [191 Cal.Rptr. 183]; see 3

Witkin, Cal. Procedure (3d ed. 1985)

Actions, § 87, [4%] (8), p. 1153 5 jd.,

Pleading, § 800, [1] (Cc), Pp. 244.) (3c)

As such, plaintiffs’ complaint is within

the express terms of section 32

16a

j

|

]

("No . . . equitable process shall

issue .. .") and likewise encompassed by

the Supreme Court’s construction of that

provision to prohibit declaratory relief

actions against assessments. (Pacific

Gas & Electric Co. v. State Bd. of

Equalization, supra, 27 Cal.3d 277 at

p. 280.) It thus appears that plaintiffs’

complaint is premature and barred by

section 32 until they have paid the

Board’s assessment.

III

In apparent anticipation of this

conclusion, plaintiffs make several

arguments in support of their claim that

section 32 is "voidable," which we take

to mean that it is ineffective. As will

be demonstrated, plaintiffs’ arguments

are unpersuasive.

(A)

In 1971 the California Constitutional

Revision Commission submitted to the

17a

Legislature a report recommending changes

in article XIII of the constitution,

which governed taxation. The commission

specifically recommended that the

substance of article XIII, section 15,

paragraph 3--the predecessor version of

section 32--should be deleted from the

proposed text of the revised article XIII

and dealt with by statute. In May of

1974, the Assembly Committee on Revenue

and Taxation received a report from the

"Constitutional Revision Task Force on

Article XIII" which included a recommen-

dation that section 32 should be set

forth in its current constitutional forn.

The latter recommendation was adopted by

the Legislature when it voted to submit

to the electorate an amendment proposal

[193 Cal.App.3d 71]

to revise and reorganize article XIII.

This measure was approved by the voters

at the November 1974 General Election.

18a

Plaintiffs now contend that because

representatives of the Franchise Tax

Board and the State Board of Equalization

were members of the task force which

drafted section 32 they thus encroached

upon the legislative prerogatives, of the

Legislature. Plaintiffs ask us to hold

that this violated article III, section 3

of the California Constitution, which

reads:

"The powers of state government are

legislative, executive, and judicial.

Persons charged with the exercise of one

power may not exercise either of the

others except as permitted by this

Constitution."

Plaintiffs’ argument evidences a

fundamental misperception of the nature

of the process by which section 32 was

enacted. It has been said that an act is

"legislative" if it declares a public

purpose or policy and makes provisions

19a

for its accomplishment. (See Merriman v.

Board of Supervisors (1983) 138

Cal.App.3d 889, 891 [188 Cal.Rptr. 343).)

Legislative power is exercised when such

a policy is adpoted, thus giving it the

force of law. (Cf. Yost v. Thomas (1984)

36 Cal.App.3d 561, 570-571 [205 Cal.Rptr.

801, 685 P.2d 1152); Horn v. County of

Ventura (1979) 24 Cal.3d 605, 613 [156

Cal.Rtpr. 718, 596 P.2d 1134)}.) Within

the context of constitutional amendments,

adoption is by the people. (See

Cal.Const. art. XVIII, § 4.) The

Legislature may propose constitutional

amendments, but only the people can enact

them. In this sense, the ultimate

"legislative" power is retained by the

people. (See Carlson v. Cory (1983) 139

Cal.App.3d 724, 728 [189 Cal.Rtpr. 185];

Citizens Against a New Jail v. Board of

Supervisors (1976) 63 Cal.App.3d 559,

563, [134 Cal.Rptr. 36]; cf. Cal. Const.,

20a

|

preamble ["We, the People of the State of

California . . . do establish this

Constitution"}; id., art. II, § 1 ["All

political power is inherent in the

people. Government is instituted for

their protection, security, and benefit,

and they have the right to alter or

reform it when the public good may

require."]).)

Viewed from this perspective,

plaintiffs’ conception of the separation

of powers, in the ordinary trilateral

division of executive, judicial, and

legislative, is incorrect. Section 32

was enacted by the people in the exercise

of their legislative power. The fact

that certain representatives of taxing

bodies may have participated in the

drafting of the proposed constitutional

amendment has no tainting effect because

these persons had no influence in the

people’s legislative decision to enact

21a

—

and give the binding force ot law to that

proposal.

(B)

Plaintiffs next assert that, in

effect, the people did not know what they

were doing by enacting the revisions to

article XIII because they were "misin-

formed and misled" by the ballot pamphlet

materials.

[193 Cal.App.3d 72]

The amendment passed by the voters in

1974 completely revised the constitu-

tional provisions relating to taxation,

one of the most complicated yet necessary

powers of modern government. The changes

between the immediate predecessors of

section 32 and section 32 were minimal. @

2. The earlier version provided: “No injunc-

tion or writ of mandate or other legal or equit-

able process shall ever issue in any suit, action

or proceeding in any court against this State, or

any officer thereof, to prevent or enjoin the

collection of any tax levied under the provisions

of this article, but after payment thereof [an]

22a j

The predecessor version had been judi-

cially construed in the same manner as

would section 32. (See Aronoff v.

Franchise Tax Board (1963) 60 Cal.2d

177, 178-180 [32 Cal.Rptr. 1, 383 P.2d

409}.) In these circumstances, the

minor changes embodied in section 32

obviously did not qualify as a chief

purpose which had to be included in the

ballot summary. (Elec. Code, § 3503;

Amador Valley Joint Union High Sch.

Dist. v. State Bd. of Equalization

(1978) 22 Cal.3d 208, 242-244 [149

Cal.Rptr. 239, 583 P.2d 1281]; Epperson

v. Jordan (1938) 12 Cal.2d 61, 65-71 [82

P.2d 445]; Tinsley v. Superior Court

(1983) 150 Cal.App.3d 90, 108-109 [197

Cal.Rptr. 643).)

action may be maintained to recover, with inter-

est, in such manner as may be provided by law, any

tax claimed to have been illegally collected."

(Former Cal. Const., art. XIII, § 15, {%j 3.)

23a

Plaintiffs’ contention that the

voters did not know what they were doing

merits only brief comment. This type of

claim seems to be routinely made against

any enactment passed by the voters. It

is invariably rejected. (See, e.g.,

Brosnahan v. Brown (1979) 32 Cal.3d 236,

251-252 [186 Cal.Rptr. 30, 651 P.2d 274];

Fair Political Practices Com. v. Superior

Court (1979) 25 Cal.3d 33, 42 [157

Cal.Rptr. 855, 599 P.2da 46]; Amador

Valley Joint Union High Sch. Dist. v.

State Bd. of Equalization, supra, 22

Cal.3d 208 at pp. 231, 243-244.) We do

likewise.

IV

Plaintiffs have not pinned all of

their hopes on their full-out assault on

section 32. They have a fall-back posi-

tion, which is that their complaint is

authorized by certain statutes which

24a

remove their complaint from the

prohibitory ambit of section 32.

The statutes upon which plaintiffs

rely are Revenue and Taxation Code

section 15081 and Code of Civil Procedure

section 1060.5.° The former is the

3. Revenue and Taxation Code section 19081

provides:

"No injunction or writ of mandate or other

legal or equitable process shall issue in any

suit, action, or proceeding in any court

against this State or against any officer of

this State to prevent or enjoin the

assessment or collection of any tax under

this part; provided, however, that any

individual after protesting a notice or

notices of deficiency assessment issued

because of his alleged residence in this

State and after appealing from the action of

the Franchise Tax Board to the State Board of

Equalization, may within 60 days after the

action of the State Board of Equalization

becomes final commence an action, on the

grounds set forth in his protest, in the

Superior Court of the County of Sacramento,

in the County of Los Angeles or in the City

and County of San Francisco against the

Franchise Tax Board to determine the fact of

his residence in this state during the year

or years set forth in the notice or notices

of deficiency assessments. No tax under this

part based solely upon the residence of such

25a

[193 Cal.App.3d 73]

more important. The first clause of

Revenue and Taxation section 19081 is

substantially identical to the first

sentence of section 32. Where this

statute differs from section 32 is it

does not include section 32’s express

requirement of payment preceding judi-

cial proceedings, and in the statute’s

clearly expressed application to assess-

ments. These differences do not, how-

ever, warrant sustaining plaintiffs’

contention.

