1

Filed 3/30/22 Gajanan v. City and County of S.F. CA1/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or 

ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION TWO

GAJANAN, INC. et al.,

Plaintiffs and Respondents,

v.

CITY AND COUNTY OF SAN 

FRANCISCO et al.,

Defendants and Appellants.

 A160539

 (San Francisco County

 Super. Ct. No. CGC16554309

 [consolidated with 

 CGC16550351, CGC16550354, 

 CGC16554304])

The owners and operators of six San Francisco boutique hotels filed 

suit against the City and County of San Francisco and its Office of the 

Treasurer and Tax Collector (collectively, the City) seeking refunds of about

$1.7 million in penalties the City had assessed for failure to timely file 

returns and pay certain hotel taxes. The hotel owners and operators 

contended they were entitled to refunds under section 6.17-4 of the San 

Francisco Business and Tax Regulations Code because, exercising ordinary 

care, they had hired and then relied on an employee to file the returns and 

make the payments, only to learn after the taxes were past due that the 
2

employee was dishonest and had never filed the returns or paid the taxes.1

After an eight-day bench trial, judgment was entered in favor of the hotel 

owners and operators. 

The City raises two main arguments in this appeal. The first concerns 

the interpretation of section 6.17-4, which, during the period at issue in 2014,

required the waiver of certain penalties when “[f]ailure to make timely 

payment or report of tax liability . . . occurred notwithstanding the exercise of 

ordinary care by the taxpayer.” (S.F. Ord. No. 291-10, amending section 6.17-

4.) The City argues that as a matter of law, reliance on an employee cannot 

constitute ordinary care under section 6.17-4, no matter how careful plaintiffs 

were in hiring and supervising the employee. The City’s second argument is 

that even if the hotel owners and operators were entitled to refunds of some 

penalties under section 6.17-4 as a result of their employee’s dishonesty, 

other penalties had been assessed under section 6.11-3, a Code section to 

which the refund provision of section 6.17-4 does not apply.

We decline to adopt the City’s interpretation of section 6.17-4 as it was 

then written, and we conclude that the penalties authorized by section 6.11-3 

do not apply in the circumstances of this case. Accordingly, we shall affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Our summary draws on the trial court’s statement of decision and the 

evidence admitted at trial.2 

1 All statutory references are to the San Francisco Business and Tax 

Regulations Code (the Code) as effective in 2014 unless otherwise stated. 

The various Code provisions discussed in this opinion have since been 

amended. (See, e.g., S.F. Ord. No. 207-20.)

2 The material facts are largely undisputed. The parties dispute 

certain facts concerning whether the City imposed any penalties under a 
3

A. Failure to Pay Taxes and Imposition of Penalties

The plaintiffs in this matter are seven business entities associated with 

six different “boutique” hotels.3 The parties sometimes refer to the plaintiffs 

in two groups, as do we. Four plaintiffs are the “hotel owners”: AGPME 

Tenant LLC (AGPME), KPH Management LLC (KPH), Mangal Inc. 

(Mangal), and Gajanan Inc. (Gajanan).4 The other three plaintiffs, referred 

to as “Engage,” are hotel management companies founded by Yvonne Detert, 

who was their CEO and president.5 

The hotel owners contracted with Engage to manage and staff the six 

hotels. The hotel owners testified that Engage had been managing hotels for 

a long time and was doing a good job, and that Detert, who had more than 30 

years’ experience in the hotel industry and had owned and operated several 

boutique hotels in San Francisco, had a good reputation for running boutique 

hotels. In November 2013, Detert hired Santiago Hernandez as controller for 

Engage after confirming that Hernandez had the requisite experience and 

credentials, and after having him interviewed and vetted by experienced 

hospitality industry professionals. 

particular Code provision, section 6.11-3. We address this issue in the 

discussion section, post, and conclude that we need not resolve the dispute. 

3 According to plaintiffs’ expert, a “boutique hotel” is generally a hotel 

with fewer than 250 rooms that is operated “with a certain type of 

personality, decor, lifestyle,” and is not affiliated with a brand.

4 AGPME owned the Steinhart Hotel, Hotel Diva, and Hotel Union 

Square; KPH leased the Kensington Park Hotel; Mangal owned the Country 

Hearth Inn; and Gajanan owned the Buena Vista Inn. 

