Filed 3/13/17

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

MICHAEL MCCLAIN et al.,

Plaintiffs and Appellants,

v.

SAV-ON DRUGS et al.

Defendants and Respondents.

 B265011 & B265029

 (Los Angeles County

 Super. Ct. Nos. BC327216

 & BC325272)

APPEAL from a judgment of the Superior Court of Los 

Angeles County. John Shepard Wiley, Jr., Judge. Affirmed.

The Kick Law Firm, Taras P. Kick, G. James Strenio; 

McKool Smith Hennigan, Bruce R. MacLeod and Shawna L. 

Ballard for Plaintiffs and Appellants.

Reed Smith, Douglas C. Rawles, James C. Martin and 

Kasey J. Curtis; Morgan Lewis & Bockius, Joseph Duffy and 

Joseph Bias for Defendants and Respondents Walgreen Co. and 

Rite Aid Corporation.

Berry & Silberberg, Robert P. Berry and Carol M. 

Silberberg for Defendant and Respondent Wal-Mart Stores, Inc.
2

Morrison & Foerster, David F. McDowell and Miriam A. 

Vogel for Defendant and Respondent Target Corporation.

Holland & Knight, Richard T. Williams and Shelley 

Hurwitz for Defendants and Respondents CVS Caremark 

Corporation, Longs Drug Stores Corporation and Longs Drug 

Stores California, Inc.

Safeway, Inc., Theodore Keith Bell for Defendants and 

Respondents The Vons Companies, Inc. and Vons Food Services, 

Inc.

Hunton & Williams, Phillip J. Eskenazi and Kirk A. 

Hornbeck for Defendants and Respondents Albertson‟s Inc. and 

Sav-On Drugs.

Kamala D. Harris, Attorney General, Stephen Lew, 

Supervising Deputy Attorney General, and Nhan T. Vu, Deputy 

Attorney General, for Defendant and Respondent California 

State Board of Equalization.

* * * * * *

A customer buys skin puncture lancets and test strips used 

by diabetics to test blood glucose levels from a retail pharmacy 

store like CVS or Walgreens. The retail pharmacy is the one 

obligated to pay sales tax to the State of California (Rev. & Tax.

Code, § 6051),1 and accordingly charges the customer a “sales tax 

reimbursement” to cover the cost of the sales tax and remits that 

amount to the state. If the retail pharmacy subsequently 

believes no sales tax is owed, it—as the taxpayer—can file an 

 

1 All further statutory references are to the Revenue and 

Taxation Code unless otherwise indicated.
3

administrative claim for a refund with the state Board of 

Equalization (the Board) and challenge any adverse ruling in 

court. (§§ 6901 & 6932.) But the retail pharmacy usually has no 

financial incentive to pursue such a remedy because any refund it 

obtains from the Board must be passed back to the customer. 

(§ 6901.5; Decorative Carpets, Inc. v. State Board of Equalization 

(1962) 58 Cal.2d 252, 254-255 (Decorative Carpets).) What is 

more, and as our Supreme Court recently reaffirmed in Loeffler 

v. Target Corp. (2014) 58 Cal.4th 1081, 1123-1124 (Loeffler), the 

customer is not the taxpayer and thus cannot herself seek a 

refund from the Board.

May the customer obtain a court order compelling the retail 

pharmacy to file an administrative refund claim with the Board? 

Our Constitution strictly limits refund actions to those “provided 

by [our] Legislature” (Cal. Const., art. XIII, § 32), and no such 

statutory remedy exists. However, our Supreme Court in Javor 

v. State Board of Equalization (1974) 12 Cal.3d 790, 802 (Javor) 

held that the Legislature‟s authority in this regard is not 

exclusive and that courts retain a residual power to fill remedial 

gaps by fashioning tax refund remedies in “unique 

circumstances.” Loeffler had no occasion to define those “unique 

circumstances.” (Loeffler, supra, 58 Cal.4th at pp. 1101, 1133-

1134.)

This case squarely presents this unanswered question. We 

conclude that a court may create a new tax refund remedy—and, 

accordingly, that the requisite “unique circumstances” exist—

only if (1) the person seeking the new tax refund remedy has no 

statutory tax refund remedy available to it, (2) the tax refund 

remedy sought is not inconsistent with existing tax refund 

remedies, and (3) the Board has already determined that the 
4

person seeking the new tax refund remedy is entitled to a refund, 

such that the refusal to create that remedy will unjustly enrich 

either the taxpayer/retailer or the Board. Here, a group of 

customers filed a class action predicated on their ability to obtain 

an order compelling the retail pharmacies to file an 

administrative claim with the Board seeking a refund of the sales 

tax paid for skin puncture lancets and glucose test strips. 

Because the Revenue and Taxation Code does not provide for this 

remedy and because they have not established any of the three 

prerequisites to the exercise of the judicial residual power to 

fashion new remedies, the trial court correctly sustained 

demurrers to all of the claims in the customers‟ operative 

complaint without leave to amend. We consequently affirm the 

judgment below.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

Plaintiffs and appellants Michael McClain, Avi Feigenblatt, 

and Gregory Fisher (collectively, customers) each bought skin 

puncture lancets and glucose test strips from retail pharmacy 

stores owned and/or operated by defendants and respondents

Sav-On Drugs, Gavin Herbert Company, Longs Drug Stores 

Corporation, Longs Drug Stores California, Inc., Rite Aid 

Corporation, Walgreen Co., Target Corporation, Albertson‟s Inc., 

The Vons Companies, Inc., Vons Food Services, Inc., and WalMart Stores, Inc. (collectively, the retail pharmacies). Skin 

puncture lancets (or lancets) and glucose test strips are used by 

persons living with diabetes to draw their blood and test its 

glucose level, which is critical to knowing when to inject insulin 

to reduce their glucose levels. When the customers purchased 

lancets and test strips from the retail pharmacies, the retail 
5

pharmacies charged them “sales tax” on those items. The retail 

pharmacies subsequently remitted the money they collected as 

sales tax to the Board.