It is true that section 32 does not

expressly refer to assessments, but the

supreme court has unmistakably held that

it does. (See part II, ante.)

an individual shall be collected from such

individual until 60 days after the action of

the State Board of Equalization becomes final

and, if he commences an action pursuant to

this section, during the pendency of such

action, other than by way of or under the

jeopardy assessment provisions of this part."

26a

Ch Seale dag ig meas

Te OLA OSS

Erroneously believing that the applica-

tion of section 32 to assessments is an

"ambiguity" which remains an open

question, plaintiffs assert that an

"unclear" constitutional provision "must

yield to [a] clear statute." The

supremacy of a constitution over a

statute has been unchallenged since

Marbury v. Madison (1803) 5 U.S. (1

Cranch) 137 [2 L.Ed. 60]. It applies in

California. People v. Navarro (1972) 7

Cal.3d 247, 260 [102 Cal.Rptr. 137, 497

P.2d 481]; Molar v. Gates (1979) 98

Cal.App.3d 1, 24 [159 Cal.Rptr. 239, 12

A.L.R.4th 1197].) In California, a

general constitutional provision

prevails over a specific statute. (See

Associated Home Builders etc, Inc. v.

City of Livermore (1976) 18 Cal.3d 582,

oPo taee Geeemeece. 41, 557 P.2d 473, 92

A.L.R.3d 1038].)

27a

The parties make other contentions

which we do not reach because they could

have no effect upon our decision.

V

It has been shown that California’s

fundamental law, as expressed in its

constitution and by its highest court,

prohibits prepayment tax litigation. An

allegation that plaintiffs had paid the

tax assessed by the Board was essential

to their complaint. (See McHugh v.

County of Santa Cruz (1973) 33

Cal.App.3d 533, 544 [109 Cal.Rptr.

149}.) Without it they failed to state

a cause of action. Such an allegation

was also essential to the

[193 Cal.App.3d 74]

trial court’s jurisdiction. (See Arnoff

v. Franchise Tax Board, supra, 60 Cal.2d

177 at pp. 178-181; Estate of Schneider

(1944) 62 Cal.App.2d 463, 465-466 [145

P.2dad 90}).) It thus appears that both

28a

seus sacmeaaialll

a

grounds of the Board’s demurrer were

sound. There being no possibility that

plaintiffs could cure this defect hy

amending their complaint, the trial

courft properly sustained the demurrer

without granting leave to amend. (Blank

v. Kirwan, supra, 39 Cal.3d 311 at p.

317; Martinez v. Sonoma Cos. (1974) 11

Cai.3@ 234, 400 [1i3 Cai.Rptr. $65, 521

P.2d 841].)

The judgment of dismissal is

affirmed.

Sabran, J.

WE CONCUR:

Anderson, P. J.

Poche, J.

29a

ant

a Se

APPENDIX B

COPY OF CERTIFICATION FOR PUBLICATION OF

THE OPINION OF THE CALIFORNIA COURT OF

APPEAL WHOSE DECISION IS SOUGHT TO BE

REVIEWED (FILED JULY 23, 1986)

31a

rit alee Heal a j

COURT OF APPEAL OF THE

STATE OF CALIFORNIA

in and for the

FIRST APPELLATE DISTRICT

DIVISION FOUR

EGON LOEBNER, et al.,

PLAINTIFF AND APPELLANT,

Vv.

FRANCHISE TAX BOARD,

DEFENDANT AND RESPONDENT.

NO. A030289

SAN FRANCISCO NO. 826409

BY THE COURT:

The written opinion which was filed

on June 22, 1986 has now been certified

for publication pursuant to rule 976(b)

of the California Rules of Court, and it

is therefore ordered that it be

published in the Official Reports.

Dated: July 23, 1988 Anderson P. J.

32a

APPENDIX C

COPY OF CERTIFICATION THAT THE DECISION

OF THE CALIFORNIA COURT OF APPEAL WHOSE

DECISION IS SOUGHT TO BE REVIEWED HAS

BECOME FINAL (FILED MARCH 31, 1988)

33a

COURT OF APPEAL OF THE

STATE OF CALIFORNIA

FOR THE FIRST APPELLATE DISTRICT

DIVISION FOUR

LOEBNER, EGON E.

2934 Alexis Drive

Palo Alto, CA 94304

LOEBNER, EGON, ET AL.

vs.

FRANCHISE TAX BOARD

A030289

San Francisco County No. 826409

* * REMITTITUR * *

I, RON D. BARROW, Clerk of the Court

of Appeal of the State of California, for

the First Appellate District, do hereby

certify that the decision entered in the

above-entitled cause on June 23, 1986 has

now become final.

Appellant Respondent to recover

costs

Each party to bear own costs

Costs are not awarded in this

proceeding

See decision for costs determination

Witness my hand and the seal of the Court

affixed at my office this

RON D. BARROW, Clerk

By: C. HOO

Deputy

34a

APPENDIX D

COPY OF ORDER BY THE CALIFORNIA SUPREME

COURT GRANTING REVIEW

(FILED SEPTEMBER 30, 1986)

35a

SF 25067

ORDER GRANTING REVIEW

AFTER JUDGMENT BY COURT OF APPEAL

First District, Division Four

No. A0Q30289

THE SUPREME COURT OF THE STATE

OF CALIFORNIA

IN BANK

LOEBNER, ET AL., Appellants

Vv.

FRANCHISE TAX BOARD, Respondent

Appellant’s petition for review GRANTED.

Submission of of additional briefing,

otherwise required by rule 29.3,

California Rules of Court, is hereby

deferred pending further order of the

court.

BIRD

Chief Justice

BROUSSARD

Associate Justice

REYNOSO

Associate Justice

GRODIN

Associate Justice

36a

APPENDIX E

COPY OF ORDER OF THE CALIFORNIA

SUPREME COURT DISMISSING REVIEW

(FILED MARCH 31, 1988)

ee a es OR eR me ce Se Reiatigte ~ ey >

ee

crews. ae we

37a

No. S.F. 25067

IN THE SUPREME COURT CF THE

STATE OF CALIFORNIA

IN BANK

LOEBNER

Vv.

FRANCHISE TAX BOARD

Pursuant to Rule 29.4 (c), California

Rules of Court, the above-entitled review

is DISMISSED and the cause is remanded to

the Court of Appeal, First Appellate

District, Division Four.

See Rule 976 (dad), California Rules of

Court.

LUCAS

Chief Justice

BROUSSARD

Associate Justice

PANELLI

Associate Justice

ARGUELLES

Associate Justice

Associate Justice

Associate Justice

Associate Justice

APPENDIX F

COPY OF JUDGMENT OF DISMISSAL OF THE

CALIFORNIA SUPERIOR COURT

(FILED NOVEMBER 27, 1984)

JOHN K. VAN DE KAMP, Attorney General

of the State of California

PATRICIA STRELOFF

Deputy Attorney General

6000 State Building

350 McAllister Street

San Francisco, California 94102

Telephone: (415) 557-2204

Attorneys for Defendant

State of California

SUPERIOR COURT OF CALIFORNIA

CITY AND COUNTY OF SAN FRANCISCO

EGON and SONYA LOEBNER,

Plaintiffs,

Vv.

FRANCHISE TAX BOARD,

Defendant.

