Filed 12/5/14 CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

WEST HOLLYWOOD COMMUNITY HEALTH AND FITNESS CENTER,
Plaintiff and Appellant,

v.

CALIFORNIA UNEMPLOYMENT INSURANCE A PPEALS BOARD,
Defendant and Respondent. B248641
(Los Angeles County Super. Ct. No. BS135715)

APPEAL from a judgment of the Superior Court of Los Angeles County,
Luis A. Lavin, Judge. Reversed.

Kassinove & Raskin, Edward B. Ras kin and Joshua M. Caplan for Plaintiff and Appellant.

Kamala D. Harris, Attorney General, Paul D. Gifford, Assistant Attorney General, W. Dean Freeman and Lisa W. Chao, Deputy Attorneys General, for
Defendant and Respondent.

* * * * * *2

This appeal re quires us to consider whether an employer may obtain judicial
review of a decision from the California Une mployment Insurance Appeals Board ( the Board) finding that an applicant for unemployment benefits was an employee, not an independent contractor. The Board argues that decision is not subject to judicial
review because both the California C onstitution and the Unemployment Insurance Code bar actions whose purpose is to prevent the collection of state taxes. Appellant recognizes that actions seeking to avoid a tax are prohibited
, but argues that this case does not challenge the imposition of a tax. We agree with appel lant and reverse the judgment.
FACTS AND PROCEDURE
Mario Serban worked as a massage therapist at West Hollywood Communit y Health and Fitn ess Center, doing business as Voda Spa (Voda Spa)

. Serban and Voda Spa disagree as to the reason why he left that work, but the trial court found Serban had good cause to leave
, and that finding is not challenged on appeal. Serban and Voda Spa also dispu te whether Serban was an employee or independent contractor. That is the issue Voda Spa seeks to litigate

. 1. E mployment D evelopment D epartment Rulings After leaving his job at Voda Spa, Serban applied for unemployment benefits. On April 19, 2011, the Employment Development Department ( EDD ) sent Voda Spa a
letter indicatin g that Serban was an employee. On May 19, 2011, the EDD sent Voda Spa notice indicating S e rban was an employee and had good cause to leave work. Voda Spa appealed from those findings

. An administrative law judge heard the appeal and conclude d that Serban was an employee. In a separate opinion, the administrative law judge concluded that Serban had good cause to leave his work , making him eligible for unemployment benefits. Voda Spa appealed from those determination s

. The Board affirmed both findings in separate opinions

. Th e Board’s decision regarding good cause further indicated that

“ [t] he employer’s reserve account is subject to charges.”3

2. Voda Spa’s P etit

ion for Writ of Man date Is Denied Voda Spa sought administrative mandamus pursuant to Code of C ivil Procedure
section 1094.5. Voda Spa sought to challenge both the decision that Serban had good
cause to leave his work and the finding that he was an employee. The trial cou rt heard
th e former, but granted the Board ’s motion to strike all allegations concerning Serban’s employment status. On appeal, Voda Spa challenges only the trial court’s
conclusion that it could not review the Board’s decisio n that Serban was an employee

. DISCUSSION We begin with relevant background on unemployment insurance
, then discuss separately judicial review of the taxation and benefit decisions by the EDD . Finally,
we consider First Aid Services of San Diego, In c. v. California Employment
Develo pment Dept. (200 5 ) 133 Cal.App.4th 1470 ( First Aid ) , which the Board argues is dispositive and Voda Spa argues was wrongly decided

. The purpose of the unemployment insurance program is to provide benefits for “persons unemployed through no fault of their own, and to reduce involuntary

un employment and the suffering cau sed thereby to a minimum. ” ( Unemp. Ins. Code
, § 100.) “To finance state unemployment and disability benefits, California requires contributions from both employers and employees. Generally , employers must annually contribute to the unemployment fund based on wages pa id to their employees.” ( Hunt B uilding Corp. v. Bernick (2000) 79 Cal.App.4th 213, 219 ( Hunt Building Corp. )

. ) “The employer/employee relationship determines who must make

con tributions to the unemployment and disability funds. [Citation.] Where an employee performs services for an employer, the employer is required to make contributions and withhold taxes; where an independent contractor performs services for a principal, th e principal is not required to withhold taxes or make contri butions. ” ( Ibid .)

