Thursday, December 30, 2010
C.A. Rejects Claim of Mistake, Upholds $500,000 Tax Penalty
By SHERRI M. OKAMOTO, Staff Writer
The Fifth District Court of Appeal yesterday upheld the imposition of a half-million dollar real estate tax delinquency penalty against a company which had accidentally mailed its payment to the wrong place.
In an opinion by Justice Jennifer R.S. Detjen, the panel concluded that the alleged mistake by ZC Real Estate Tax Solutions Limited did not warrant relief under Revenue and Taxation Code Sec. 4985.2.
The statute provides that a penalty resulting from failure to make a timely real estate tax payment may be canceled if the failure “is due to reasonable cause and circumstances beyond the taxpayer’s control, and occurred notwithstanding the exercise of ordinary care in the absence of willful neglect.”
ZC sought cancellation of the $5,510,118.76 penalty assessed against it by the Office of the Treasurer and Tax Collector of Stanislaus County in 2008.
The company, which contracts with mortgage lenders to pay the property taxes the lenders have collected from mortgagees and held in escrow, alleged that it had received eight checks from five clients payable to Stanislaus County, covering the semiannual installment of property taxes for more than 4,400 properties in that county in December 2008.
An employee then placed the checks, totaling $5,510,118.76, along with a computer disc containing supporting information required by the county, into a Federal Express mailing envelope addressed to the City and County of San Francisco Office of the Treasurer and Tax Collector.
Federal Express delivered the envelope, as addressed, and the San Francisco treasurer’s office deposited the checks into its own bank accounts. San Francisco officials notified ZC Real Estate that they had received and deposited the checks on Dec. 12.
That same day, ZC attempted to send a wire transfer of $5,510,118.76 to Stanislaus County, but the payment was rejected on the basis the taxes were delinquent after Dec. 10, a statutory penalty of 10 percent of the delinquency had attached, and the wire transfer did not include this penalty amount.
ZC eventually obtained a return of the money it had erroneously paid to San Francisco and paid it to Stanislaus, along with the delinquency penalty.
The company later applied for a refund of the penalty, which the county denied. Stanislaus Superior Court Judge William A. Mayhew declined to issue a writ forcing the county to issue the refund.
Detjen noted the existence of only one case interpreting Sec. 4985.2, People ex rel. Strumpfer v. Westoaks Investment #27 (2006) 139 Cal.App.4th 1038, which rejected a “balancing of equities” approach to canceling delinquency penalties.
Based on the “Legislature’s longstanding use of the specific, multipart test set forth in the statute and the Strumpfer court’s rejection of a generalized equitable standard for relief,” Detjen reasoned that Sec. 4985.2 does not permit a court to grant relief from a penalty when a taxpayer has made an “innocent or trivial” mistake that caused the delinquency.
She noted that “[i]t is appealing to describe a $551,011.88 penalty as an unfair windfall to the county,” but reasoned “a $100 penalty on an individual taxpayer’s $1000 tax installment would not readily be characterized in the same way, even though both penalties might result from placing the tax check in the wrong envelope.”
But, Detjen posited the standard for “ordinary care” and “reasonable” action by a taxpayer “are appropriately elevated when the amount at stake is not a $1000 tax installment but is, instead, a $5.5 million installment on behalf of 4,400 taxpayers” being tendered by “a professional office providing tax payment services for and on behalf of thousands of individuals.” The justice opined that “ordinary care” in such a situation, “must include a recognition of the stakes involved.”
On the record before the court, Detjen concluded ZC had not demonstrated the level of “ordinary care” required in the circumstances presented, noting that the company did not appear to have implemented any sort of quality-control procedures to minimize errors such as the one it claimed to have made.
Justices Dennis A. Cornell and Brad R. Hill joined Detjen in her decision.
The case is ZC Real Estate Tax Solutions Limited v. Ford, F059443.
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