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California Prop C Taxpayers Should File Protective Refund Claims

(This article originally was published by Law360 on August 21, 2019.)

The repercussions of the California Supreme Court’s August 2017 opinion in California Cannabis Coalition, et al. v. City of Upland, et al.1 continue to reverberate, leading San Francisco’s business taxpayers to wonder what practical precautions to consider.

In a February article, we analyzed the Upland opinion, the over 40-year history of California’s two-thirds supermajority voting requirement for passing local special taxes, and an introduction to the first five post-Upland litigation challenges, including San Francisco actions involving the validity of two separate Proposition C voter initiatives that passed in 2018 with a majority but not a supermajority vote. In a follow-up article last month, we provided an update on the status of these five supermajority tax challenges pending around the state, including trial court decisions made in the two San Francisco Proposition C actions.

This article addresses practical considerations for San Francisco taxpayers that could be subject to one of these pending supermajority tax challenges, including whether taxpayers should consider filing protective refund claims while those matters2 are winding their way through the appellate courts (spoiler alert: the answer is yes), and San Francisco’s corresponding refund claim procedure highlights and traps for the unwary.

San Francisco’s Administrative Tax Refund Claim Procedures
The San Francisco Business and Tax Regulations Code sets forth the requirements for filing claims for refund for San Francisco business taxes.

Section 6.15-1(a) provides the timing requirements for a “claim for refund” (not to be confused with a “request for refund,” addressed below). Such claim must be filed in writing by the person that paid the amount in issue with the controller within the later of one year of: (1) the payment of such amount; (2) the date the return accompanying such payment was due; or (3) the date on which such amount requested on a return, amended return, or a request for refund timely filed under Subsection (g) of Section 6.15-1 denied.

In turn, Section 6.15-1(g) sets forth the procedures for submitting a request for refund. A person that made a tax overpayment may request such a refund from the tax collector (as opposed to the controller) on a return, amended return, or request for refund form that is issued by the tax collector and that is filed with the tax collector within the later of one year of the payment of such amount or the date the return accompanying such payment was due. Subsection (g) further provides that a request for refund “shall automatically be deemed denied” if the tax collector does not grant or deny the refund request within one year of the date it was filed.

As a result of these procedures, it should be noted that the one-year period for filing a claim for refund with the controller pursuant to subsection (a) may be extended for as much as an additional year where a taxpayer first files a request for refund with the tax collector pursuant to Subsection (g). This effectively provides a taxpayer with a second level of review of its filed claim. In addition, it extends the period that a taxpayer whose refund claim is denied is required to file a suit for refund in the California Superior Court.

Exhaustion of Administrative Remedies to Pursue Judicial Relief
Section 6.15-3(a) of the San Francisco Business and Tax Regulations Code provides that persons claiming they are aggrieved under the code cannot seek judicial relief unless they first comply with the following prerequisites:

  1. Pay the amount of the disputed tax, penalty and interest;
  2. If the disputed tax was paid pursuant to the tax collector’s jeopardy determination or deficiency determination, file a petition for redetermination, pursuant to Section 6.12-5 or Section 6.13-1; and
  3. Present a claim for refund to the Controller and allow action to be taken on such claim, pursuant to subsections (a)-(f) of Section 6.15-1.

As noted, pursuant to Section 6.15-3(a)(3), a taxpayer is required to first present a claim for refund to the controller (again, this is distinct from a request for refund presented to the tax collector) in order to pursue its refund action in Superior Court. Taxpayers should be mindful not to skip this important step in the process and be sure to exhaust this administrative remedy before filing suit.

The controller, acting through the city attorney, is required to act on the claim for refund within 45 days of its presentation or it will be deemed denied.3

Then, Subsection (b) of Section 6.15-3 provides that any suit for refund of taxes, interest, or penalties shall be commenced within six months after the date written notice is provided, or if no written notices is provided than within two years from the accrual of the cause of action.

Concluding Thoughts
It may well take several years before the two Proposition C cases mentioned above to complete their journeys through the California appellate court system. During such time, taxpayers will be required to pay the relevant local San Francisco taxes. Given the uncertainty regarding the validity of these taxes, taxpayers should consider filing protective claims for amounts paid (i.e., submit a request for refund followed by a claim for refund). The benefit of doing so is to protect a taxpayer’s right to a refund of the amounts paid in the event the two Proposition C taxes are held to be invalid.

Further, by utilizing the city’s request for refund and claim for refund procedures, it will delay the need for a taxpayer to comply with the protective refund action requirements to bring the issue into Superior Court. However, taxpayers should be mindful of the various deadlines and procedures contained in the San Francisco Business and Tax Regulations Code and those incorporated by reference from the California Government Code in order to avoid any potential traps for the unwary.


1 Upland (2017) 3 Cal.5th 924.

2 Proposition C (San Francisco Nov. 6, 2018, Ballot). The San Francisco Gross Receipts Tax for Homelessness Services Initiative passed with a 61.34% vote. Notice of Entry of Judgment was filed on July 26, 2019, and a notice of appeal is expected to be filed.

Proposition C (San Francisco June 5, 2018, Ballot). The Universal Childcare for San Francisco Families Initiative passed with a 50.87% vote. A notice of appeal was filed on July 8, 2019.

3 Cal. Gov. Code Sect. 912.4.

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