“‘ The taxing sections of the [Unemployment Insurance Code] are entirely separate from those concerning benefits, and

. . . the provisions fixing liability for payments to the f

und are to be considered accordingly.’” ( Hunt Building Corp.
, supra ,4

79 Cal.App.4th at p. 219.) “ [ T ] here are ‘ s ignificant substantive and procedural differences between the Unemployment Insurance Act’s benefit and taxation components.’” ( Merchandising C oncept G roup, Inc. v. California Unemployment Ins. Appeals Bd. (2010) 181 Cal.App.4th 1274, 1282.)
1. Judicial Review of Tax Decisions
The s uperior c ourt has no power to grant a writ of mandate to prevent the
collection of state taxes. California Consti tution
, article XIII , section 32 (section 32) provides: “No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. 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.” The longstanding prohibition is based on “the dangers inherent in delaying collection of needed public revenue

. . . .” ( Pacific Gas & El ectric Co. v. State Bd. o f Equalization (1980) 27 Cal.3d 277, 282.) “The policy behind section 32 is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted. [Citation] ‘Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public.’” ( Id. at p. 283.) “Procedural due process does not require j udicial determination of tax liability before collection of a tax [ citations ] ; and

. . . it is established that the government may effect collection of taxes by summary administrative proceedings [citation] .” ( Dupuy v. Superi or Court (1975) 15 Cal.3d 410, 416.)
Section 32 “bars ‘not only injunctions but also a variety of prepayment judicial declarations or findings which would impede the prompt collection of a tax.’” ( California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247

- 248.) Similar to the constitutional prohibition, Unemployment Insurance Code section
1851 governs unemployment insurance contributions and provides: “No injunction or writ of mandate or other legal or equitable process shall issu e in any suit, action or5

proceeding, in any court against this State or against any officer thereof to prevent or enjoin the collection of any contribution sought to be c ollected under this division.” Several cases have applied these principles in the con text of unemployment

taxes. In Louis Eckert B. Co

. v. Unemploy. R. Com. ( 1941) 47 Cal.App.2d 844, the court held that a corporation could not obtain a declaratory judgment that it wa s not an employer within the meaning of the Unemployment Insurance Act. In that ca se , the Unemployment Reserves Co mmission was “about to tax” the corporation seeking declaratory relief. ( Id . at p. 845.) The court held that the predecessor to Unemployment Insurance Code section 1851 precluded the lawsuit. ( Louis Eckert B.
Co

. , at p. 846.) “The commission herein could not properly undertake to enforce a tax against plainti f

f corporation as an employer in d efiance of an adjudication tha t the latter did not maintain that relationship with the other parties.” ( I bi d .) The emplo yer must pay the tax under protest and then sue to recover the amount paid. ( Id . at p. 847.) Interpreting a section similar to section 32, i n Modern Barb er Col. v. Cal. E mp. Stab. Com

. (1948) 31 Cal.2d 7 2 0 ( Modern Barber Colleges ) , our high court conside red a mandamus petition to compel the c ommission to vacate its finding that certain persons were employees of Modern Barber Colleges
, “and to cancel the charges made against the pet itioner [ Modern Barber Colleges ] by virtue of these findings

. ” ( Id . at
p. 722.) Judicial review was not available because Modern Barber Colleges had not paid its taxes . ( Id . at pp. 722, 723.) The high court reasoned as follows: “It is obvious that a judgment directing the commission to vacate its findings would in effect amo unt to a declaration by the court that the relationship did not exist ; the commission after such a judgment could not ‘properly undertake to enforce a tax against plaintif f corporation as an employer in defiance of an adjudication that the latter [asserted employer] did not maintain that relationship with the other parties.’” ( Id . at p. 723.)
The court held: “Since the net result of the relief prayed for herein would be to restrain the collection of the tax allegedly due, the action must be treate d as on e having that purpose.” ( I

bi d .)6

More recently in California Logistics , Inc. v. State of California, supra
, 161 Cal.App.4th 242, the court applied this rule to an employer ’ s effort to seek review of the employee independent contractor determination after the EDD sent “a ‘Proposed Notice of Assessment’ in the amount of $1,287,898.90.” ( Id . at p. 246.) The employer alleged that it could not afford to pay the proposed assessment and that if it were required to pay the assessment prior to challenging the EDD ’s determination
, it would be denied judicial review. ( I bi d

. ) The cour t reiterated the policy that: “‘ A taxpayer ordinarily must pay a tax before commencing a court action to challenge the collection
of the tax. This rule, commonly known as “ pay first, litigate later, ” is well established and is based on a public policy reflected in the state Constitution, several statutes, and numerous court opinions. ’ ” ( Id

