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__________________________________________________________________ 


 

TO BE PUBLISHED IN THE OFFICIAL REPORTS



OFFICE OF THE ATTORNEY GENERAL



State of California



DANIEL E. LUNGREN



Attorney General



OPINION :



: No. 90-928



of :



: JUNE 12, 1991



DANIEL E. LUNGREN :



Attorney General :



:



RODNEY O. LILYQUIST :



Deputy Attorney General :



:



THE STATE BOARD OF EQUALIZATION has requested an opinion



on the following question:



Is the San Diego City "transient transportation tax" a



sales or use tax or is it a substantially different tax for



purposes of administering local sales and use tax ordinances? 
 

CONCLUSION



The San Diego City "transient transportation tax" is a



use tax for purposes of administering local sales and use tax



ordinances.



ANALYSIS



Revenue and Taxation Code section 7203.51

 provides:



"The State Board of Equalization shall not
 


administer and shall terminate its contract to administer



any sales or use tax ordinance of a city, county,



redevelopment agency, or city and county, if such city,



county, redevelopment agency, or city and county imposes



a sales or use tax in addition to the sales and use taxes



imposed under an ordinance conforming to the provisions



of Sections 7202 and 7203. 
 

1

 All section references are to the Revenue and Taxation
 


Code unless otherwise specified.



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"The board shall give such city, county,
 


redevelopment agency, or city and county written notice



of termination, stating the reasons therefor .... If the



cause for termination is not cured within the time



specified in the notice, the board shall not administer



the ordinance until the cause for termination is removed



....



"Nothing in this section shall be construed as



prohibiting the levy or collection by a city, county,



redevelopment agency, or city and county of any other



substantially different tax authorized by the
 


Constitution of California or by statute or by the



charter of any chartered city." (Emphasis added.)



The City of San Diego imposes a use tax upon persons



leasing automobiles from car rental agencies located within the



city. (§ 7202, subd. (a)(8)(A) ["... a use tax of 1 percent or



less ... upon the storage, use, or other consumption of tangible



personal property ... in the city"], see also §§ 6006.3, 6009,



6010, 6010.1, 6201; Cal. Code of Regs., tit. 18, § 1660.) This 1



percent use tax is imposed upon total rental charges, collected by



the rental agency at the same time as other rental charges, and
 


becomes the obligation of the rental agency if not collected from



the customer or transmitted to the Board. (See §§ 6011, 6201­


6204.)



San Diego also imposes a "transient transportation tax"



upon persons renting automobiles for a period of 30 or fewer days



from car rental agencies located within the city. The tax rate is



3 percent of the total rental charges, and the tax is collected by



the rental agency at the same time as the other rental charges. The



tax becomes the obligation of the rental agency if not collected



from the customer or transmitted to the city. It is deposited in



the city's general fund for general governmental services.



The question presented for analysis is whether the
 


"transient transportation tax" adopted by the City of San Diego is



an additional "sales or use tax" or a "substantially different tax"



as those terms are used in section 7203.5. If the former, the



State Board of Equalization ("Board") must notify the city that the



contract to administer the city's sales and use tax ordinances will



be terminated unless the transient transportation tax ordinance is



rescinded. We conclude that the city's transient transportation



tax constitutes a use tax.



The Sales and Use Tax Law (§§ 6001-7176) imposes a state



sales tax (§ 6051) on retail sellers and a state use tax (§ 6201)



on persons storing, using, or consuming tangible personal property



within the state. (See generally Rivera v. City of Fresno (1971)



6 Cal.3d 132, 137; Century Plaza Hotel Co. v. City of Los Angeles



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(1971) 7 Cal.App.3d 616, 623.) These taxes are administered by the
 


Board. (§ 7051.) 
 

The Bradley-Burns Uniform Local Sales and Use Tax Law (§§



7200-7212) provides a mechanism for the imposition of sales and use



taxes by cities and counties in addition to the state taxes.