No. 826409

JUDGMENT OF DISMISSAL

WHEREAS, the demurrer of defendant

Franchise Tax Board to plaintiffs’

complaint has been sustained without

leave to amend on the grounds that the

Court has no jurisdiction over the

subject of the action and that said

40a

complaint fails to state facts sufficient

to constitute a cause of action against

said defendant; and

WHEREAS, application has been made

for entry of judgment in favor of

defendant and against plaintiffs; and

good cause appearing therefor,

IT IS ORDERED, ADJUDGED AND DEGREED

that this action be and the same hereby

is dismissed with prejudice; plaintiffs

are to take nothing against said

defendant by this action and said

defendant is to recover their costs of

suit herein.

Dated: November 23, 1984

Judge of the Superior Court

4la

42a

APPENDIX G

COPY OF ORDER SUSTAINING DEMURRER OF

THE CALIFORNIA SUPERIOR COURT

(FILED NOVEMBER 27, 1984)

43a

JOHN K. VAN DE KAMP, Attorney General

of the State of California

PATRICIA STRELOFF

Deputy Attorney General

6000 State Building

350 McAllister Street

San Francisco, California 94102

Telephone: (415) 557-2204

Attorneys for Defendant

State of California

SUPERIOR COURT OF CALIFORNIA

CITY AND COUNTY OF SAN FRANCISCO

EGON and SONYA LOEBNER,

Plaintiffs,

Vv.

FRANCHISE TAX BOARD,

Defendant.

No. 826409

ORDER SUSTAINING DEMURRER

WITHOUT LEAVE TO AMEND

The demurrer of defendant Franchise

Tax Board to the complaint in the above-

entitled action came on regularly for

hearing on September 28, 1984. John K.

Van de Kamp, Attorney General, by

Patricia Streloff, Deputy Attorney

AAa

General, appeared as counsel for said

defendant, and Egon E. Loebner appeared

in pro per on behalf of plaintiffs. The

matter was argued and submitted to the

Court for decision. Upon due considera-

tion, and good cause appearing therefore,

IT IS ORDERED that the demurrer of

defendant Franchise Tax Board to the

complaint be and is sustained without

leave to amend on the grounds that the

Court has no jurisdiction over the

subject of the action and that said

complaint fails to state facts sufficient

to constitute a cause of action against

defendant Franchise Tax Board. (Article

XIII, section 32, Constitution of the

State of California; Pacific Gas and

Electric Co. v. State Bd. of Equalization

(1980) 27 Cal.3d 277.)

Dated: November 23, 1984

Judge of the Superior Court

45a

SUPERIOR COURT OF CALIFORNIA

CITY AND COUNTY OF SAN FRANCISCO

Department

EGON and SONYA LOEBNER,

Plaintiffs,

vs.

FRANCHISE TAX BOARD,

Defendant.

IN OPEN COURT

September 28, 1984

No. 826409

The demurrer of Defendant Franchise

Tax Board is sustained without leave to

amend for the reasons stated in the

demurrer.

Defendant is to prepare the order.

ROY L. WONDER

Judge of the Superior Court

MINUTE ORDER

46a

APPENDIX H

COPY OF NOTICE OF ACTION OF CALIFORNIA

FRANCHISE TAX BOARD AFFIRMING PREVIOUS

NOTICE OF DEFICIENCY ASSESSMENT

(MAILED FEBRUARY 5, 1981)

State of California

FRANCHISE TAX BOARD

Sacramento, California 95867

(800) 852-7050

EGON AND SONYA LOEBNER

2934 Alex Dr

Palo Alto CA 94304

Taxable year 1976

NPA No. 03730250

Dated 05/02/80

Account No. 103243213L0EB

Code 3432400/EY/JL

Date 02/06/81

THE NOTICE REFERRED TO ABOVE HAS BEEN

AFFIRMED AS FOLLOWS

ADDITIONAL TAX

INTEREST TO 02/06/81

ADDITIONAL TAX AND INTEREST

ADDITIONAL INTEREST ACCRUES AT A RATE OF

$.855 PER DAY FROM THE DATE OF THIS

NOTICE.

SEE PAGE 2 FOR EXPLANATORY PARAGRAPHS.

Saul Levin

26521 Aric Ln

Los Altos Hills CA 94022

This Notice of Action constitutes formal

action on your protest against the NPA

designated above.

If you agree with this Notice of Action,

you should pay promptly. Return the blue

copy of this notice with payment to the

Franchise Tax Board, Sacramento, CA

95867. Payment should include the

liability plus interest as shown above.

48a

If you do not agree with this Notice of

Action, you may file an appeal with the

State Board of Equalization. See reverse

side for details.

FORM FTB 5930-M (1-80)

KEEP THIS COPY FOR YOUR RECORDS

49a

FRANCHISE TAX BOARD February 6, 1981

EGON AND SONY LOEBNER Taxable Year 1976

103243212 Page 2

WE HAVE RECEIVED YOUR PROTEST DATED MAY

6, 1980 AND UNDERSTAND THE INFORMATION

YOU HAVE PRESENTED. HOWEVER, CONSIDERING

ALL OF THE FACTS PRESENTED, THE NOTICE OF

PROPOSED ASSESSMENT IS CORRECT FOR THE

FOLLOWING REASONS.

RESIDENTS WHO LEAVE CALIFORNIA FOR A

TEMPORARY OR TRANSITORY STAY ARE HELD TO

BE RESIDENTS DURING THEIR ABSENCE AND ARE

TAXABLE ON ALL THEIR INCOME.

THE TAXPAYER IS HELD TO BE A “RESIDENT”

FOR THE TAXABLE YEAR PURSUANT TO SECTION

17014(B) OF THE REVENUE AND TAXATION

CODE. REMITTANCE OF $224 IS BEING

APPLIED AS OF JUNE 4, 1980.

50a

APPENDIX I

COPY OF ORDER OF THE CALIFORNIA SUPREME

COURT DENYING REVIEW OF CORBETT V.

FRANCHISE TAX BOARD AND

DECERTIFYING IT FOR PUBLICATION

(FILED AUGUST 22, 1985)

5la

ORDER DENYING REVIEW

AFTER JUDGMENET BY THE COURT OF APPEAL

2nd District, Division 3, No. B005216

IN BANK

Corbett et al., Respondents,

V »

FRANCHISE TAX BOARD, Appellant.

Appellant’s petition for review DENIED.

The Reporter of Decisions is directed

not to publish in the Official Appellate

Reports the opinion in the above entitled

appeal filed May 2, 1985, which appears

at 167 Cal.App.3d 808. (Cal. Const.,

Art. VI, Section 14; Rule 976, Cal. Rules

of Court.)

Bird, C. J., is of the view the

opinion should remain published.

BIRD

Chief Justice

APPENDIX J

COPY OF THE DEPUBLISHED* CORBETT V.

FRANCHISE TAX BOARD OPINION OF THE

CALIFORNIA COURT OF APPEAL,

SECOND DISTRICT,

DIVISION THREE

(FILED MAY 2, 1985)

*Had appeared as 167 Cal.App.3d 808

IN THE COURT OF APPEAL

OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

GEORGE T. CORBETT, et al.,

Plaintiffs and Respondents,

Vv.

FRANCHISE TAX BOARD,

Defendant and Appellant.

B0O05216

(Los Angles County

Sup.Ct. No. )

[167 Cal.App.3d 810}

INTRODUCTION

In this case we are called upon to

determine whether respondents are liable

as California residents for state income

taxes on the whole of their income and

whether Code of Civil Procedure section

1060.5 and Revenue and Taxation Code

section 19081, under which they sought

injunctive and declaratory relief from

the tax, are unconstitutional and in

conflict with article XIII, section 32,

of the California Constitution. We

affirm the judgment of the trial court

which concluded respondents are not

liable for the tax and that the statutes

are not unconstitutional.