5 The Engage entities are Engage Hospitality LLC, Engage with 

Hospitality SF LLC, and Lombard Hospitality LLC. 
4

Norbert Mede, who was retained by plaintiffs as an expert on the 

operations of boutique hotels, specifically with regard to ensuring that hotel 

taxes are filed and paid, testified that it is common for the owner of a 

boutique hotel to hire a management company to run the hotel, and opined 

that Engage was qualified to run the hotels here. He also opined that Engage 

had hired a qualified controller in hiring Hernandez. 

Hernandez was informed that his duties included paying the San 

Francisco transient occupancy tax, the tourism improvement district fee, and 

the Moscone expansion district fee (the hotel taxes). The hotels collected 

these taxes from their guests on behalf of the City and deposited them in an 

account accessible to Engage. An employee at Engage (not Hernandez) had 

been responsible for paying the hotel taxes for plaintiffs’ hotels in 2013. But 

when Hernandez was hired, Hernandez informed the employee that he would 

pay the hotel taxes from that point on. In fact, Hernandez failed to pay the 

hotel taxes for the fourth quarter of 2013 through the third quarter of 2014, 

and then concealed his failure to pay by lying to plaintiffs and providing them 

false balance sheets and journal entries that made it appear the hotel taxes 

had been paid as required by law. 

Meanwhile, at various times in 2014, the hotel owners received form 

letters from the City stating that hotel tax filings for particular periods had 

not been received. The letters provided instructions for filing and paying the 

hotel taxes, and advised that the recipient is “subject to penalties, interest 

and other fees for failure to timely file, per Article 6 of the . . . Code.” 

When the hotel owners asked Hernandez about the letters from the 

City, Hernandez told them the City had made mistakes. He said the taxes 

had been paid, and the City had credited them to the wrong account name. 

Many of the letters from the City in fact failed to identify hotel names and 
5

account numbers, and many were sent to different addresses or referred to 

different account numbers from month to month. The trial court found that 

this lent support to Hernandez’s statements that the taxes were being 

incorrectly credited, when in truth Hernandez was concealing from hotel 

owners that the taxes had not been paid. 

At different points in 2014, hotel owners complained that Hernandez 

failed to provide certain reports or provided them late. Engage executives 

questioned Hernandez about these issues and offered help. Hernandez told 

them the problems were caused by the new accounting system that he was 

responsible for implementing and said he needed no help.6 

In January 2015, Detert (the CEO of Engage) hired a forensic 

accounting team as auditors to investigate the problems with late and 

missing reports. The balance sheets that the auditors reviewed (apparently 

the false balance sheets that Hernandez had prepared) did not show any 

delinquency for hotel taxes, and the auditors did not discover that the hotel 

taxes had not been paid. But the auditors did discover that Hernandez had 

made an unauthorized transfer from the account of one of the hotel owners to 

an Engage account. When Detert confronted Hernandez about the matter, 

Hernandez claimed it was a mistake and said he would correct it. As soon as 

the money was transferred back to the correct account, Hernandez was 

terminated. 

6 Plaintiffs’ expert Mede opined that it was reasonable for the hotel 

owners to rely on Engage to pay the hotel taxes and for Engage to rely on 

Hernandez. Mede also testified that plaintiffs’ monitoring of Hernandez was 

consistent with ordinary care in the boutique hotel industry, and that in his 

view it was reasonable for plaintiffs to believe in 2014 that the hotel taxes 

were being paid.
6

Also in January 2015, the City sent AGPME and KPH “Notices of 

Determination” stating that the City had “computed and determined” the 

amounts owed for the periods in which they had “failed to file a return” for 

the accounts of their hotels. Each notice stated it was provided under section 

6.11-3 of the Code and identified a total amount due that was described as 

including taxes, “applicable penalties,” interest, and administrative fees. The 

payment invoices that were included with these notices show, for each of the 

three hotel taxes, the amount owed by each hotel by month, but did not 

indicate which penalties applied or how any tax, penalty, or interest had been 

determined or calculated. The trial court found that these January notices 

were the first notification by the City to any plaintiff that payment of a hotel 

tax for 2014 was delinquent. 

