On April 25, 2013, the California Supreme Court issued its decision in McWilliams v. City of Long Beach, 56 Cal. 4th 613 (2013), holding that the Government Claims Act (Cal. Gov. Code § 900 et seq.) (the “Act”) controls local tax and fee refund actions in the absence of other state statutes on point, and that local claims ordinances are trumped by the Act. John McWilliams, a resident of the City of Long Beach, filed a class action lawsuit against the defendant challenging the City’s telephone users tax (“TUT”) and seeking refund of the taxes paid. Prior to filing the lawsuit, McWilliams had served a demand on the City in the form of a letter on behalf of himself and all similarly situated taxpayers seeking a refund of the TUT. The City demurred to the complaint, arguing (among other things) that the Long Beach Municipal Code prohibited class claims for refunds. The trial court sustained the City’s demurrer with leave to amend, but McWilliams did not amend his complaint, and the case was dismissed. McWilliams appealed, and the Court of Appeal found in his favor, holding that under Ardon v. City of Los Angeles, 52 Cal. 4th 241, 251 (2011), “class claims for tax refunds against a local governmental entity are permissible under [California Government Code] section 910 ‘in the absence of a specific tax refund procedure set forth in an applicable governing claims statute.’” McWilliams, at 613.
The City filed a petition for review to the Supreme Court on three issues:
- “[W]hether the exception to the Government Claims Act for ‘claims under … [a] statute prescribing procedures for the refund … of any tax’ in section 905, subdivision (a), excludes local charter provisions and ordinances prescribing procedures for a tax refund;
- [I]f so, whether the application of the Government Claims Act to local tax refund claims violates the home rule taxing power of charter cities; and
- [W]hether article XIII, section 32 of the California Constitution requires that a tax refund proceeding be expressly authorized by the legislative body of the local government entity.”
Id. at 619.
First, the Court noted that it was expanding upon its prior holding in Ardon, where it had “held that the Government Claims Act permits a class action claim by taxpayers against a local government entity for the refund of an unlawful tax in the absence of a specific tax refund procedure set forth in an applicable governing claims statute.” Id. at 616.
Then, the Court conducted a substantial analysis of the statutory language of the Act, especially section 905, and whether the Long Beach Municipal Code, which barred class actions for refunds, constituted “a statute prescribing procedures for refund.” Under the Act, “all claims for money or damages against local public entities” are to be presented “in accordance with Chapter 1 (commencing with Section 900) and Chapter 2 (commencing with Section 910),” except as provided in section 905. One of the exceptions in section 905 is for “[c]laims under the Revenue and Taxation Code or other statute prescribing procedures for the refund . . . of any tax . . . or any portion thereof . . . .” Cal. Gov. Code § 905(a). When a claim is excepted from the Act by section 905 and is “not governed by any other statutes or regulations expressly relating thereto,” the claim “shall be governed by the procedure prescribed in any charter, ordinance or regulation adopted by the local public entity.” Cal. Gov. Code § 935(a). The Act permits a class claim by taxpayers against a local government entity.
The Court held that Government Code section 811.8 “defines a ‘statute’ as ‘an act adopted by the Legislature of this State or by the Congress of the United States, or a statewide initiative act.’” McWilliams, at 620. The Court also refused to adopt the City’s broader scope of the term “statute,” noting that the Legislature used broader language in Government Code section 905(b), but chose not to do so in subdivision (a). Id. In strictly construing the word “statute,” the Court disapproved Pasadena Hotel Dev. Venture v. City of Pasadena, 119 Cal. App. 3d 412 (1981), which declared that section 905(a) excepted all claims for the refund of a local tax, and Batt v. City and County of San Francisco, 155 Cal. App. 4th 65 (2007), which upheld a San Francisco law that disallowed class action suits for refund of local taxes.
Next, the Court dismissed both of the City’s constitutional arguments in support of local control over tax refunds notwithstanding the scope of section 905(a). The Court not only held that section 905(a)’s procedures governed, because a city’s “home rule power” does not limit the power of the Legislature to prescribe procedures governing claims against local governments, but it also dismissed the City’s argument that article XIII, section 32 of the California Constitution (barring injunctive action regarding the collection of taxes) included locally imposed taxes and fees. McWilliams, at 628.
As a result of McWilliams, local claims rules generally are not enforceable. This means that local ordinances prohibiting class claims or limiting the timeframe for claims do not control a taxpayer’s claim for refund. Thus, in light of the decision, taxpayers can now bring class-based challenges to local taxes and fees on behalf of themselves and other similarly situated taxpayers.