. at p. 247.) “ ‘ A taxpayer may not go into court and obtain adjudication of the validity of a t ax which is due but not yet paid. [¶] The important public policy behind this constitutional provision “ is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupte d. ” [Citation.] “ The fear that persistent interference with the collection of public revenues, for whatever reason, will destroy the effectiveness of government has been expres sed in many judicial opinions. ” ’ ” ( Ibid .) The appellate court concluded that the relief sought in the lawsuit was barred by section 32. ( California Logistics, Inc. v. State of California
, at p. 833.)
These case s show that it is well established a party may not seek judicial review of a tax in advance of paying the tax. To chall enge a tax, a party must follow these steps: “ (1) the claimant files a claim for refund or credit ( [Unemp. Ins. Code,] §§ 1178, subd. (a), 1241, subd. (a)); (2) the director of the [EDD] denies the claim for refund or credit (§§ 1180, 1222); (3) the claim ant files a petition for review with an administrative law judge (§ 1222); (4) the administrative law judge reviews the matter and renders a decision (§ 1223); (5) the claimant or director of the [EDD] files an appeal to the

. . . Board regarding the petit ion for review of the denial of the claim for refund (§ 1224); and (6) the

. . . Board issues its order or decision regarding the petition for review of the claim for refund and serves notice of the decision (§§ 1224,7

1241, subd. (a)). ” ( Merchandising Con cept Group
, Inc. v. California Unemployment Ins. Appeals Bd., supra
, 181 Cal.App.4th at p. 12 81 .) The sole procedure to challenge a tax is to pay the tax and then file a suit for a refund. ( California Logistics , Inc. v. State of California , supra , 161 Ca l.App.4th at p. 247.)
2. Judicial Review of Benefit Decisions In contrast to a challenge to a tax decision, a party may challenge a benefit
decision. When an employer’s reserve account is charged, the employer may challenge the charges by means of a pet ition for writ of mandate. ( Interstate Brands v. Unemployment Ins. Appeals B d

. (1980) 26 Cal.3d 770, 782.) “ ‘ The imposition of an erroneous charge against an employer’s account, with the attendant consequence of his having to pay an increased contributio n, amounts to a wrongful deprivation of property. The petitioner, as a contributing employer, has a vital interest in the status o r condition of its reserve account and since the administrative decision here in question may affect its financial responsibi lity to the unemployment fund a sufficient right of property is invo lved to entitle it to a limited trial de novo as to the propriety of the charges made against its accoun t .’” ( I d

. at p. 77 6 .) An employer has a “direct pecuniary interest i n any payments made to a claim a n t which may be charge d against his reserve account.” ( Chrysler Corp. v. California Employment Stabilization Com

. (1953) 116 Cal.App.2d 8, 14.) Our high court has allowed challenges to a decision regarding benefits. For example, in Mats on Term inals , Inc. v. Cal. Emp. Com

. (1944) 24 Cal.2d 695

— an employer petitioned for writ of mandamus to prevent enforcement of an order awarding unemployment insurance benefits. ( Id . at p. 698.) The high court held that an employer whose reserve account may be affected by the payment of benefits may appeal from the initial determination and the decision of the referee. ( Id . at p. 701.) “The act thus recognizes his adversary interest in preventing the illegal payment of
benefits and does not limit his r emedy to a protest of charges that have been made to his account after the disputed benefits have been paid.” ( Id . at p. 702.) “He is a party ‘beneficially interested’ in the administrative proceeding to determine the award of8

benefits an d retains this s tatus for t he pu r pose of testing before a court of law the legality of the commis s ion ’ s final decision.” ( I b i d

. ) More recently, i n Southwest Research Institute v. Unemployment Ins. Appeals
B d

. (2000) 81 Cal.App.4th 705 , the appellate court ordered that a peremptory writ of
mandate issue
, setting aside the decision of the Board that the corporation be charged with unemployment compensation benefits. Such reversal was required because the appellate court determined that the worker was an independent contra ctor , not an employee, as had been de termined by the Board. ( Id . at p. 711.) Similarly, in Met r i c Man, Inc. v. Unemployment Ins. Appeals B d

. (1997) 59 Cal.App.4th 1041, the court considered a petition for writ of mandate
, seeking to overturn t he determin ation of the Board that a worker was an employee rather t han an independent contractor. A party seeking to challenge charges to a reserve account must comply with Unemployment Insurance Code section 1034. ( Unemp. Ins. Code, § 1243.) Section 1034 provide s: “ The employer, within 60 days after the date of mailing of any statement of charges or credits and charges to the reserve account, or within an additional period not exceeding 60 days which may for good cause be granted by the director, may file with t he director a written protest on any item shown thereon. The protest shall set forth the specific grounds on which it is made. No protest may be made on the ground that a claimant was ineligible for a benefit payment where the employer was notified as re quired by this division and any authorized regulation of the filing of a claim for the benefits or of a determination of the claimant’ s eligibility therefor and the employer failed to file a timely appeal on the benefit claim, or a final decision of an adm inistrative law judge or of the appeals board affirmed the payment of the benefits. Except as to corrections made by the director as provided in Section 1036, the contribution rate and other items shown on any such statement of charges or
statement of acc ount shall be final unless a protest is filed within the time prescribed in
this section. ” (Italics added.) The italicized language indicates that a party that fails to challenge the Board’s
final decision when notified of the claim
, may not subsequently seek judicial review.9