II. Procedural History

In the operative fourth amended complaint filed in 2014,2

the customers sued the retail pharmacies and the Board3 for a 

refund of the “sales tax” they paid for lancets and test strips, 

alleging that these items have been exempt from sales tax since 

March 10, 2000, the date on which the Board made effective 

California Code of Regulations, title 18, section 1591.1, 

subdivision (b)(5) (Regulation 1591.1). This complaint sought to 

certify a class comprised of “all persons who were charged by and 

paid one or more of the [retail pharmacies] a sales tax on glucose 

test strips or skin puncture lancets in California when such 

should not have been charged.”

 

2 This litigation was initiated by different customers in two 

separate lawsuits filed in December 2004, and January 2005, the 

first seeking a refund for sales tax paid on lancets, and the 

second seeking a refund for sales tax paid on test strips. The 

current customers were subsequently substituted in as the lead 

plaintiffs.

3 Although the Board is not listed in the caption of the 

operative complaint, the Board is named in that complaint‟s 

claim for declaratory and injunctive relief, and the Board has 

appeared and actively litigated the demurrer that is the subject 

of this appeal. We consequently conclude that although the 

Board was initially brought into this litigation when the retail 

pharmacies filed cross-complaints against it for indemnity and 

declaratory relief, it is also now a defendant as to the claim for 

injunctive and declaratory relief in the main action.
6

The operative complaint alleges that the retail pharmacies 

collected sales tax reimbursement for lancets and test strips 

when no sales tax was due on these items and that this conduct 

(1) breached an implied term of the contract that is deemed by 

statute to exist whenever a retailer collects a sales tax 

reimbursement from a customer under Civil Code section 1656.1 

and also breached the implied covenant of good faith and fair 

dealing; (2) constituted an unlawful, unfair and/or fraudulent 

business practice and thereby violates the unfair competition law

(UCL) (Bus. & Prof. Code, § 17200 et seq.); (3) constituted 

negligence; and (4) violated the Consumer Legal Remedies Act 

(Civ. Code, § 1750 et seq.) by misrepresenting the taxability of 

those items. The operative complaint further seeks declaratory 

and injunctive relief compelling the retail pharmacies to 

prosecute a tax refund claim with the Board and the Board to 

award such a refund.

The retail pharmacies and the Board demurred to the 

operative complaint. Following briefing, the trial court issued an 

oral ruling sustaining the demurrers to all of the claims in the 

operative complaint without leave to amend. The court reasoned 

that Loeffler, supra, 58 Cal.4th 1081 held that a customer could 

not seek a tax refund of sales tax from a retailer; that Javor, 

supra, 12 Cal.3d 790 allowed a customer to seek a refund of sales 

tax where the Board had already decided the question of 

taxability and concluded that a refund was due; and that “[t]his 

case is more like Loeffler than Javor” because the taxability of 

lancets and test strips was “very hotly in dispute.”

Following entry of judgment, the customers filed this 

timely appeal.
7

DISCUSSION

I. Pertinent Legal Principles

A. Relevant tax law

1. Sales tax generally

In California, retailers are generally required to pay the 

state a sales tax on any “tangible personal property” they sell “at 

retail.” (§ 6051; Loeffler, supra, 58 Cal.4th at p. 1103 [“under 

California‟s sales tax law, the taxpayer is the retailer, not the 

consumer”]; De Aryan v. Akers (1939) 12 Cal.2d 781, 783 [same].) 

Retailers pay the sales tax as a percentage of their “gross 

receipts” (§ 6051), and it is rebuttably presumed that all “gross 

receipts” are subject to the tax (§ 6091). Retailers pay the sales 

tax they owe on a quarterly basis. (§§ 6451-6459; State Bd. of 

Equalization v. Superior Court (1985) 39 Cal.3d 633, 640.) 

2. Collection of sales tax reimbursement from the 

customer

Although retailers were in the past required to collect the 

money they had to pay as sales tax from their customers (former 

§ 6052),4 our Legislature altered that approach after the United 

States Supreme Court held that a retailer‟s mandatory collection 

of sales tax from customers rendered the customer the de facto

taxpayer. (Diamond National v. State Equalization Bd. (1976) 

425 U.S. 268, 268 [96 S.Ct. 1530, 47 L.Ed.2d 780].) Under our 

 

4 Many counties and municipalities still employ such 

mechanisms. (E.g., Andal v. City of Stockton (2006) 137 

Cal.App.4th 86, 93-95 (Andal) [so noting, and holding that 

retailer who collects such fees may seek a refund]; TracFone 

Wireless, Inc. v. County of Los Angeles (2008) 163 Cal.App.4th 

1359, 1361-1365 (TracFone) [same]; Sipple v. City of Hayward

(2014) 225 Cal.App.4th 349, 358-362 (Sipple) [same].)
8

Legislature‟s current approach, it is up to each retailer to 

decide—as a matter of contract with its customers—whether to 

charge its customers a “sales tax reimbursement to the sales 

price” for items subject to the sales tax, or whether to pay the 

sales tax itself. (Civ. Code, § 1656.1, subd. (a).)5 If a retailer 

“show[s]” a charge for sales tax on the receipt or “other proof of 

sale,” or otherwise notifies a customer that it has or will charge 

sales tax, it is rebuttably presumed that the retailer and 

customer have contractually agreed that the retailer is collecting 

a sales tax reimbursement from the customer. (Civ. Code, 

§ 1656.1, subds. (a) & (d).)

3. Pertinent exemptions

The retail sale of many items of tangible personal property 

is exempt from the sales tax. (§§ 6351-6380 [exemptions from 

sales and use taxes], 6381-6396 [exemptions from sales tax].) 

Since 1961, the sale of “medicines” has been exempt from sales 

tax if “[p]rescribed for the treatment of a human being by a 

person authorized to prescribe the medicines, and dispensed on 

prescription filled by a registered pharmacist in accordance with 

law.” (§ 6369, subd. (a)(1).) A few years later, in 1963, our 

Legislature declared “[i]nsulin and insulin syringes” exempt from 

the sales tax if they were “furnished by a registered pharmacist 

to a person for treatment of diabetes as directed by a physician.” 