STATEMENT OF THE CASE

In a complaint filed in Los Angeles

Superior Court, plaintiffs and respon-

dents George T. Corbett and Annette

Corbett (the Corbetts) sought declaratory

55a

and injunctive relief against defendant

and appellant Franchise Tax Board, a

subdivision of the State of California

(the Board), contending the Board’s

personal income tax assessments against

them for the years 1970,

[167 Cal.App.3d 811]

1971, 1972 and 1973 were erroneous

because they were not residents of

California during those years.

Although the Corbetts filed

nonresident tax returns for the tax years

in question and paid California state

income taxes on their income rrom

California sources, the Board asserted

the Corbetts should have filed resident

tax returns and should have paid

California income taxes on the whole of

their income. The Board so contended

notwithstanding that the Corbetts had

filed: Illinois resident tax returns and

56a

had paid Illinois resident taxes for

those years.

After exhausting their administrative

remedies before the Board and the State

Board of Equalization, the Corbetts filed

an action in the Superior Court for the

County of Los Angeles, seeking a judicial

determination of nonresidency, in accor-

dance with the procedures set forth in

Code of Civil Procedure section 1060.5

and Revenue and Taxation Code section

19081.

HISTORICAL FACTS

The Corbetts and the Board, through

their respective counsel, stipulated to

the following applicable facts:?

The Corbetts were born, raised,

married, and raised their own family, in

Illinois.

1. The Corbetts’ connections with both

California and Illinois during the audit period,

as set forth in the stipulated facts, are

summarized in appendix A to this opinion.

57a

In 1937, Mr. Corbett began working

for George E. Corbett Boiler and Tank,

Inc., an Illinois corporation (Corbett

Boiler), which had been founded by his

grandfather. During the ensuing years he

became its president and major share-

holder. In 1968 and 1969, he prepared

his brother-in-law, Mr. George Quill, to

assume the presidency of the company. In

1969, he resigned as president and sold

his entire stock interest to Mr. Quill.

Concurrently, he assumed the office of

vice president, and remained a member of

the board of directors. Throughout the

audit period of this case, he was consis-

tently an employee of Corbett Boiler.

When in Illinois, he inspected job sites,

reviewed plans and blueprints, negotiated

business and met with new clients. He

kept current on boiler technology and

attended contractors’ association meet-

ings in Illinois.

58a

The Corbetts also were officers and

directors of the Corbett Building

Corporation, an Illinois corporation

(Corbett Building), of which Mr. Corbett

was president. They owned 82 percent of

the shares of the corporation.

[167 Cal.App.3d 812]

Corbett Building owned industrial real

estate, buildings, and vacant property,

all located within the city of Chicago.

Its business was the leasing of these

properties to industrial concerns,

including Corbett Boiler. As officers

and directors of Corbett Building, both

Mr. and Mrs. Corbett received yearly

salaries from the corporation.

Over 95 percent of the Corbetts’

income during the audit period was

derived from their business interests

and activities in Illinois. They had no

business nor employment interests of any

nature in California.

59a

The Corbetts conduct almost ali of

their personal banking through the First

National Bank of Chicago. All

securities owned by the Corbetts are

maintained in an agency account at that

bank and are physically located there.

They collect and deposit their income in

Illinois. They had a small savings

account and a checking account in Santa

Barbara for small expenses and emergen-

cies. The income from these California

bank accounts was less than $300 per

year.

The Corbetts’ wills were prepared in

Chicago; the wills, which are physically

present there, recite the city of

Chicago and the State of Illinois as the

Corbetts’ place of residence.

Tre Corbetts filed Illinois state

resident income tax returns and paid the

illinois income tax applicable to

Illinois residents. They filed

60a

California nonresident income tax

returns and paid the California income

tax applicable to nonresidents. Their

Illinois address is shown as their

permanent address on all of their state

and federal tax returns. The tax

returns are prepared in Illinois.

The Corbetts own and maintain a

custom home in Chicago which they built

more than 25 years ago. Their cemetery

lots, voter registrations, family

doctors, dentists, professional

advisors, lawyers, bankers and

accountants are all in Illinois.

The only real property interest the

Corbetts have in California is a house

in Santa Barbara, which they purchased

in 1969 to provide accommodations during

their visits to this state.

During the years in question, the

Corbetts owned one car registered in

Illinois and one which was registered in

6la

California. They both had Illinois

driver’s licenses. Mrs. Corbett also

had a California driver’s license for a

portion of the audit period.

The Corbetts attended church

services wherever they were in the

world. They were members of and made

donations to a church in Illinois. They

{167 Cal.App.3d 813]

made donations to a church they attended

in Santa Barbara, although they were not

members.

The Corbetts had many friends and

family members in Illinois. In 1973

they celebrated their 25th wedding

anniversary in Chicago with a party for

over 150 guests. They also attended a

number of other social events in the

Chicago area.

The Corbetts joined the Montecito

Country Club of Santa Barbara and

frequently played golf there. Their

62a

other social activities in California

consisted of visits with California

relatives and attendance at occasional

church functions. They enjoyed spending

the winter season in sunny California

and visiting their California relatives.

For those reasons they stayed in

California for lengthy periods during

the audit years.

During the summer of 1972, while

Mrs. Corbett was in California, she

suffered a sudden and severe gall

bladder attack. She was unable to

return to Illinois for treatment by her

regular physician. The operation caused

her to remain in California for all of

that summer and to curtail her travels

in late 1972 and early 1973.

In each of the questioned years, the

Corbetts spent less than nine months in

California, ranging from six and one-

half months in 1971 to eight and one-

63a

half months in 1973. When not present

in California, they were generally at

their house in Chicago.

ISSUES

1. Whether Code of Civil Procedures

section 1060.5 and Revenue and Taxation

Code section 19081, under which the

Corbetts brought their action for

declaratory and injunctive relief from

California income tax assessments, are

in conflict with article XIII, section

32, of the California Constitution.

2. Whether the Corbetts were

residents of California during the audit

years for purposes of the California

Personal Income Tax Law.

DISCUSSION

1060.5 and Revenue and Taxation Code

section 19081 are constitutional.

Appellant contends Code of Civil

Procedure section 1060.5 and Revenue and

64a

oa Ce 9 O™ 6 Re ee ee PR EO Qe as

Taxation Code section 19081 are unconsti-

tutional in that they violate article

XIII, section 32, of the California con-

stitution.

{167 Cal.App.3d 814]

Section 32 provides: "No legal or

equitable process shall issue in any

proceeding in any court against this

State or any officer thereof to prevent

or enjoin the collection of any tax.

After payment of a tax claimed to be

illegal, an action may be maintained to

recover the tax paid, with interest, in

such manner as may be provided by the

Legislature."

Section 1060.5 of the Code of Civil

Procedure, enacted in 1955 (Stats. 1955,

ch. 1555, § 1, p. 2824), forms part of

the declaratory relief act (Code Civ.

Proc., §§ 1060-1062.5). Section 1060.5

permits any person claiming nonresidence,

for purposes of the Personal Income Tax

65a

Law (Rev. & Tax. Code, § 17001 et seq.),

to obtain a declaratory judgment

regarding the fact of his or her

residence by following the procedure set

forth in Revenue and Tax Code section

19081.

The declaratory relief act was

passed in 1921 (Stats. 1921, ch. 643,

§ 1, p. 689). It was one of the first

of its kind to appear in the United

States. (See Harrison, California

Legislation of 1921 Providing for

Declaratory Relief (1921) 9 Cal.L.Rev.

