Thursday, November 16, 2017
Court of Appeal:
Woman Who Says She’s Unconnected With Business Must Pay Its Taxes
Rejects Contention That Pay-First, Litigate-Later Rule Doesn’t Apply Where Target Of Collection Efforts Doesn’t Dispute Tax, Only Personal Liability for It
By a MetNews Staff Writer
A woman who claims she has no ownership interest in a business must still pay the sales and use taxes owed by that business before contesting her liability, the Court of Appeal for this district held yesterday.
The opinion, which was not certified for publication, affirms a decision by Los Angeles Superior Court Judge Michael L. Stern, who sustained a demurrer, without leave to amend, to the complaint filed by fashion designer and mindset coach Micaela Passeri against the State of California. Passeri asserted, without success, that the rule that a taxpayer must make payment before suing does not apply because she’s not the taxpayer.
Justice Victoria Chaney of Div. One wrote:
“It is a long established, constitutionally enshrined, and virtually impregnable rule that an unwilling taxpayer must pay any disputed tax before filing suit to challenge its validity. The rule is firmly rooted in public policy, and may not be circumvented by creative litigation ostensibly designed for other purposes.”
Passeri alleges in the complaint that while she signed and guaranteed a lease for Maison Saint Marie, a women’s clothing store (now closed), it was owned by Anita Tabib. In exchange for that courtesy, she explains, she was to receive 10 percent of the store’s monthly sales, after deduction of operating expenses up to $20,000, and could place her line of garments in the store on consignment.
It was not until after the State Board of Equalization started hounding her for sales tax payments, Passeri avers, that she learned that Tabib forged her name on the application for a seller’s permit.
Responding to Passeri’s contention that the pay-first rule is inapplicable because she is not challenging the tax bill, but only her liability for it, Chaney said:
“The argument is without merit….A tax…has two components—the amount charged and the person against whom it is charged, and its validity depends both on a correct amount and a proper assessee. To contest either is to dispute the validity of the ‘tax.’ Here, by contending Maison Saint Marie, not she, is the proper retailer, Passeri disputes the validity of the tax itself.”
Ramifications of Contention
Chaney elaborated that “Passeri cannot before paying the disputed tax contend she was not the true taxpayer, because a judicial finding to that effect would amount to a declaration that no tax is due, which would prevent collection.”
Passeri argued that a person suing, as she us, under Taxpayer’s Bill of Rights, need not make payment first. As a general proposition, Chaney said, but added that “when such a lawsuit constitutes a prepayment attempt to prevent or enjoin collection, the bar applies.”
She noted that Passeri “seeks neither an injunction against the sales tax imposed by the board nor a declaration that she does not owe it, but only compensatory damages pursuant to the Taxpayers’ Bill of Rights.”
The case is Passeri v. State of California, B271821
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