Two days after Hernandez was terminated, Detert learned that 

AGPME had received a letter (presumably the Notice of Determination) from 

the City stating that the hotel taxes for its hotels had not been paid and that

the City had determined that over $1 million was due. It was after this that 

Engage’s new controller discovered that Hernandez had altered journal 

entries and balance statements to make it look as though the hotel taxes 

were being paid. In January and February 2015, plaintiffs paid the 

delinquent hotel taxes for all six hotels. 

In June and July 2015, after returns had been filed by the hotels, the 

City gave plaintiffs spreadsheets that showed the City’s calculations of 

penalties for each hotel. The spreadsheets did not identify the Code sections 

under which the penalties were being assessed. Detert paid the penalties. 

C. Claims for Refunds

After paying the taxes and penalties, plaintiffs submitted claims for 

refund of the penalties to the City. Plaintiffs contended they were entitled to 
7

refunds under section 6.17-4 because they had exercised ordinary care in 

hiring a highly-recommended, experienced controller to file the hotel tax 

returns, and the late payments occurred as a result of the controller’s 

unanticipated irresponsibility and dishonesty. Plaintiffs stated they 

reasonably expected the controller to follow their standard routines and longstanding procedures for collecting and paying the taxes, and that the 

controller had provided records disguising the non-payment to prevent them

from learning the true facts. The City denied the claims for refunds, stating 

that plaintiffs had not met the requirements set forth in section 6.17-4. 

D. Proceedings in the Trial Court 

In 2016, plaintiffs filed four separate actions in San Francisco Superior 

Court, later consolidated, each alleging the same two causes of action seeking 

a refund of penalties. The first cause of action alleged that because plaintiffs 

exercised ordinary care, section 6.17-4 entitled them to refunds of penalties 

assessed against them under sections 6.17-1, 6.17-2, and 6.17-3.7 The second

cause of action alleged that under the facts of the case, the penalty provisions 

of sections 6.17-1, 6.17-2, and 6.17-3 were “inapplicable.” 

The City contended that it had correctly assessed tax penalties under 

sections 6.11-3, 6.17-1, 6.17-2, and 6.17-3.8 The City denied that plaintiffs 

7 As relevant here, section 6.17-1 imposes penalties for delinquent 

payment of tax; section 6.17-2 imposes penalties for underreporting tax 

liability, section 6.17-3 imposes penalties for late filing of tax returns, and 

section 6.17-4 authorizes refunds of penalties imposed under those three 

Code sections under certain circumstances. (SF. Ord. No. 271-13, amending 

§§ 6.17-1, 6.17-2, & 6.17-3; S.F. Ord. No. 291-10, amending section 6.17-4.) 

8 As relevant here, section 6.11-3, subdivision (a), authorizes the City to 

estimate tax liability for periods in which a taxpayer “fails to make a timely 

return or remittance” and adds a 20 percent penalty to the amount of the 

estimate. (S.F. Ord. No. 206-13, amending section 6.11-3.) 
8

were entitled to any refund of the penalties, arguing that plaintiffs did not 

meet their burden of proving they had exercised ordinary care under section 

6.17-4, and that even if plaintiffs had shown ordinary care, they would not be 

entitled to refunds of any of the penalties that had been imposed under a 

different part of the Code—section 6.11-3—to which the refund provision of 

section 6.17-4 did not apply. 

Over the course of an eight-day bench trial, the court heard testimony 

from 14 witnesses and considered more than 100 exhibits. In a 21-page 

statement of decision that included 100 enumerated findings of fact, the court 

concluded that the penalties at issue had been assessed under sections 6.17-

1, 6.17-2, and 6.17-3, and not 6.11-3. The court found that there was no 

evidence of willful neglect by plaintiffs, and that plaintiffs established they 

exercised “ordinary business care and prudence in the payment of their tax 

obligations.” Accordingly, plaintiffs were entitled to refunds of the penalties 

under section 6.17-4.9 Judgment was entered in plaintiffs’ favor, with the 

court awarding refunds of hotel tax penalties and interest amounting to 

about $1,700,000. The City timely appealed. 

9 The court also concluded that penalties purportedly imposed under 

sections 6.17-1, 6.17-2, and 6.17-3 were not supported by the evidence, and 

ruled in favor of plaintiffs on their second cause of action. 
9

DISCUSSION

A. Applicable Law and Standard of Review 

1. Code Provisions

a. Penalties

Section 6.11-3 authorizes the City to impose a penalty of 20 percent of 

the estimated tax due when the taxpayer has not filed a return or made a 

remittance of tax owed.