359.) In 1923, a unanimous California

2. California Code of Civil Procedure section

1060.5 provides: "Any individual claiming to be a

nonresident of the State of California for the

purposes of the Personal Income Tax Law may com-

mence any action in the Superior Court in the

County of Sacramento, or in the County of Los

Angeles, or in the City and County of San

Francisco, against the Franchise Tax Board to

determine the fact of his residence in this State

under the conditions and circumstances set forth

in Section 19081 of the Revenue and Taxation

Code."

66a

Supreme Court held the act constitu-

tional. (Blakeslee v. Wilson (1923) 190

Cal.2d 479 [132 P. 495]. In 1942, in

Hoyt v. Board of Civil Service Commrs.

(1942) 21 Cal.2d 399 [132 P.2d 804], the

Supreme Court held that section 1060

authorized declaratory relief against

state action. The court held that,

where no impairment of sovereignty would

result, and where no special statute

precluded suit against the sovereign, it

would be presumed that the Legislature

intended the section to apply to govern-

mental action. (Id., at p. 403, see pp.

400-405.)

However, special statutes did pre-

clude the use of declaratory judgments

in tax disputes between individuals and

the government. (See Casey v. Bonelli

(1949) 93 Cal.App.2d 253 [208 P.2d 723];

Lewis Eckert B. Co. v. Unemploy R. Com.

(1941) 47 Cal.App.2d 844 [119 P.2d

67a

227].) These special statutes were

those that implemented? article XIII,

section 32, of the California Constitu-

tion*

and, in general, mirrored the

working of a paragraph in former section

15, of article XIII,> the immediate

predecessor of section 32. (See, e.g.,

3. Section 33 of article XIII of the California

Constitution (formerly 13) declares: "The

Legislature shall pass all laws necessary to carry

out the provisions of this article."

4. There have been similar constitutional

provisions which have been subject to numerous

minor revisions and renumberings since 1910. In

1974, this provision was placed in separate

section 32 and amended to its present form. (See

Pacific Gas & Electric Co. v. State Bd. of

Equalization (1980) 27 Cal.3d 277, 280, fn. 3,

281, fn. 5 [165 Cal.Rtpr. 122, 611 P.2d 463].)

5. Former section 15 of article XIII of the

California Constitution read, in part: "No

injunction or writ of mandate or other legal or

equitable process shall ever issue in any suit,

action or proceeding in any court against this

State, or any officer thereof, to prevent or

enjoin the collection of any tax levied under the

provisions of this article; but after payment

thereof an action may be maintained to recover,

with interest, in such manner as may be provided

by law, any tax claimed to have been illegally

collected."

68a

Rev. & Tax. Code, 6931 [re sales and

use taxes], 8146 [re motor vehicle fuel

tax], 9171 [re use fuel tax], 11571 [54

private car tax], 13101 [re insurance

tax], 16123 [re gift tax], 26101 [re bank

and corporation taxes], 32411 [re alco-

holic beverage tax].)

Prior to its amendment in 1955

(Santee: Bees, Gn. 2707, $1, p. 3141),

when section 1060.5 was added to the

Code of Civil Procedure, section 19081

provided: "No injunction or writ of

mandate or other legal or equitable

process shall issue in any suit, action,

or proceeding in any court against this

State or against any officer of this

State to prevent or enjoin the assess-

ment or collection of any tax under this

part."

As amended in 1955, section 1955,

section 19081 retained its original

provisions, as quoted above, but added

69a

the provision that persons protesting a

deficiency assessment, issued because of

his or her alleged residence in this

state, may bring court action against

the Franchise Tax Board (after appealing

from the Board to the State Board of

Equalization) to determine the fact of

residency, and that no tax based solely

on residency shall be collected from

such persons for 60 days after the

action of the State Board of

Equalization becomes final or during

6

pendency of a court action. (See

6. Since its amendment in 1955, California

Revenue and Taxation Code section 19081, has pro-

vided: "No injunction or writ of mandate or other

legal or equitable process shall issue in any

suit, action, or proceeding in any court against

this State or against any officer of this State to

prevent or enjoin the assessment or collection of

any tax under this part; provided, however, that

any individual after protesting a notice or

notices of deficiency assessment issued because of

his alleged residence in this State and after

appealing from the action of the Franchise Tax

Board to the State Board of Equalization, may

within 60 days after the action of the State Board

of Equalization becomes final commence an action,

70a

Review of 1955 Legislation (Cont. Ed.

Bar) pp. 126-126.)

It is this 1955 amendment to Revenue

and Taxation Code section 19081, and

Code of Civil Procedure section 1060.5,

enacted in 1955, which the

[167 Cal.App.3d 816]

Board urges conflict with article XIII,

section 32, of the California Constitu-

tion and violate the principle derived

therefrom, namely, that an action for a

tax refund is the exclusive means of

on the grounds set forth in his protest, in the

Superior Court of the County of Sacramento, in the

County of Los Angeles or in the City and County of

San Francisco against the Franchise Tax Board to

determine the fact of his residence in this State

during the year or years set forth in the notice

or notices of deficiency assessment. No tax under

this part based solely upon the residence of such

an individual shall be collected from such indivi-

dual until 60 days after the action of the State

Board of Equalization becomes final and, if he

commences an action pursuant to this section,

during the pendency of such action, other than by

way of or under the jeopardy assessment provisions

of this part."

71a

obtaining judicial review of state tax

assessments. ’

The Board argues that whenever

statutes conflict with constitutional

provisions, the latter must prevail

(People v. Navarro (1972) 7 Cal.3d 248,

260 [102 Cal.Rptr. 137, 497 P.2d 481}),

that legislative mandates cannot take

precedence over constitutional provi-

sions (Molar v. Gates (1979) 98

Cal.App.3d 1, 24 {159 Cal.Rptr. 239, 12

7. The cases cited by the Board for those

propositions are readily distinguishable, because

in none of the cases cited was the taxpayer chal-

lenging a personal income tax deficiency assess-

ment on residency grounds. (See Pacific Gas &

Electric Co. v. State Bd. of Equalization, supra,

27 Cal.3d 277, 279 [re adjustment of real property

assessment pursuant to art. XIII A of the Cal.

Const., popularly known as Prop. 13); United

States Steel Corp. v. Franchise Tax Board (1983)

144 Cal.App.3d 473, 481 [192 Cal.Rtpr. 677] [re

bank and corporation taxes]; Hunter-Reay v.

Franchise-Tax Board (1983) 140 Cal.App.3d 875, 881

[189 Cal.Rptr. 801] [re personal income tax;

assessment not protested on residency grounds];

Horack v. Franchise Tax Board (1971) 18 Cal.App.3d

363, 370 [95 Cal.Rptr. 717] [re personal income

tax; a jeopardy assessment, not protested on resi-

dency grounds}. )

72a

A.L.R.4th 1197]) and that the Legisla-~

ture may not exercise any power that is

expressly or impliedly forbidden to it

by the state Constitution (Wood v.

Hamaguchi (1929) 207 Cal. 79, 90 [277 P.

113, 63 A.L.R. 861)).

While the Board’s arguments are not

wrong as far as they go, in Dupuy v.

Superior Court (1975) 15 Cal.3d 410 [124

Cal.Rptr. 900, 541 P.2d 540], our

Supreme Court held that "the anti-

injunction provision of the California

Constitution [Cal. Const., art. XIII,

§ 32] must yield to the paramount provi-

sions of the United States Constitution

Pons (ons, mee Bae, G2) « ss .*

(Id., at p. 418.)

The Fourteenth Amendment to the

United States Constitution provides that

no state shall "deprive any person of

life, liberty, or property, without due

73a

process of law."® (Italics added.)