(Id., subd. (e).) On March 10, 2000, the Board promulgated 

 

5 The retailer‟s decision affects the amount of the sales tax to 

be collected: If the retailer pays the tax itself, it owes sales tax on 

the full amount charged for the item; if the retailer charges its 

customer a “sales tax reimbursement,” it owes sales tax on the 

amount charged for the item less the reimbursement amount 

collected. (§ 6012, subd. (c)(12).)
9

Regulation 1591.1, which expanded this statutory exemption 

from the sales tax to reach “[g]lucose test strips and skin 

puncture lancets” if they were “furnished by a registered 

pharmacist [and] used by a diabetic patient to determine his or 

her own blood sugar level . . . in accordance with a physician‟s 

instructions.” (Cal. Code Regs., tit. 18, § 1591.1, subd. (b)(5); see 

generally § 7051 [conferring upon Board the power to “prescribe, 

adopt, and enforce rules and regulations relating to the 

administration and enforcement” of the sales tax].) The Board 

expanded the sales tax exemption to these additional items 

because they “are an integral and necessary active part of the use 

of insulin and insulin syringes” expressly exempted by statute. 

(Cal. Code Regs., tit. 18, § 1591.1, subd. (b)(5).)

B. Relevant statutory tax refund procedures

1. For retailers

If a retailer believes it has paid the state sales tax “in 

excess of the amount legally due” (§ 6901), the retailer—as the 

taxpayer—has two options available to it by statute.

First, the retailer can file an administrative claim with the 

Board for a refund of any amount “not required to be paid.” 

(§ 6901.) It has three years from the last day of the quarter in 

which it is seeking a refund to file such an administrative claim. 

(§ 6902, subd. (a).) If and only if the Board declines to issue a 

refund, the retailer may challenge that denial in court if it files 

suit “[w]ithin 90 days” of the Board‟s mailing the notice of denial. 

(§§ 6932 & 6933; State Bd. of Equalization v. Superior Court 

(1980) 111 Cal.App.3d 568, 571 (State Bd. of Equalization) 

[“pending completion of . . . administrative proceedings [before 

the Board], [the] court lacks jurisdiction”].) Requiring the 

retailer to litigate its refund claim before the Board “in the first 
10

instance” is designed to “obtain the benefit of the Board‟s 

expertise, permit it to correct mistakes, and save judicial 

resources.” (Loeffler, supra, 58 Cal.4th at pp. 1103, 1127.) If a 

refund is ordered (either by the Board or in subsequent judicial 

review), the retailer can either “return[]” the corresponding sales 

tax reimbursement it collected to “the customer” or leave the 

funds with the state. (§ 6901.5.)

Second, the retailer can elect to waive its right to a refund 

by declining to file a timely claim for administrative review. 

(§ 6905.)

2. For customers

If the customer believes it has paid a sales tax 

reimbursement for items on which no sales tax is due, the 

customer has no statutory tax refund available to her—either 

administrative or judicial—against the Board or the retailer. 

(See §§ 6901-6909 [no administrative refund procedure for person 

who did not “collect” or “pa[y]” the tax], 6931-6937 [no lawsuit 

“unless a claim for refund . . . has been duly filed”]; Loeffler, 

supra, 58 Cal.4th at pp. 1092, 1133 [customer may not sue the 

retailer for excess sales tax reimbursement]; Javor, supra, 

12 Cal.3d at p. 800 [customer has no “direct cause of action 

against the Board for . . . erroneously collected sales tax 

reimbursements”]; see generally Delta Air Lines, Inc. v. State Bd. 

of Equalization (1989) 214 Cal.App.3d 518, 526 (Delta) 

[“Generally, persons who have not paid the tax in question are

barred from bringing suits for refund of that tax”].)

C. Law governing demurrers and their review on 

appeal

In reviewing an order sustaining a demurrer without leave 

to amend, we must ask (1) whether the demurrer was properly 

sustained, and (2) whether leave to amend was properly denied. 
11

The first question requires us to “„“determine whether [that] 

complaint states facts sufficient to constitute a cause of action.”‟” 

(Centinela Freeman Emergency Medical Associates v. Health Net 

of California, Inc. (2016) 1 Cal.5th 994, 1010 (Centinela 

Freeman), quoting Zelig v. County of Los Angeles (2002) 

27 Cal.4th 1112, 1126.) In undertaking this task, we accept as 

true all “„“„material facts properly pleaded‟”‟” and consider any 

materials properly subject to judicial notice; we disregard any 

“„“„contentions, deductions or conclusions of fact or law‟”‟” set forth

in the operative complaint. (Ibid.; Mitchell v. State Dept. of 

Public Health (2016) 1 Cal.App.5th 1000, 1007.) We 

independently review the operative complaint and independently 

decide whether it states viable causes of action. (Lee v. Hanley

(2015) 61 Cal.4th 1225, 1230.) The second question requires us to 

decide whether “„“there is a reasonable possibility that the defect 

[in the operative complaint] can be cured by amendment . . . .”‟” 

(Centinela Freeman, at p. 1010.)

II. The Demurrer Was Properly Sustained

The premise of every claim in the customers‟ operative 

complaint is that the retail pharmacies erred in collecting sales 

tax reimbursement on lancets and test strips at a time when they 

were exempt from sales tax. Accordingly, the customers cannot 

state a cause of action unless they can establish their entitlement 

to a refund. This raises the preliminary procedural question that 

lies at the heart of this case: Can the customers seek a refund of 

the amount they paid as sales tax reimbursement through the 

lawsuit they have filed?