(§§ 7202-7203.) All local sales and use tax ordinances are



administered by the Board. (See §§ 7203.5-7204.3, 7209-7211.) As



explained in Geiger v. Board of Supervisors (1957) 48 Cal.2d 832,



837:



"The act contemplates an integrated, uniform system



of city and county sales and use taxation. The counties



are given authority to impose sales and use taxes as a



means of raising additional revenue, and the cities are



furnished with a plan of state administration which will



relieve them from operating collection systems of their



own. The taxpayers will receive the benefit of a scheme



which will free them from the burden of complying with



differing regulations of state and local taxes, avoid the



necessity of making payments and reports to several



governmental bodies, and permit all auditing to be done



by a single agency."



Returning to the provisions of section 7203.5, we find



that it limits the amount of local sales and use taxes that may be



imposed, but has no effect upon the authority of a city or county



to impose a "substantially different tax." The legislative



purposes of section 7203.5 are to prevent "situations which



complicated tax collection, reporting, auditing and accounting" for



local businesses and "varying and conflicting sales tax rates



[that] have an adverse effect on the general business climate in



California." (Stats. 1968, ch. 1265, § 2; see Rivera v. City of



Fresno, supra, 6 Cal.3d 132, 136-138; Century Plaza Hotel Co. v.



City of Los Angeles, supra, 7 Cal.App.3d 616, 624-625, fn. 6.)2



2

The full text of the declared purposes is as follows:



"The Legislature finds that the overlapping tax



structures of the federal, state and local governments



are seriously hampering the functioning of the State of



California. Due to the high rate of the federal income



tax, the state is precluded from making the personal



income tax and bank and corporation taxes its chief



sources of revenue, as high state taxes, when combined



with the high federal tax, would make the income and



franchise taxes prohibitive in this state. Moreover, the
 


state in the past has allowed local government to make



the property tax its chief source of revenue and for the



state again to rely on this source of revenue would cause



great consternation among property owners.



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"Therefore, the state must rely on sales and use



taxes as its chief source of revenue.



"In addition, the Legislature is well aware that



prior to the enactment of the Bradley-Burns Uniform Local



Sales and Use Tax Law in 1955 the differences in the



amount of sales tax levied among the various communities



of the state created a very difficult situation not only



for retailers but also created fiscal problems for the



cities and counties. The retailer was faced with many



situations which complicated tax collection, reporting,



auditing and accounting. Because of the differences in



taxes between areas, the retailer was affected
 


competitively. Many areas advertised `no city sales tax,
 


if you buy in this area.' This factor distorted what



would otherwise have been logical economic advantages or



disadvantages. It is apparent that enactment of the



Bradley-Burns Law has brought about reduced costs to the



retailer and has corrected illogical competitive
 


situations.



"Moreover, the Legislature finds that recent
 


amendments to the state's Sales and Use Tax Law, which



are incorporated into the ordinances of local government



operating under the Bradley-Burns Law, have complicated



the administration of sales and use taxes in such areas



as prepayments and the taxing of certain occasional sales



and leases. The increasing complexity of these taxes has



made it more and more apparent that a return to the



conflicting systems in existence prior to the adoption of



the Bradley-Burns Law would be disastrous in California



today.



"In the big metropolitan areas where most taxable



sales occur, local officials have shown the most interest



in returning to the older system of independent sales and



use tax administration. And it is in these areas that



most of the poor and the minority groups are
 


concentrated, and it is these persons who are least able



to pay increased consumer taxes. In addition, the recent
 


trend of business to locate outside of metropolitan areas



can only be accelerated by a system which grants them a



competitive advantage by locating in the suburbs. And



the fact should not be overlooked that varying and



conflicting sales tax rates will have an adverse effect



on the general business climate in California.



"Therefore, the Legislature declares that the state,



by enactment of the Sales and Use Tax Law and the



Bradley-Burns Uniform Local Sales and Use Tax Law, has



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With this general background in mind, we examine the



"transient transportation tax" ordinance adopted by the San Diego



City Council. First, the label placed upon the tax is not



controlling as to its basic character. In Flynn v. San Francisco



(1941) 18 Cal.2d 210, 214-215, the Supreme Court observed:



"The character of a tax must be determined by its



incidents, and from the natural and legal effect of the



language employed in the act. [Citations.] The



nomenclature is of minor importance, for the court will



look beyond the mere title or the bare legislative



assertion ... to see and determine the real object,



purpose and result of the enactment. [Citations.]"