10 

Section 6.17-1, subdivision (a), imposes a penalty for the failure to

timely pay tax or to timely collect and remit third-party taxes. (S.F. Ord. No. 

271-13, amending section 6.17-1.) The penalty is five percent of the tax for 

each month or fraction of a month during which payment is delinquent, up to 

20 percent, with an additional 20 percent penalty on tax remaining unpaid 

for a period of 90 days after notification that the tax is delinquent. (Ibid.) 

Notably, the section 6.11-3 penalty is based on tax liability that has been 

estimated by the City, while the section 6.17-1 penalty is based on actual tax 

liability.

10 As relevant here, section 6.11-3, subdivision (a) provides: “If any 

taxpayer or person responsible for paying a tax or remitting a third-party tax 

fails to make a timely return or remittance, the Tax Collector may make a 

determination based upon an estimate of the total tax liability of the 

taxpayer. The estimate shall be made for the period or periods in respect to 

which the person failed to timely make a return or failed to timely remit a 

tax, and may be based upon any information which is in the Tax Collector’s 

possession or may come into his or her possession. Upon the basis of this 

estimate, the Tax Collector shall compute and determine the amount

required to be paid to the City, adding to the sum thus computed a penalty 

equal to 20 percent thereof. One or more determinations may be made for 

one or more than one period. Any such determination shall be prima facie 

evidence of the person’s liability in any subsequent administrative or judicial 

proceeding.” (S.F. Ord. No. 206-13, amending section 6.11-3.)
10

Section 6.17-2, subdivision (c), authorizes a penalty for “substantial 

underreporting of tax,” defined as occurring when “the tax finally determined 

by the Tax Collector exceeds the amount of tax reported on a taxpayer’s 

original or amended return for a taxable period by 25 percent or more, or if no 

return is filed, the tax liability determined by the Tax Collector pursuant to 

section 6.11-1 exceeds $5000.”11 (S.F. Ord. No. 271-13, amending section 

6.17-2.) The penalty is “50 percent of the tax attributable to the substantially 

underreported amount.” (Ibid.) 

Section 6.17-3, subdivision (b),12 authorizes a penalty of up to $500 for 

the failure to timely file a required return. (S.F. Ord. No. 271-13, amending 

section 6.17-3.)

b. Waiver of Penalties

Section 6.17-4, subdivision (a), provided that the City may waive the 

imposition of penalties imposed under sections 6.17-1, -2 and -3 when 

“[f]ailure to make timely payment or report of tax liability . . . occurred 

notwithstanding the exercise of ordinary care by the taxpayer and in the 

absence of wilful neglect.”13 (S.F. Ord. No. 291-10, amending section 6.17-4, 

11 Section 6.11-1 authorizes the Tax Collector to determine a tax 

deficiency when a taxpayer failed to pay or underpaid a tax, with the 

deficiency computed based upon the taxpayer’s returns or “any other 

information within the Tax Collector’s possession.” (S.F. Ord. No. 206-13, 

amending section 6.11-1.) The hotels here filed their tax returns late, but it 

does not appear that the City ever contended that taxes were underreported 

on those returns. 

12 This subsection has since been moved to section 6.17-3, subdivision 

(c). (S.F. Ord. No. 36-17, amending section 6.17-3.)

13 Although section 6.17.4 states that penalties “may” be waived, waiver 

is mandatory if the taxpayer establishes the requisite factual predicate. (See

AvalonBay Communities, Inc. v. County of Los Angeles (2011) 197 
11

emphasis added.) Willful neglect by plaintiffs is not at issue; the City does 

not contest the trial court’s conclusion that there was no evidence of willful 

neglect. 

2. Standard of Review

The taxpayer has the burden of proof in an action for refund of tax 

penalties. (Air Couriers International v. Employment Development Dept. 

(2007) 150 Cal.App.4th 923.)