Relying on Javor, supra, 12 Cal.3d 790, the customers 

argue that this lawsuit is a viable means for seeking a refund of 

the sales tax reimbursement they paid for lancets and test strips. 
12

Javor, they argue, held that customers who wrongly paid the 

sales tax reimbursement could obtain injunctive relief compelling 

retailers to file administrative claims with the Board to obtain a 

sales tax refund that could be passed back to the customers. (Id.

at pp. 802-803.) This result, the customers urge, preserves the 

Board‟s ability to decide the taxability question in the first 

instance and prevents the state from being unjustly enriched by 

retaining sales tax to which it is not entitled. The retail 

pharmacies and the Board respond that the remedy sanctioned in 

Javor is limited to situations in which the Board has already 

determined that a refund is due and in which the newly created 

tax refund remedy would not create inconsistencies with existing 

tax refund statutes; both prerequisites, the retail pharmacies and 

Board urge, are absent. The availability of a judicially created 

remedy to supplement existing statutory remedies is a question 

of law that turns in part on questions of statutory interpretation; 

accordingly, our review is de novo. (City of San Diego v. Board of 

Trustees of California State University (2015) 61 Cal.4th 945, 956 

[questions of law reviewed de novo]; Department of Health Care 

Services v. Office of Administrative Hearings (2016) 6 Cal.App.5th 

120, 140-141 [statutory interpretation is a question of law].)

A. Governing law

Our state Constitution expressly entrusts to our 

Legislature the power to regulate post-payment actions for 

refunds. Specifically, article XIII, section 32 provides: “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.” (Italics added; see also

Masi v. Nagle (1992) 5 Cal.App.4th 608, 611 [“The 

Constitution . . . grants the power to the Legislature to prescribe 
13

the manner of proceeding in tax cases”].)

6 “This constitutional 

limitation rests on the premise that strict legislative control over 

the manner in which tax refunds may be sought is necessary so 

that governmental entities may engage in fiscal planning based 

on expected tax revenues.” (Woosley v. State of California (1992) 

3 Cal.4th 758, 789 (Woosley); Sprint Telephony PCS, L.P. 

v. Board of Equalization (2015) 238 Cal.App.4th 871, 883 (Sprint 

Telephony).)

This constitutional mandate has two necessarily implied 

corollaries. First, the “[a]dministrative tax refund procedures 

[enacted by the Legislature] are to be strictly enforced”; 

“substantial compliance” with those procedures will not do. 

(McCabe v. Snyder (1999) 75 Cal.App.4th 337, 344; Sprint 

Telephony, supra, 238 Cal.App.4th at p. 883; IBM Personal 

Pension Plan v. City and County of San Francisco (2005) 

131 Cal.App.4th 1291, 1299 (IBM).) Second, and most pertinent 

here, courts may not “expand[] the methods for seeking tax 

refunds expressly provided by the Legislature.” (Woosley, supra, 

3 Cal.4th at p. 792; Kuykendall v. State Bd. of Equalization 

(1994) 22 Cal.App.4th 1194, 1203 (Kuykendall).)

However, this second corollary is not an absolute one and 

courts have on occasion recognized “equitable exceptions” in 

 

6 The Constitution also prohibits any pre-payment challenges 

to tax collection, establishing a “pay first, sue later” rule that 

guarantees the steady collection of taxes and thus the 

uninterrupted conduct of the government‟s business that relies on 

that steady stream of tax revenue. (E.g., City of Anaheim 

v. Superior Court (2009) 179 Cal.App.4th 825, 827 (City of 

Anaheim).)
14

“certain unique circumstances.” (IBM, supra, 131 Cal.App.4th at 

p. 1305, fn. 16.)

The first case to do so was Decorative Carpets, supra, 

58 Cal.2d 252. There, a retailer selling carpet sought a tax 

refund of the sales tax from the Board. It was determined in a 

tax refund suit between the retailer/taxpayer and the Board that 

the retailer was entitled to that refund. The retailer nevertheless 

declared its intention to keep the refund for itself and not to 

return it to its customers, even though the retailer had charged 

them a sales tax reimbursement. (Id. at pp. 253-254.) The Board 

balked at issuing the refund, arguing that it would “unjustly

enrich[]” the retailer at its customers‟ expense. (Id. at p. 254.) 

Our Supreme Court in Decorative Carpets agreed, holding that 

the Board‟s “vital interest in the integrity of the sales tax” gave it 

the authority to “insist as a condition of refunding overpayments 

to [the retailer] that [the retailer] discharge its trust obligations 

to its customers” by refunding to them the corresponding sales 

tax reimbursement they had paid. (Id. at p. 255.)

The next case was Javor, supra, 12 Cal.3d at page 790. 

There, the Board “admitted” that a recent retroactive repeal of 

the federal excise tax on motor vehicles entitled car dealers, as 

retailers, to a partial refund of the sales tax because the federal 

excise tax had been included in the price of the cars on which 

sales tax had been assessed. (Id. at pp. 794, 801-802.) The Board 

went so far as to promulgate rules to effectuate these refunds. 

(Ibid.) When car dealers did not apply for the tax refund money 

the Board had set aside, the customers themselves sued to 

compel the retailers to do so. (Id. at pp. 795-796, 802.) Javor

held that this judicially created remedy—a lawsuit by customers 

to compel retailers to file administrative claims for refunds and 
15

pass those refunds back to the customers—was appropriate 

“under the unique circumstances of this case.” (Id. at pp. 797-

803.) In reaching this conclusion, our Supreme Court placed 

weight on the facts that the Legislature had “provide[d] no 

procedure by which [the customers] [could] claim the refund 

themselves” (id. at p. 797); that its newly fashioned remedy was 

“consonant with existing statutory procedures” (id. at pp. 800, 

802); and, drawing on Decorative Carpets, supra, 58 Cal.2d 252, 

that the newly fashioned remedy was necessary—given that the 

retailers themselves had “no particular incentive to request the 

refund” (because they would act solely as a pass-through for the 

refund money)—to ensure that the state would not be “unjustly 

enriched” by getting to keep the admittedly erroneous sales tax 

revenue (Javor, at pp. 800-802).