The legal sage Bernard E. Witkin

authoritatively advises: "In its

origin, the meaning of the term ‘due

process’ was procedural. The protection

was against judicial or administrative

procedure which, by reason of denial of

notice and opportunity for a hearing,

unfairly deprived a person or property

or personal rights. .. . But in its

development in the United States the due

process clause has been interpreted as a

limitation upon the legislative as well

as the judicial and executive branches

of the government, thus pre-

[167 Cal.App.3d 817]

venting arbitrary and unreasonable

legislation. This aspect of the subject

is known as’ substantive due process to

8. The California Constitution also contains a

due process clause (Cal. Const., art. I, § 7,

subd. (a)).

74a

distinguish it from procedural due

process." (5 Witkin, Summary of Cal.

Law (8th ed. 1974) Condit tational Law,

§ 279, pp. 3569-3570, original italics.)

Substantive due process is best

illustrated by cases dealing with the

police power, but substantive due process

also restricts other governmental powers,

such as the power of eminent domain and

the power to tax. (Id., at p. 3570.)

The taxing power of a state, while

basic to its sovereignty, is subject to

substantive due process limitations,

which include those relating to its

territorial jurisdictions. (5 Witkin,

Summary, of Cal. Law., supra, Taxation,

2, pp. 3988-3989; see also Sabine,

Constitutional and Statutory Limits on

the Power to Tax (1960) 12 Hastings L.J.

23, 30-40.) Some of these jurisdictional

(substantive due process) aspects of

state power were summarized in Miller

75a

Bros. Co. v. Maryland (1954) 347 U.S. 340

[98 L.Ed. 744, 74 S.Ct. 535],? in which

the United States Supreme Court held a

Maryland use tax against a Delaware

seller was void as extraterritorial. The

court noted its holding was mandated by

9. The United States Supreme Court in Miller

Bros. Co. v. Maryland, supra, 347 U.S. 340, stated

in regard to a state’s power to tax consistent

with the requirements of substantive due process:

"(T)he Court has frequently held that a domicile

or residence, more substantial than mere

in transit or sojourn, is an adequate basis for

taxation, including income, property,and death

taxes. Since the Fourteenth Amendment makes one a

citizen of the state wherein he resides, the fact

of residence creates universally recognized reci-

procal duties of protection by the state and of

allegiance and support by the citizen. The latter

obviously includes a duty to pay taxes, and their

nature and measure is largely a political matter.

Of course, the situs of property may tax it

regardless of the citizenship, domicile or resi-

dence of the owner, the most obvious illustration

being a tax on realty laid by the state in which

the realty is located. Also, the keeping of tan-

gible or intangible personality within a state may

give it a similar taxable situs there (sometimes

called a business or commercial situs or domi-

cile). Certain activities or tranSactions carried

on within a state, such as the use and sale of

property may give jurisdiction to tax whomsoever

engages therein, and the use of highways may sub-

ject the use to certain types of taxation. These

cases overlap with those in which incorporation by

76a

its theretofore consistent adherence to

the time-honored concept: "[T)jhat due

process requires some definite link,

some minimum connection, between a state

and the person, property or transaction

it seeks to tax." (347 U.S. 340, 344-

345 [98 L.Ed.2d 744, 748]; see 5 Witkin,

Summary of Cal. Law, supra, Taxation,

2, Pp- 3989.)

Thus, "{a) state may constitution-

ally tax the income of its residents

whenever earned as well as the income of

non-residents derived from sources

[167 Cal.App.3d 818]

within the state." (Davis v. Franchise

a state or permission to do business there forms

the basis for onate taxation of a company,

does not clearly take place within the taxing

state, elements of the transaction occurring in

different states, have presented peculiar

difficulties, as have those where the party is

liable for a use tax does not use the product

within the taxing state." (At p. 345 [98 L.Ed. at

pp. 748-749], fns. omitted.)

77a

Tax Board (1977) 71 Cal.App.3d 998, 1002

[139 Cal.Rptr. 797]; see N.H. ex rel.

Cohn v. Graves (1937) 300 U.S. 308, 313

(81 L.Ed. 666, 670, 57, S.Ct. 466, 108

A.L.R. 721); Lawrence v. State Tax Comm.

(1932) 286 U.S. 276, 280-281 [76 L.Ed.

1102, 1105-1106, 52 S.Ct. 556, 87 A.L.R.

374); Shaffer v. Carter (1920) 252

U.S.37, 52-53 [64 L.Ed. 445, 456-457, 40

S.Ct. 221]; Travel v. Yale & Towne Mgf.

Co. (1920) 252 U.D. 60, 75-76 [64 L.Ed.

460, 468, 40 S.Ct. 228].) In short, a

state is without power to impose an

income tax unless it has jurisdiction of

the person taxed or of the property or

business which produced the income

taxed. (Shaffer v. Carter, supra, 252

U.D.37, 52 [64 L.Ed.2d 445, 456], 85

C.J.S., Taxation, 1090, p. 701.)

In Travis v. Yale & Towne Mfg. Co.,

Supra, 252 U.S. 60, the United States

Supreme Court explained this limitation

78a

on the taxing power of the states

thusly: "A statute imposing a personal

tax on persons over whom the State has

no jurisdiction conflicts with the

Fourteenth Amendment and is a taking of

property without due process of

law. .. . If the State has not juris-

diction to impose a personal liability

for tax on a non-resident, it is immate-

rial whether that non-resident is engag-

ing in an occupation in the State from

which he derives a large income or not.

So, also if the State has the jurisdic-

tion to impose a tax, it is immaterial

whether the non-resident’s occupation in

the State is gainful in money or in

health or in pleasure. The State either

has or has not the jurisdiction to

impose a personal liability against a

non-resident for the payment of taxes."

(At p. 68.)

79a

The United States Supreme Court

early held that "[{wjhere there is juris-

diction neither as to person nor prop-

erty, the imposition of a tax would be

ultra vires and void. If the legisla-

ture of a State should enact that the

citizens or property of another State or

country should be taxed in the same

manner as the persons and property

within its own limits and subject to its

authority, or in any other manner what-

soever, such a law would be as much a

nullity as if in conflict with the most

explicit constitutional inhibition."

(St. Louis v. The Ferry Company (1870)

78 U.S. (11 Wall.) 423, 430 [20 L.Ed.

192, 194], original italics and italics

added; 71 Am.Jur.2d State and Local

Taxation, § 85, p. 409).

Clearly, in 1955, when the Legisla-

ture amended Revenue and Taxation Code

section 19081 and enacted Code of Civil

80a

Procedure section 1960.5--to allow a

prepayment court action for persons

protesting an income tax assessment on

residency grounds--it intended thereby

to safeguard the substantive due process

rights of nonresidents. The Legisla-

[167 Cal.App.3d 819]

ture apparently recognized that such

claim of nonresidency is a challenge to

the very jurisdiction of the state to

impose a personal income tax.1°

(4) In California Housing Finance

Agency v. Elliott (1976) 17 Cal.3d 575

[131 Cal.Rptr. 361, 551 P.2d 1193], the

10. Both the United States and California

Supreme Courts have held that procedural due

process does not require judicial determination of

tax liability before collection (Phillips v.

Commissioner (1931) 283 U.S. 589, 597-599 [75

L.Ed. 1289, 1297-1298, 51 S.Ct. 608]; Dupuy v.

Superior Court, supra, 15 Cal.3d 410, 416) nor

preclude the government from effecting the

collection of taxes by summary administrative

proceedings (Phillips v. Commissioner, supra, at

p. 595 (75 L.Ed. at p. 1296]; Dupuy v. Superior

Court, supra, 15 Cal.3d at p. 416).

8la

California Supreme Court restated a well

settled principle: "In considering the

constitutionality of a legislative act

we presume its validity, resolving all

doubts in favor of the Act. Unless

conflict with a provision of the state

or federal Constitution is clear and

unquestionable, we must uphold the Act."

(Id., at p. 594.)