The San Diego transient transportation tax and the city's



use tax have the same taxpayers (customers of the rental agencies),



taxable events (rentals of the automobiles), measure of the taxes



(total rental charges), collection mechanisms (rental agencies



collect and transmit the taxes), and ultimate city expenditure of



the funds (for general governmental purposes of the city).



It has been suggested, however, that certain differences



between these city taxes compel the conclusion that the transient



transportation tax is not an additional use tax. First, the city's
 


transient transportation tax is limited to automobile leases of 30



or fewer days, while its use tax ordinance is not so limited. The



transient transportation tax is imposed even though some of the



rental use may occur outside the boundaries of the city, whereas



the city's use tax only applies to rental use within the city's



jurisdictional limits. (See § 7202, subd. (a)(8)(A).) Third, the



transient transportation tax is imposed regardless of whether the



rental agency has paid sales tax reimbursement on the vehicle; the



city's use tax ordinance exempts vehicles for which sales tax



reimbursement has been paid. (See § 6010, subd. (e)(10).)3



We disagree with the proposed suggestion. These minor



differences do not transform the city's transient transportation



tax into something other than a use tax. It remains a tax upon the
 


use of tangible personal property. The differences do not change



the "real object, purpose and result of the enactment." (Flynn v.



San Francisco, supra, 18 Cal.2d 210, 218.)



preempted this area of taxation."



3

 We are informed by the Board that car rental agencies do
 


not have an economic incentive to pay sales tax reimbursement at



the time they purchase their vehicles. Accordingly, a state and



local use tax is imposed upon their rental receipts in the ordinary



course of business.



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We find support for this conclusion in the cases that



have examined the provisions of section 7203.5. In Century Plaza



Hotel Co. v. City of Los Angeles, supra, 7 Cal.App.3d 616, the
 


court ruled that a tax of 5 percent upon the purchase price of



alcoholic beverages sold by a retailer for consumption on the



premises where sold was not authorized under the terms of



section 7203.5. The court concludes:



"... the taxes imposed by [the Sales and Use Tax
 


Law] are levied by the state not, as here, by a chartered



city. [The Bradley-Burns Uniform Local Sales and Use Tax
 


Law] allows a maximum 1 percent rate for sales and use



taxes, whereas the ordinance adopted by the city imposes



a 5 percent tax, thus failing to qualify ...." (Id., at



p. 623.)
 


Cases interpreting the phrase "substantially different tax" are



equally supportive of the conclusion reached herein. (See A.B.C.



Distributing Co. v. City and County of San Francisco (1975) 15



Cal.3d 566, 575 [payroll expense tax]; Rivera v. City of Fresno,



supra, 6 Cal.3d 132, 138-140 [utility user tax].)



In summary, we find that the transient transportation tax



in question is imposed upon the same use of tangible personal



property as is currently subject to taxation under the Sales and



Use Tax Law and the city's own sales and use tax ordinances. The



city is limited to a 1 percent tax upon car rental charges (§ 7202,



subd. (a)(8)(A)); it is not authorized to add an additional 3



percent. Section 7203.5 was designed to prevent such "increased



consumer taxes." (Stats. 1968, ch. 1265, § 2.)



Consequently, the Board has the statutory duty to give



the City of San Diego "written notice of termination" of its



contract to administer the city's sales and use tax ordinances, and



"[i]f the cause for termination is not cured within the time



specified in the notice, the Board shall not administer the



ordinance until the cause for termination is removed and a new



contract for the administration of the ordinance executed."



(§ 7203.5.)



In answer to the question presented, therefore, we



conclude that the San Diego City "transient transportation tax" is



a use tax for purposes of administering local sales and use tax



ordinances.



***** 
 

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