Although Decorative Carpets dealt with a “greedy” retailer 

and Javor dealt with unmotivated retailers, both cases share 

three commonalities that, in our view, define the “unique 

circumstances” to which Javor alludes and that are prerequisites 

to the judicial recognition of any new tax refund remedy. First, 

in both Decorative Carpets and Javor, the customers had no 

available statutory tax refund remedy. (Decorative Carpets, 

supra, 58 Cal.2d at pp. 255-256; Javor, supra, 12 Cal.3d at p. 797; 

see also Loeffler, supra, 58 Cal.4th at p. 1114 [noting that 

customers in Javor had “no direct statutory provision 

for . . . refunds”]; cf. State Bd. of Equalization, supra, 111 

Cal.App.3d at p. 571 [declining to recognize new remedy because 

the “real party . . . does not lack a [statutory tax refund] 

remedy”].) Second, in both Decorative Carpets and Javor, the 

judicially crafted remedies were “consonant” with the statutory 

tax refund procedures that our Legislature did provide. 
16

(Decorative Carpets, at p. 255; Javor, at pp. 800, 802; accord, 

Kuykendall, supra, 22 Cal.App.4th at pp. 1204-1205 [noting that 

the “equity” of judicially created remedies “will defer to statute”].) 

Lastly, in both Decorative Carpets and Javor, there had been a 

precursor determination—either by the Board on its own volition 

or through its acquiescence to a court ruling in a tax refund 

action between the retailer/taxpayer and the Board—that a tax 

refund was due and owing. (Decorative Carpets, at p. 254; Javor, 

at pp. 794, 802.) Such a determination left no question that the 

court‟s refusal to fashion a new remedy would result in either the 

retailer (in Decorative Carpets) or the state (in Javor) keeping 

money that the customers had paid as sales tax reimbursement 

and to which the customers were unequivocally entitled. And it 

was the certainty of this unjust enrichment that offended the 

Board‟s “vital interest in the integrity of the sales tax” and 

warranted judicial intervention. (Decorative Carpets, at pp. 254-

255; Javor, at pp. 800-803.) Limiting a court‟s authority to 

fashion new tax remedies to situations involving all three of these 

requirements specifically reinforces the constitutional mandate, 

described above, that the Legislature have primacy in fixing the 

procedures by which tax refunds are obtained. (Cal. Const., art. 

XIII, § 32.)

The customers in this case do not dispute the necessity of 

the first two prerequisites, but dispute the third and offer several 

reasons why courts should have the power to fashion new tax 

refund remedies even when the entitlement to that refund is yet 

to be decided. 

To begin, they assert that Javor itself disclaims any 

requirement of a prior determination that the tax refund is due 

and owing because, at one point, Javor explains that the 
17

customers there sought an order “to compel defendant retailers to 

make refund applications to the Board and in turn to require the 

Board to respond to these applications by paying into court all 

sums, if any, due defendant retailers.” (Javor, supra, 12 Cal.3d 

at p. 802, italics added.) The customers argue that the phrase “if 

any” means that the retailers‟ entitlement to a refund was still an 

open question in Javor. They are wrong. Javor makes clear that 

“[t]he Board ha[d] admitted that it must pay these refunds to 

retailers” (ibid.); the Court‟s use of the phrase “if any” simply 

acknowledged that some retailers might not have sold cars for 

which a refund is due—not that there were lingering questions 

about whether, as a legal matter, a refund was due.

Next, the customers argue that Javor’s “unique 

circumstances” exist whenever a court is confronted with a 

situation involving a “legal taxpayer” who has the right but no 

incentive to seek a refund (here, the retail pharmacies) and an 

“economic taxpayer” who has the incentive but not the right to 

seek a refund (here, the customers). As the customers frankly 

acknowledge, however, this division of “taxpayer” status is an 

inherent feature of “the peculiar structure of California‟s retail 

sales tax” law, making that circumstance ubiquitous—not 

unique. More to the point, if courts could fashion new tax refund 

remedies simply because the Revenue and Taxation Code does 

not label the customer as the taxpayer, our Constitution‟s 

directive that the Legislature be the branch primarily charged 

with “provid[ing]” tax refund remedies would be rendered all but 

meaningless. (Cal. Const., art. XIII, § 32.) The customers urge 

that the risk to the state‟s coffers by virtue of new tax refund 

remedies is minimal given the statutory presumptions that 

customers agree to pay sales tax reimbursement (§ 1656.1, subd. 
18

(a)) and that all of a retailer‟s gross receipts are subject to the 

sales tax (§ 6051). But the affront to the constitutional mandate 

stems from the judicial creation of new tax refund remedies, 

whether or not the use of those remedies ultimately leads to a 

refund.

The customers further cite a number of cases in which 

courts have allowed one party to file a derivative action for 

another. These cases fall into three broad categories, each of 

increasing irrelevance. The first is Delta, supra, 214 Cal.App.3d 

518. There, the Court of Appeal held that an airline that paid 

sales tax reimbursement to a retailer for fuel could sue for a sales 

tax refund, even though it was not the taxpayer. (Id. at pp. 526-

528.) In so holding, the court cited Javor and ruled that the case 

involved a “unique circumstance” authorizing judicial recognition 

of a new remedy of a direct lawsuit for a refund—namely, that 

California‟s tax statutes “regard[] common carriers such as Delta 

as retailers as well as purchasers.” (Delta, at p. 528) Indeed, 

Delta expressly distinguished common carriers from “ordinary 

purchasers or consumers.” (Id. at p. 526.) The customers here 

are ordinary consumers, not common carriers. The second 

category involves cases in which a retailer who collected county 

or municipal taxes from consumers was held to have standing to 

sue for a refund, even though the retailer was not technically the 

taxpayer. (See Andal, supra, 137 Cal.App.4th at pp. 93-95; 

TracFone, supra, 163 Cal.App.4th at pp. 1364-1365; Sipple, 

supra, 225 Cal.App.4th at pp. 358-362.) In so holding, these 

cases declined to recognize a “sharp distinction between a 

„taxpayer‟ and a „tax collector‟” or to follow a “strict rule denying 

standing in all circumstances to „tax collectors.‟” (Sipple, at 

p. 359.) These cases are doubly irrelevant because they deal with 
19

the standing of a retailer who is a tax collector and not the 

standing of a consumer who is neither a tax collector nor a 

taxpayer, and because they deal with local taxes and thus are not 

constrained by article XIII, section 32‟s mandate which, as noted 

above, does require “strict” construction of tax refund statutes. 

(Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 

25 Cal.4th 809, 822, fn. 5 [art. XIII, § 32 does not apply to “local 

governments”]; City of Anaheim, supra, 179 Cal.App.4th at pp. 

830-831 [same].) The last category involves the right of a limited 

partner to file a derivative action on behalf of a limited 

partnership. (Wallner v. Parry Professional Bldg., Ltd. (1994) 

22 Cal.App.4th 1446, 1449-1450.) Because it arises in a different 

context and involves a different statutory scheme, it is irrelevant.

The customers lastly contend that limiting judicially 

created remedies to cases in which there has been a prior 

determination that a tax refund is due will lead to absurd results. 

We agree that courts are loathe to interpret the law in a way that 

yields absurd results (John v. Superior Court (2016) 63 Cal.4th 

91, 96), but disagree with the customers‟ prognostications. The 

customers assert that if consumers can sue for a tax refund only 

if there is a prior determination that a refund is due, then the 

same must be true for retailers seeking a refund from the Board, 

which will make it nearly impossible for retailers to obtain a tax 

refund. But the conclusion of this argument does not flow from 

its premise. The reason why a prior determination is required for 

consumers is because they are asking the court to create a new 

tax refund remedy when none exists by statute in order to avoid 

certain unjust enrichment; that reason has no application to 

retailers, who are authorized by statute to seek administrative 

and then judicial relief. The customers also argue the Board is 
20

not infallible because its rulings are sometimes overturned, such

that placing limits on the power of courts to fashion new tax 

refund remedies makes it more possible for the Board‟s incorrect 

interpretations to go unreviewed. However, the question before 

us is to define the conditions that must be satisfied before the 

judiciary may fashion tax refund remedies notwithstanding our 

Constitution‟s primary commitment of defining remedies with the 

Legislature; it is not to afford maximum opportunities for judicial 

review. Moreover, retailers still have the right to directly 

challenge the Board‟s rulings and, as we discuss below, 

consumers have a more diluted right to do so.

B. Application

As explained above, a court may create a new tax refund 

remedy—and, accordingly, Javor’s “unique circumstances” 

exist—only if (1) the person seeking the new tax refund remedy 

has no statutory tax refund remedy available, (2) the tax refund 

remedy sought is not inconsistent with existing tax refund 

remedies, and (3) the Board has already determined that the 

person seeking the new tax refund remedy is entitled to a refund, 

such that the refusal to create that remedy will unjustly enrich 

either the taxpayer/retailer or the Board. The trial court in this 

case ruled that it could not fashion a new judicial remedy to allow 

the customers to attack the Board‟s collection of sales tax on 

lancets and test strips. This ruling was correct because none of 

the three prerequisites is present in this case.

First, the customers do not have a statutory right to 

directly file for a refund of the sales tax from the Board or for a 

refund of sales tax reimbursement from the retailers, but they 

are not remedy-less. In fact, they have several other remedies 

available to them. They may urge the Board to initiate an audit 
21

of the retail pharmacies‟ practices in collecting sales tax or to 

conduct a deficiency determination of the retail pharmacies‟ sales 

tax payments (§§ 6481, 6483 & 7054; Loeffler, supra, 58 Cal.4th 

at pp. 1103-1104, 1123 [noting that “consumers who believe they 

have been charged excess reimbursement . . . may complain to 

the Board, which may in turn initiate an audit” or a “deficiency 

determination”].) They can, as “interested person[s],” petition the 

Board under the Administrative Procedure Act to compel the 

Board to “adopt[], amend[], or repeal” Regulation 1591.1, 

subdivision (b)(5) and the collection of sales tax under that 

regulation. (Gov. Code, § 11340.6; Loeffler, at p. 1123.) And they 

can, as “interested person[s],” sue the Board under the 

Administrative Procedure Act, for declaratory relief “as to the 

validity of” Regulation 1591.1. (Gov. Code, § 11350; Loeffler, at 

p. 1123.)

Second, judicial recognition of a right of customers to sue 

retailers and the Board for a sales tax refund when the Board has 

yet to determine whether any refund is due is inconsistent with 

at least two provisions of the Revenue and Taxation Code. It is 

inconsistent with section 6905. That section allows retailers to 

waive their right to seek a tax refund; if consumers can compel a 

retailer to seek a refund when it would rather waive it, the 

retailer‟s right to waiver would be negated. (Loeffler, supra, 

58 Cal.4th at p. 1129 [so noting].) The consumers assert that the 

retailers‟ power to waive their right to a refund is irrelevant 

because the retailers‟ power to collect sales tax reimbursement 

from consumers is a matter of contract under Civil Code section 

1656.1. But the contractual nature of the right to collect sales 

tax reimbursement in no way affects the fact that a judicial 
22

remedy compelling a retailer to seek a refund overrides a 

retailer‟s election not to seek one.

Judicial recognition of a right of customers to sue retailers 

when the Board has yet to determine whether a refund is due is 

also inconsistent with section 6901.5. That section requires a 

retailer that obtains from the Board a sales tax refund collected 

from its customers to do one of two things: (1) return that money 

to the customers once its entitlement to the refund “has been 

ascertained”; or (2) leave that money with the state. (§ 6901.5; 

see also Cal. Code Regs., tit. 18, § 1700, subd. (b)(1) [containing 

identical language].)7 In Loeffler, our Supreme Court read this 

section as providing a “safe harbor” or “safe haven” for any 

retailer/taxpayer “vis-à-vis the consumer” if the retailer/taxpayer 

“remits reimbursement charges [it collects] to the Board.” 