(lc) In view of this presumption of

statutory validity and the California

Supreme Court’s determination in Dupuy

v. Superior Court, supra, 15 Cal.3d 410,

418, that the anti-injunction provision

of the California Constitution (Cal.

Const., art. AiII, § 32) must yield to

the paramount provisions of the United

States Constitution (Cal. Const., art.

III, § 1), we hold that Revenue and Tax

Code section 19081 and Code of Civil

Procedure section 1060.5, are

82a

ad ee Lhe hn nla

constitutional under both the state and

federal Constitutions.

il.

The Corbetts were not residents of

California during the audit period.

The Board contends the trial court

erred in finding the Corbetts were not

residents of California during the audit

period, the years 1970, 1971, 1972 and

1973.

Since the issue presented here

involves the applicability of a statute

to stipulated and uncontradicted facts,

we are confronted with a pure question

of law and are not bound by the findings

of the trial court. (Klemp v. Franchise

Tax Bd. (1975) 45 Cal.App.3d 870, 872

[119 Cal.Rptr. 821]; Whittell v.

Franchise Tax Board (1964) 231.

Cal.App.2d 278, 283 [41 Cal.Rptr. 673].)

In making our determination on the

residency question, we are guided by

83a

this court’s decision in Klemp v.

Franchise Tax Bd., supra, 45 Cal.App.3d

870. Klemp is significant because it is

the only decision by a California

[167 Cal.App.3d 820]

court to delineate the basic residency

requirements for liability under the

Personal Income Tax Law. (See Comment

(1975) 16 Santa Clara L.Rev. 176, 181.)

It is also the only case to determine

whether persons from another state have

acquired a residency in California.

(Id., at p. 181, fn. 34.)11

We therefore set forth the pertinent

statutes in effect during the years in

11. Whittell v. Franchise Tax Board, supra, 231

Cal.App.2d 278, was based on fact quite different

from Klemp and this case. In Whittel] the

question was whether Californians had given up

their California residence when they moved their

domicile to Nevada. The question in Klemp and the

instant case is whether persons from another state

have acquired a residence in California. (See

Klemp v. Franchise Tax Bd., supra, 45 Cal.App.3d

at p. 875; and see Comment, supra, 16 Santa Clara

L.Rev. at p. 181, fn. 34.)

84a

question as did the Klemp court (at pp.

874-875), so that we may analyze the

facts of this case in light of the

governing law.

The relevant Revenue and Taxation

Code provisions are as follows:?2

Section 17014 imposes a tax "upon

the entire taxable income of every

resident of this state. ..."

Section 17014 provides that

"’Resident’ includes:

"(a) Every individual who is in this

State for other than a temporary or

transitory purpose.

"(b) Every individual domiciled in

this State who is outside the State for a

temporary or transitory purpose.

12. The quoted provisions of the Revenue and

Taxation Code are those which were in effect

during the audit years. The sections have since

been renumbered, and otherwise changed, but the

quoted provisions remain identical.

85a

"Any individual who is a resident of

this State continues to be a resident

even though temporarily absent from the

State."

Section 17015 provides that

"’Nonresident’ means every individual

other than a resident."

Section 17016 raises a rebuttable

presumption of residence: "Every indivi-

dual who spends in the aggregate more

than nine months of the taxable year

within this State shall be presumed to be

a resident. The presumption may be over-

come by satisfactory evidence that the

individual is in the State for a tempo-

rary or transitory purpose."

The issue here, as ii: the Klemp case,

is whether during the audit years the

Corbetts were in California "for other

than a temporary, cr transitory

[167 Cal.App.3d 821]

purpose" within the meaning of section

86a

Se ig) a OIA Hr IE AN UN) OD RNIN fi

17014, which defines the meaning of

"’Resident.’"

Our inquiry, therefore, is aided by

an examination of the Board’s own

regulations, issued pursuant to Revenue

and Taxation Code 19253, which interpret

the statutory definition of residence.

Included in these regulations are the

following: "Whether or not the purpose

for which an individual in this State

will be considered temporary or transi-

tory in character “ill depend to a large

extent upon the facts and circumstances

of each particular case... .

"The underlying theory of Sections

17014-1706 is that the state with which a

person has the closest connection during

the taxable year is the state of his

residence.

"An individual whose presence in

California does not exceed an aggregate

of six months within the taxable year and

87a

who is domiciled without the state and

maintains a permanent abode at the place

of his domicile, will be considered as

being in this state for temporary or

transitory purposes providing he does not

engage in any activity or conduct within

this State other than that of a seasonal

visitor, tourist or guest.

"An individual may be a seasonal

visitor, tourist or guest even though he

owns or maintains an abode in California

or has a bank account here for the

purpose of paying personal expenses or

joins local social clubs." (Cal.Admin.

Code, tit. 18, regs. 17014-17016(b).)+2

In the instant case, as in Klemp,

the Board does not contend the Corbetts

13. Regulations 17014-17016(b) of title 18 of

the California Administrative Code was in effect

during the audit years. The section has since

been renumbered to Section 127014, but the quoted

portions are identical in the present version of

the regulation.

88a

are individuals "dom? .led in this

State" under section 17014. Impliedly

they thus concede the Corbetts are

domiciliaries of Illinois. Rather, the

Board’s argument emphasizes the compari-

son between the amount of time the

Corbetts spent in California versus the

time they spent in Illinois during the

audit years.

Preliminarily, we note that since the

Corbetts never spent nine or more months

in California, they fall outside the

statutory presumption of residence based

on physical presence. (Rev. & Tax. Code,

§ 17016.) Section 17016 establishes that

the length of time a person is in

California does not necessarily compel a

determination that he or she has acquired

residence here. (Klemp v. Franchise Tax

Bd., supra, 45 Cal.App.3d at p. 876.)

The

89a

[167 Cal.App.3d 822)

section "concedes that evidence may show

that presence for more than nine months

is ‘for a temporary or transitory

purpose,’ and, hence, does not constitute

residence for income tax purposes."

(Ibid. )

The regulations recognize that a

person who stays in California as long as

six months, who is domiciled without the

state and who maintains a permanent abode

at the place of domicile, may be consid-

ered as being in this state for temporary

or transitory purposes "’providing he

does not engage in any activity or

conduct within this State other than

that of a seasonal visitor, tourist or

guest.’" (Ibid.) During the time in

question, the Corbetts did Corbetts did

not engage in any activity or conduct in

California other than that of a seasonal

visitor or tourist. The regulations

90a

establish that the ownership of an

abode, a bank account and a social club

membership in this state do not subject

a seasonal visitor to California income

tax. (Id., at pp. 876-877.) That the

Corbetts spent more than six months in

California during some of the audit

years is only a factor to be considered

as an indication of the purpose of the

visit, and should not "tip the scale"

when all other circumstances point

clearly to residency being in Illinois.

(See, id., at p. 877.)

In comparing the facts of this case

with those in Klemp, we note that the

Corbetts spent almost nine months in

California during some of the years in

question, while the Klemps spent at most

only six months of a questioned year in

this state. However, unlike the Klemps,

who rented a motel apartment in Chicago

which they relinquished when they were

9la

not in that city, the Corbetts maintained

a permanent residence in their native

Illinois, a factor which mitigates in

favor of a finding they were seasonal

visitors to California. (See 45

Cal.App.3d at p. 877.)

Otherwise the facts of the two cases

are very similar. Both the Corbetts and

the Klemps had prospered to the point

where they were free to leave Illinois,

returning only when their respective

businesses needed them. The couples

continued to manage substantial business

interests in Illinois during their

absences from that state, but none of

those interests were transferred from

Illinois to California. Both the Klemps

and the Corbetts preserved in Illinois

the many relationships and interests they

had built over a lifetime.