We apply well-established standards of review to a judgment based 

upon a statement of decision issued after a bench trial. (Thompson v. Asimos

(2016) 6 Cal.App.5th 970, 981.) We review questions of law de novo and we 

review the trial court’s findings of fact under the substantial evidence 

standard. (Ibid.) We construe findings of fact liberally to support the 

judgment; consider the evidence in the light most favorable to the judgment; 

draw all reasonable inferences in support of the findings; and infer that the 

trial court “ ‘impliedly made every factual finding necessary to support its 

decision.’ ” (Ibid.) 

This appeal raises issues of statutory construction, which are subject to 

de novo review. (MacIsaac v. Waste Management Collection & Recycling, Inc. 

(2005) 134 Cal.App.4th 1076, 1081-1082 (MacIsaac).) Our task is to 

determine the “ ‘[lawmakers’] intent so as to effectuate the law’s purpose.’ ” 

(Skidgel v. California Unemployment Ins. Appeals Board (2021) 12 Cal.5th 1, 

14 (Skidgel).) We look first to the words of the statute itself. (Ibid.; 

MacIsaac, supra, 134 Cal.App.4th at p. 1082 [statutory language is the “most 

reliable indicator” of legislative intent because it “ ‘ “has successfully braved 

the legislative gauntlet” ’ ”]; Rodriguez v. Solis (1991) 1 Cal.App.4th 495, 502 

Cal.App.4th 890, 898-899 [discussing the interpretation of similar language 

in Rev. & Tax. Code, § 4985.2].)
12

[rules of statutory construction apply to local ordinances].) We construe the 

words of a statute in context, giving them “ ‘a plain and commonsense 

meaning’ unless the statute specifically defines the words to give them a 

special meaning.” (MacIsaac, supra, 134 Cal.App.4th at p. 1083.) We 

harmonize particular clauses and sections of a statute “ ‘by considering them 

in the context of the statutory framework as a whole. [Citation.] If the 

statutory language is unambiguous, then its plain meaning controls.’ ” 

(Skidgel, supra, 12 Cal.5th at p. 14; see also Lennane v. Franchise Tax Board

(1994) 9 Cal.4th 263, 271, fn. 8 [“construing unambiguous language in tax 

statutes according to the ordinary meaning of the words used is consistent 

with the [California Legislature’s] goal of ‘understandable tax laws’ ”].) Any 

ambiguity in a statute that imposes tax penalties is “strictly construed in 

favor of the taxpayer.” (River Garden Retirement Home v. Franchise Tax 

Board (2010) 186 Cal.App.4th 922, 955, fn. 13 (River Garden).)

B. Analysis

The City argues that as a matter of law, reliance on an employee 

cannot constitute “ordinary care” that would require the refund of penalties 

under section 6.17-4 for failure to file and remit hotel taxes, regardless how 

careful the taxpayer is in hiring and supervising the employee, and even if 

the employee lies about filing the returns and paying the taxes. The City also 

makes the backstop argument that it imposed certain penalties under section 

6.11-3. Therefore, according to the City, even if the trial court was correct in 

concluding that plaintiffs exercised ordinary care and are entitled to refunds 

of penalties imposed under sections 6.17-1, 6.17-2, and 6.17-3, plaintiffs are 

not entitled to refunds of penalties imposed under section 6.11-3.

14

14 The City makes these arguments in challenging the judgment as it 

pertains to plaintiffs’ first cause of action. Because we shall affirm the 
13

1. “Ordinary Care” Standard of Section 6.17-4

To restate, section 6.17-4, as it existed at the time, provided for a 

waiver of taxpayer penalties when “[f]ailure to make timely payment or 

report of tax liability . . . occurred notwithstanding the exercise of ordinary 

care by the taxpayer and in the absence of wilful neglect.” (S.F. Ord. No. 291-

10, amending section 6.17-4.) Whether plaintiffs are entitled to refunds of 

the penalties imposed here turns on the meaning of the phrase “ordinary 

care” in section 6.17-4. “Ordinary care” is not specifically defined in the Code, 

so we give it “ ‘a plain and commonsense meaning.’ ” (MacIsaac, supra, 134 

Cal.App.4th at p. 1083.) 

“Ordinary care” has been defined to mean “the degree of care that a 

prudent and competent person engaged in the same line of business or 

endeavor would exercise under similar circumstances.” (Black’s Law Dict. 

(11th ed. 2019) p. 263, col. 1.) Black’s Law Dictionary explains that the term 

refers to “a test of liability for negligence.”