(Loeffler, supra, 58 Cal.4th at pp. 1100, 1103-1104, 1119.) If 

consumers can sue retailers to compel them to seek a refund from 

the Board, then the “safe harbor” from suit erected by section 

6901.5 is no safe harbor at all. (Accord, Loeffler, at p. 1126

[noting conflict].) Indeed, the customers concede as much when

 

7 In pertinent part, this provision provides: “When an 

amount represented by a person to a customer as constituting 

reimbursement for taxes due under this part is computed upon 

an amount that is not taxable or is in excess of the taxable 

amount and is actually paid by the customer to the person, the 

amount so paid shall be returned by the person to the customer 

upon notification by the Board of Equalization or by the customer 

that such excess has been ascertained. In the event of his or her 

failure or refusal to do so, the amount so paid, if knowingly or 

mistakenly computed by the person upon an amount that is not 

taxable or is in excess of the taxable amount, shall be remitted by 

that person to this state.” (§ 6901.5)
23

they raise the issue before us only to preserve it for challenge 

before the Supreme Court. To be sure, the regulation 

implementing section 6901.5 provides that it “do[es] not 

necessarily limit the rights of customers to pursue refunds from 

persons who collected tax reimbursement from them in excess of 

the amount due.” (Cal. Code Regs., tit. 18, § 1700, subd. (b)(6).) 

But Loeffler held that this language did no more than 

“acknowledge[] that if other remedies are available, the 

regulation does not interfere with them.” (Loeffler, at p. 1122.)

Third, the Board has yet to decide whether the retail 

pharmacies—and, by extension, the customers—are entitled to a 

refund. Regulation 1591.1 exempts the sales of lancets and test 

strips, but only when they are (1) “furnished by a registered 

pharmacist,” and (2) “used by a diabetic patient . . . in accordance 

with a physician‟s instructions.” (Cal. Code Regs., tit. 18, 

§ 1591.1, subd. (b)(5).) It has yet to be determined whether those 

two conditions are legally valid or were factually satisfied as to 

the customers‟ purchases. In their reply brief on appeal, the 

customers argue that the Board has conceded that a refund was 

due because the Board, in its brief on appeal, did not address the 

merits of the taxability issue and admitted that a 2003 opinion 

letter sent by a Board staff member arguably setting forth 

additional prerequisites to application of Regulation 1591.1‟s 

exemption was not a “binding determination of the Board.” 

There was no concession. The Board did not address the merits 

of the taxability issue because the chief issue in this appeal is not 

the merits, but where and by whom they may be litigated. And 

the validity or invalidity of the 2003 opinion letter does not alter 

the undisputed fact that the Board has yet to determine that all 
24

of the sales the customers challenge fall within the ambit of 

Regulation 1591.1‟s exemption.

For these reasons, the customers have not established that 

this case involves the “unique circumstances” that empower a 

court to fashion a new tax refund remedy.8 Absent such a 

remedy, there can be no judicial determination that the retail 

pharmacies‟ collection of sales tax reimbursement was improper. 

And absent that determination, none of the customers‟ claims—

all of which are premised on the unlawful collection of sales tax 

reimbursement—state a viable cause of action. (Centinela 

Freeman, supra, 1 Cal.5th at p. 1010.)

C. Customers’ further arguments

The customers level two further categories of arguments at 

our conclusion.

First, the customers note that courts must generally 

“construe . . . statute[s] in a manner that avoid[] doubts as to 

[their] constitutional validity.” (Steen v. Appellate Division of 

Superior Court (2014) 59 Cal.4th 1045, 1048.) From this, they 

argue that we must not construe the Revenue and Taxation Code 

to deny them a judicially fashioned tax refund remedy because 

doing so will risk violations of the takings clause and due process. 

No such risks exist.

 

8 In light of our conclusion that the requisite “unique

circumstances” have not been shown, we have no occasion to 

reach the Board‟s and retail pharmacies‟ further arguments that 

Javor also requires a showing that the consumers first demanded 

that the retail pharmacies file an administrative refund claim or 

a showing that the retail pharmacies have maintained records 

making it possible to remit any refund to the correct customers. 
25

The federal and California Constitutions guarantee that 

“private property” shall not “be taken for public use, without just 

compensation.” (U.S. Const., 5th Amend.; Cal. Const., art. I, § 19, 

subd. (a).) Two types of “takings” are assured just compensation: 

(1) categorical or per se takings, which arise when the 

government physically occupies property or deprives its owner of 

all viable uses of the property (Brown v. Legal Foundation of 

Wash. (2003) 538 U.S. 216, 233 [123 S.Ct. 1406, 155 L.Ed.2d 376]; 

California Building Industry Assn. v. City of San Jose (2015) 

61 Cal.4th 435, 462); and (2) regulatory takings, which arise 

when government regulation of a property‟s use sufficiently 

impairs its value (California Building Industry Assn., at p. 462.) 

However, it is well settled that “„[t]axes and user fees . . . are not 

“takings.”‟” (Koontz v. St. Johns River Water Mgmt. Dist. (2013) 

570 U.S. __, __ [133 S.Ct. 2586, 2600-2601, 186 L.Ed.2d 697]; 

United States v. Sperry Corp. (1989) 493 U.S. 52, 62, fn. 9 [110 

S.Ct. 387, 107 L.Ed.2d 290]; accord, San Remo Hotel v. City and

County of San Francisco (2002) 27 Cal.4th 643, 671-672 [noting 

that “the taking of money is different, under the Fifth 

Amendment, from the taking of real or personal property”].) 

Thus, the collection of sales tax reimbursement from consumers 

does not implicate the takings clause.

The federal and California Constitutions also provide that 

the state shall not deprive persons of their property “without due 

process of law.” (U.S. Const., 14th Amend., § 1; Cal. Const., art. 

I, § 7.) This guarantee applies to the payment of taxes (T. M. 