The Klemps’ only connection with

California was their purpose to spend the

92a

colder half of the year as visitors in

the California desert, together with

their ownership of a house and a club

affiliation suitable for that purpose.

(45 Cal.App.3d at p. 877.) The

Corbetts’ connection with California was

almost identical to that of the Klemps,

except that another purpose of the

Corbetts’ stays in California was a

desire to be with their California

relatives.

[167 Cal.App.3d 823}

The standards established by the

statutes, the regulations and the Klemp

case, require a finding that the state

with which the Corbetts’ had the "’clos-

est connection during the taxable

year[s]’" in question was their native

Illinois, notwithstanding their lengthy

stays in California. (45 Cal.App.3d at

p. 876.) We hold, therefore, that the

Corbetts remained Illinois residents

93a

during those years and did not become

California residents within the meaning

of section 17014.

CONCLUSION

Substantive due process, in the

development of our American jurispru-

dence, has been a bulwark in the series

of safeguards created to curb and

curtail governmental power in its

dealings with the ind « al. Its

historical roots stem from the struggle

against the arbitrary and compulsive

coercion of kings and their representa-

tives. Its modern application is to

protect the citizenry against the poten-

tially overwhelming power, prestige and

resources of the state. Its present

role, as chronicled here, is as guardian

of the People against improper confisca-

tion of private property.

94a

aa aa

DISPOSITION

The judgment is affirmed..

Arabian, J.

Lui, J., concurred

KLEIN, P. J.--I concur in the result.

This case deals with the power of the

Franchise Tax Board to tax respondents as

residents of California when they claim

they are residents of Illinois. The

issue thus presented is whether the state

has jurisdiction to assess a tax against

respondents without respondents’ having

the opportunity to challenge the state’s

claim of jurisdiction to impose a tax in

the first instance.

To reiterate, the California

Constitution, article XIII, section 32,

provides "{n]jo legal or equitable process

shall issue in any proceeding in any

court against this State or any officer

thereof to prevent or enjoin the

collection of any tax. After payment of

95a

a tax claimed to be illegal, an action

may be maintained to recover the tax

paid, .. ." Pacific Gas & Electric Co.

v. State Bd. of Equalization (1980) 27

Cal.3d 277 [65 Cal.Rptr. 122, 611 P.2d

463] upheld the application of section

32, article XIII, of the California

Constitution in a fact situation not

involving a question, as here, of

jurisdiction of the state over the

purported taxpayers.

Because of the limited application of

Revenue and Taxation Code, section 19081

to persons claiming nonresidency status,

I acquiesce in the majority view that the

section is constitutional.

[167 Cal.App.3d 824]

APPENDIX A*

State of

Closest

Nature of Connection Connection

Birth, marriage, raising family Illinois

Preparation of tax returns Iliinois

96a

Resident state income tax returns

filed Illinois

Payment and receipt of over 95%

of income Illinois

Own and occupy custom built home Illinois

Serve as officer and employee of

business corporation Illinois

Hold license for conduct of profession Illinois

Ownership of family corporation Illinois

Own and occupy vacation home California

Ownership of cemetery lots Tllinois

Church attendance California

& Illinois

Church donations California

& Illinois

Church membership and committee

participation Illinois

Family doctors and dentists Illinois

Car registration California

& Illinois

Driver[’s] license (Mr. Corbett) Illinois

Driver[’s] license (Mrs. Corbett) California

& Illinois

Registered to vote and voted Illinois

Charge accounts California

& Illinois

Predominant banking and financial

accounts Illinois

Accountants, lawyers & professional

advisors Illinois

Wills prepared and located Illinois

Education of child Illinois

Most days within state California

Country club membership California

Plaintiffs intended state of

residence Illinois

Family members present and visited California

& Illinois

Social event attendance Illinois

Professional membership Illinois

Of the above listed twenty-nine (29) "connections"

(compiled by extracting the facts in summary

fashion from the filed Stipulations thereof in the

same order presented therein) twenty (20) show a

connection only with Illinois; three (3) show a

connection only with California; and four (4) show

some connection with both states.

*Exhibit A in the trial court.

98a

APPENDIX K

COPY OF CALIFORNIA SUPREME COURT’S

DENIAL OF TWO LETTER REQUESTS OF

AUGUST 4 AND 15, 1986 TO PUBLISH

IN PART THE CORBETT. V. FRANCHISE

TAX BOARD OPINION

(FILED NOVEMBER 19, 1986)

NO. 2/3 BO05216

IN THE SUPREME COURT OF

THE STATE OF CALIFORNIA

IN BANK

CORBETT ET AL.

V.

FRANCHISE TAX BOARD

The request for an order directing

partial publication of the opinion in the

above-entitled cause is DENIED.

BIRD

Chief Justice

100a

APPENDIX L

COPY OF CALIFORNIA SUPREME COURT’S

DENIAL OF AN APRIL 29, 1988

REQUEST TO PUBLISH IN PART THE

CORBETT V. FRANCHISE TAX BOARD

OPINION (FILED MAY 25, 1988)

10i1a

NO. 1/4 BO05216, 5005447

IN THE SUPREME COURT OF THE

STATE OF CALIFORNIA

IN BANK

CORBETT ET AL., Respondents,

Vv.

FRANCHISE TAX BOARD, Appellant.

The request for an order directing

partial publication of the opinion in the

above-entitled cause is DENIED.

Lucas

Chiet Justice

102a

APPENDIX M

PRESIDENTIAL APPOINTMENT OF

EGON E. LOEBNER TO

DIPLOMATIC SERVICE

103a

The President of the United States

of America

To Egon E. Loebner

a Foreign Service Reserve Officer of the

United States of America. Greeting:

Reposing special trust and confidence

in your Integrity, Prudence, and Ability,

I have nominated and by and with the

advice and consent of the Senate, do

appoint you a Consular Officer and a

Secretary in the Diplomatic Service of

the United States of America and do

authorize and empower you to have and to

hold said office, and to exercise and

enjoy all the rights, privileges, and

immunities thereunto appertaining, during

the pleasure of the President of the

United States.

In testimony thereof I have caused

the Seal of the United States to be

hereunto affixed.

Done at the City of Washington this

fifteenth day of March, in the year of

104a

our Lord one thousand nine hundred and

seventy-five, and of the Independence of

the United States of America the one

hundred and ninety ninth.

By the President: Gerald R. Ford

[signature]

Henry A. Kissinger [signature]

Secretary of State

Seal

105a

106a

APPENDIX N

EXCERPT FROM REPORTER’S TRANSCRIPT OF

PROCEEDINGS BEFORE HON. L. WOUDES,

JUDGE, DEPARTMENT 8, THE SUPERTOR

COURT OF THE STATE OF CALIFORNIA

IN AND FOR THE CITY AND COUNTY

OF SAN FRANCISCO

ON FRIDAY, SEPTEMBER 28, 1984

Appearances:

For the Plaintiff: Mr. Egon E. Loebner

In Propria Persona

For the Defendant: Patricia Streloff

Deputy Attorney

General

107a

me GE 2d

MS. STRELOFF: What is it that has

raisd a question in your mind?

THE COURT: The provision in the code

that says no tax will be collected for 60

days until after the State Board

determines

a ae

residency;and if there is to be any

litigation, that the collection will not

be made until after the completion of

that litigation. 19081. And that, of

course, conflicts with the state

constitution, Article XIII, Section 32,

which would provide that in order to

recover taxes that they first be paid.

MS. STRELOFF: Of course, that’s our

argument that the statute is

unconstitutional.

THE COURT: I understand that. Mr.

Loebner would prefer that I follow the

statute with which your organization is

108a

intimately familiar and assists in the

drafting from inception through

regulations and its administration.

Have you focused on this conflict

before?

MS. STRELOFF: No, your honor.

109a