15 (Ibid.) It is not surprising, then, 

judgment on the first cause of action, we do not reach the parties’ arguments 

as to the second cause of action. Briefly, plaintiffs contended in their second 

cause of action that penalty provisions are “inapplicable” because the City 

failed to provide notice of a delinquency as required for certain penalties 

under section 6.17-1; there was no “substantial underreporting of tax,” 

required for penalties under section 6.17-2; and the penalties attributed by 

the City to section 6.17-3 differ in amount from those authorized by statute. 

The City argues on appeal that the penalties were imposed in accordance 

with the statutes and that plaintiffs filed a deficient claim under Government 

Code sections 905 and 910, and therefore failed to exhaust their 

administrative remedies with respect to claims that the City failed to meet 

the requirements for imposing penalties under sections 6.17-1, 6.17-2, and 

6.17-3. 

15 CACI No. 401 explains that “Negligence is the failure to use 

reasonable care to prevent harm to oneself or others. [¶] . . . A person is 

negligent if that person does something that a reasonably careful person 

would not do in the same situation or fails to do something that a reasonably 
14

that section 6.17-4 contrasts “ordinary care” with “wilful neglect.” (S.F. Ord. 

No. 291-10, amending section 6.17-4.) We interpret the phrase “ordinary 

care” in section 6.17-4 to have the meaning attributed to the phrase “ordinary 

care” in the context of negligence, as set forth in Black’s Law Dictionary. 

The City points out that federal law imposes a penalty for failure to 

timely file a tax return “unless it is shown that such failure is due to 

reasonable cause and not due to willful neglect” (26 U.S.C. § 6651(a)(1)) and 

contends that this language is “nearly identical” to the language in section 

6.17-4. The City argues that we should interpret “notwithstanding the 

exercise of ordinary care” in section 6.17-4 as equivalent to “absent 

reasonable cause” in 26 United States Code section 6651, and relies on U.S. v. 

Boyle (1985) 469 U.S. 241, 252 (Boyle), in which the Supreme Court held that 

a taxpayer’s reliance on an outside agent to prepare and file a return did not 

constitute “reasonable cause” under 26 United States Code section 6651. 

This argument is not persuasive. The language of the federal statute differs 

significantly from section 6.17-4 as it existed at the time relevant for this 

case: the federal statute includes the phrase “reasonable cause,” which has a 

particular meaning in the context of tax penalties, and which did not appear 

in section 6.17-4. 

Boyle interprets “reasonable cause” as it was used in a federal statute.

As the Supreme Court explained in Boyle, the term “reasonable cause” in 26 

United States Code section 6651 must be interpreted in light of a Treasury 

regulation specifying that “to demonstrate ‘reasonable cause’ a taxpayer 

filing a late return must show that he ‘exercised ordinary business care and 

careful person would do in the same situation.” CACI No. 401 instructs the 

jury that it “must decide how a reasonably careful person would have acted” 

in the circumstances. 
15

prudence and was nevertheless unable to file the return within the 

prescribed time.’ ” (Boyle, supra, 469 U.S. at p. 243, quoting 26 C.F.R. 

§ 302.6651-1(c)(1) (1984).) The Supreme Court noted that while 

administrative regulations and practices exempted late filings from penalties 

when lateness resulted from “postal delays, illness, and other factors largely 

beyond the taxpayer’s control,” they did not address the effect of a taxpayer’s 

reliance on an agent. (Id. at p. 248, fn. 6.) Boyle enacted a “rule with as 

‘bright’ a line as can be drawn consistent with the statute and implementing 

regulations,” in holding that reliance on an agent is not “reasonable cause” 

under 26 United States Code section 6651(a)(1). (Id. at pp. 248, 250.) Under 

Boyle, “reasonable cause” requires more than just the exercise of ordinary 

care; it requires some type of disability as well. But in any event, section 

6.17-4, which we are interpreting here, does not include the phrase 

“reasonable cause.” 

Nor are we persuaded by the City’s citations to authorities that 

interpret the phrase “reasonable cause” as it appears in the context of various 

California tax provisions. Once again, those authorities lack persuasive 

value because “reasonable cause” does not appear in the statute that we must 

interpret in this case. (See First American Commercial Real Estate Services, 

Inc. v. County of San Diego (2011) 196 Cal.App.4th 218, 227-230 

[emphasizing the need to give effect to the actual language of the statute at 

issue].) 