Cobb Co. v. County of Los Angeles (1976) 16 Cal.3d 606, 617,

fn. 6), but authorizes a state to relegate taxpayers to a 

“„postpayment refund action‟” as long as they are afforded 

“„meaningful backward-looking relief to rectify any 
26

unconstitutional deprivation.‟” (River Garden Retirement Home 

v. Franchise Tax Bd. (2010) 186 Cal.App.4th 922, 937-938 (River 

Garden), quoting McKesson Corp. v. Florida Alcohol & Tobacco 

Div. (1990) 496 U.S. 18, 31 [110 S.Ct. 2238, 110 L.Ed.2d 17] 

(McKesson); City of Anaheim, supra, 179 Cal.App.4th at p. 831.) 

A state provides “meaningful backward-looking relief” if it gives 

taxpayers (1) “a „fair opportunity to challenge the accuracy and 

legal validity of their tax obligation,‟” and (2) “a „“clear and 

certain remedy”‟ for the erroneous or unlawful tax collection.” 

(River Garden, at p. 938, quoting McKesson, at p. 39.)

We conclude that our refusal to craft a judicial tax refund 

remedy for consumers does not risk a due process violation. To 

begin, it is not precisely clear how due process applies to them. 

The payment of sales tax alleged in the operative complaint 

entails two sequential transactions: Consumers pay sales tax 

reimbursement to retailers, and retailers pay sales tax to the 

state. The first transaction is ostensibly outside the reach of due 

process because it reflects a contractual arrangement between 

two private parties (§ 1656.1; Coleman v. Department of 

Personnel Administration (1991) 52 Cal.3d 1102, 1112 [“Only 

those actions that may fairly be attributed to the state . . . are 

subject to due process protections”]), and the consumers are not 

parties to the second transaction. Further, our Supreme Court in 

Loeffler—although silent on this point—noted no constitutional 

impediment to its ruling that left consumers with no direct 

remedy for a refund and instead relegated them to urging Board 

inquiry and to filing claims or actions under the Administrative 

Procedure Act. (Loeffler, supra, 58 Cal.4th 1081.) Were we to 

come to a contrary conclusion, we would effectively overrule 

Loeffler, something we are not allowed to do except in narrow 
27

circumstances not present here. (Auto Equity Sales v. Superior 

Court (1962) 57 Cal.2d 450, 456.)

Second, the customers assert that our ruling that we are 

powerless to craft a new judicial tax refund remedy does not 

warrant dismissal of their breach of contract claims or their 

second UCL claim. Specifically, the customers urge (1) that their 

breach of contract claims are grounded in Civil Code section 

1656.1, which is effectively part of the Revenue and Taxation

Code and is more specific than section 6901.5, and thus cannot be 

inconsistent with either the Code or section 6901.5, (2) their 

second breach of contract claim is premised on allegations that 

one of the retailers who charged sales tax reimbursement 

sometimes did not mean to do so because its corporate policy did 

not call for it, and (3) that their second UCL claim is based upon 

allegations that the retail pharmacies should have informed them 

of the requirements to qualify for Regulation 1591.1‟s exemption.

We reject the customers‟ first argument because, as 

explained above, the premise of their breach of contract claims is 

that the retail pharmacies wrongly collected sales tax 

reimbursement that was not due, yet they have no means in this 

lawsuit of establishing whether it was due. We reject the 

customers‟ second argument because the only contract at issue is

the one between the retailer and customer; because the express 

terms of that contract, which arise from the presumption in Civil 

Code section 1656.1 because the retailer showed a charge for 

sales tax on its receipts, are that the retailer is charging sales tax 

reimbursement; and because the retailer‟s unexpressed intention 

not to charge sales tax in some transactions cannot alter the 

express terms of the parties‟ contract or otherwise rebut the 

statutory presumption (Patel v. Liebermensch (2008) 45 Cal.4th
28

344, 352 [“„The terms of the contract are determinable by an 

external, not by an internal standard‟”]). We reject the 

customers‟ third argument because the pharmacies owed no duty 

to explain how to qualify for the exemption. (Accord, Buller 

v. Sutter Health (2008) 160 Cal.App.4th 981, 987-988 [insurance 

company has no duty to explain to clients how to get the best 

deal]; Levine v. Blue Shield of California (2010) 189 Cal.App.4th 

1117, 1136-1137 [same].)

III. Leave To Amend Was Properly Denied

The customers argue that the trial court erred in not 

allowing them to amend the operative complaint to add a claim 

that they were suffering an unconstitutional taking. Because, as 

explained above, such a claim lacks merit as a matter of law, the 

trial court‟s conclusion that there was no reasonable possibility 

the customers could amend their complaint to state a claim was 

correct.

* * * * * *

The result we reach in this case is not an entirely satisfying 

one. The retail pharmacies lack any financial incentive to 

challenge the Board‟s implementation of Regulation 1591.1 by 

seeking a refund, and the statutory remedies available to the 

customers—urging the Board to conduct an audit or filing a claim 

or lawsuit under the Administrative Procedure Act—while

effective enough to satisfy due process, are nevertheless the 

practical equivalent of allowing them to tug (albeit persistently) 

at the Board‟s sleeve. However, this is the result we must reach 

because our Constitution chiefly assigns the task of creating tax 

refund remedies to our Legislature, and our Legislature has yet 

to address the situation that arises when the legal taxpayer has 

no incentive to seek a direct refund and the economic taxpayer 
29

has no right to do so. It is a topic worthy of legislative 

consideration. Because the prerequisites for making it a topic of 

judicial consideration are not present, we adhere to the statutes 

as they are written and affirm the order dismissing this case.

DISPOSITION

The judgment is affirmed. The Board and the retail 

pharmacies are entitled to their costs on appeal.

CERTIFIED FOR PUBLICATION.

______________________, J.

HOFFSTADT

We concur:

_________________________, Acting P. J.

CHAVEZ

_________________________, J.*

GOODMAN

 

* Retired judge of the Los Angeles Superior Court, assigned 

by the Chief Justice pursuant to article VI, section 6 of the 

California Constitution.