The Board argues that “[Unemployment Insurance Code ] [s] ection 1034, subdivision (a)’s exclusion of protests for charges that were subjects of final administrative appeals, however, in no way bars a tax refund action

. . . . It sim ply prevents employers such as Voda Spa from having a second bite at the app l e to protest charges that had already been administratively appealed. [ ¶ ] Neither section 1034 nor section 1243 affects Voda Spa’s ability to make a c laim for or sue for a tax r efund.” The problem with the Board ’s argument is that the subject of section s 1034 and 1243 are not a tax refund but a challenge to charges to the party’s reserve account. A party with sufficient notice (as in this case) that does not challenge the B oard ’s decision charging
the reserve account
, is foreclosed fro m later making such challenge.
3. First Aid, Supra

, 133 Cal.App.4th 1470
First Aid
, supra , 133 Cal.App.4th 1470 blurs the distinction between a tax and a benefit. In First Aid , an employer sough t mandamus review of a challenge to the Board’s decision that a person was an employee rather than an independent contractor. ( Id . at p. 1477.) That decision occurred in the context of determining whether a worker was entitled to unemployment insurance b enefits. ( Id . at p. 1476.) Extending
Modern Barber Colleges
, First Aid held that mandamus could not be used to challenge an administrative determination that persons were employees rather than independent

contractors even though no tax had been assessed

. ( First Aid , supra , at pp. 1480

- 1481.) The court reasoned that “the net result of the relief prayed for in the challenged mandamus proceeding at issue here

— reversal of the Board ’ s finding that [a worker] is an employee of First Aid

— would be to restrain t he collection of unemployment insurance contributions allegedly owed by First Aid under the provisions of the Unemployment Insurance Code based on the employer

- employee relationship the
Board found exists between First Aid and [its worker] .” ( Id

. a t p. 14 80.) We agree with First Aid to the extent it holds that
, if the “net result of the relief prayed for herein would be to restrain the collection of the tax allegedly due, the action
must be tre ated as one having that purpose
, ” as that is required by Moder n Barber Colleges
, supra , 31 Cal.2d at page 723. However, here there is no allegation or10

evidence subject to judicial notice that the action is one to restrain the collection of a tax allegedly due
, or imm i nently due. Therefore, at this early state in th e proceedings, we must assume that no tax was assessed or was allegedly due. Therefore, Voda Spa may seek judicial review of the Board’s determination that Serban was an employee, not an independent contractor.
The Board ’s argument that section 32, Unemp loyment Insurance Code section 1851, Modern Barber Colleges and First Aid compel a different result
, is not persuasive . First, the Board acknowledges that “the charge to Voda Spa’s reserve
account resul ting from benefits awarded to Se rban is not a tax pay ment within the meaning of article XIII, section 32 or section 1851. The only effect of the charge
, is the likelihood that Voda Spa’s future reserve ratio will decrease, resulting in a higher
future contribution rate.” 1 Second, this case is different fro m Modern Barber Colleges
because here
, no tax was assessed in contrast to Modern Barber Colleges
, in which a tax had been assessed and the petitioning party sought to avoid the tax. That
distinction is important because Modern Barber Colleges was based on applying a provision similar to section 32, which prohibits a lawsuit to prevent the collection of a tax. Similarly
, section 32 and Unemployment Insurance Code section 1851 apply only to lawsuits seeking to prevent the collection of a tax. Finally, to t he extent First Aid requires a different result, we conclude that First Aid ’s extension of Modern Barber Colleges improperly blurs the tax/benefit distinction. Because there was no assessment in this case, the pay now
, litigate later rule
, is simply inapp licable.

1 T he higher an employer’s reserve ratio, the lower the employer’s tax. ( Lorco Properties
, Inc. v. Department of Benefit Payments (1976) 57 Cal.App.3d 809, 813.)

“ ‘ The reason for this is simply that when an employer’s reserve ratio is high it indicates his experience with unemployment has been good and his percentage of unemployment relatively low, and this results in a favorable rate of tax. ’ ” ( I bid .)11 DISPOSITION The judgment is reversed. The trial court is directed to enter a new order denying respondent’s motion to strike. The parties are to bear th eir own costs on appeal.

FLIER, J.
WE CONCUR:

BIGELOW, P. J.

GRIMES, J.