The City observes that before 2010 (and long before the reporting 

period at issue here), there were two waiver provisions in section 6.17-4 that 

applied to penalties for failure to timely file returns or pay tax. (See S.F. 

Ord. No. 291-10, amending § 6.17-4.) Subdivision (a) provided for waiver of 

penalties when the failure “was due to reasonable cause and not wilful 
16

neglect,” and subdivision (b) provided for waiver when the failure “occurred 

notwithstanding the exercise of ordinary care by the taxpayer and in the 

absence of wilful neglect.” (Ibid.) In 2010, the Board of Supervisors amended 

section 6.17-4 by removing former subdivision (a) altogether, leaving only 

subdivision (b) (and recasting it as subdivision (a)). (Ibid.) Referring to the 

brief legislative digest that is part of the record, the City argues on appeal 

that in amending section 6.17-4, the Board of Supervisors “expressly stated”

that the standard a taxpayer must meet to qualify for a waiver remained 

unchanged. This misstates the record. There is no express statement to that 

effect in the legislative digest. The digest states that the amendments to 

Article 6 “revise provisions relating to . . . enforcement procedures and 

penalties; and . . . otherwise clarify and update the provisions of Article 6.” 

The digest includes short bullet points describing some but not all of the 

effects of the amendments, and states that the amendments “strengthen the 

[City’s] ability to enforce the City’s taxes.” The digest concludes by stating 

that the amendments “also correct errors, delete outdated provisions and 

make other nonsubstantive changes to clarify the existing law.” 

The City reads too much into the legislative digest, which does not 

purport to account for all the effects of the 2010 amendment, says nothing 

about section 6.17-4, and says nothing specific about the standards for 

waiver. We presume that in changing the language of section 6.17-4 by 

eliminating what had been subdivision (a), the Board of Supervisors intended 

to change the meaning of the section by eliminating the “reasonable cause” 

standard in that subdivision. (See People v. Trevino (2001) 26 Cal.4th 237, 

242 [“When the Legislature uses materially different language in statutory 

provisions addressing the same subject or related subjects, the normal 

inference is that the Legislature intended a difference in meaning”]; Hochsler 
17

v. Sacramento City Unified School District (2007) 149 Cal.App.4th 258, 269 

[“ ‘Where the Legislature omits a particular provision in a later enactment 

related to the same subject matter, such deliberate omission indicates a 

different intention which may not be supplanted in the process of judicial 

construction.’ [Citation.] Moreover, ‘[t]he Legislature “is deemed to be aware 

of statutes and judicial decisions already in existence, and to have enacted or

amended a statute in light thereof” ’ ”].) 

In any event, by the time this case arose, the term “reasonable cause” 

was long gone from section 6.17-4, and we decline to interpret “ordinary care” 

as incorporating the “reasonable cause” standard of Boyle. Further, there is 

no ambiguity as to the meaning of “ordinary care” in section 6.17-4. Even if 

there were, we would interpret the statute in the taxpayer’s favor, applying 

the more lenient standard of “ordinary care” as opposed to the more 

demanding status imposed in Boyle. (River Garden, supra, 186 Cal.App.4th 

at p. 955, fn. 13.) Thus, we give the term “ordinary care” its plain meaning.16 

Having construed the meaning of “ordinary care,” we now consider 

whether the trial court’s conclusion that plaintiffs exercised ordinary 

business care and prudence is supported by substantial evidence. We 

conclude it is. Plaintiffs produced evidence that they exercised ordinary care 

16 After the trial court entered judgment in favor of plaintiffs in this 

case, the San Francisco Board of Supervisors changed the standard for 

waiver of penalties by incorporating language similar to the federal statute 

and authorities on which the City here relies. Effective in 2021, penalties 

imposed under sections 6.17-1, 6.17-2, and 6.17-3 may be waived if “[t]he 

failure to timely pay, remit, collect, or report the tax liability, [or] the failure 

to file a return . . . is due to reasonable cause and circumstances beyond the 

taxpayer’s control, and occurred notwithstanding the exercise of ordinary care 

in the absence of willful neglect.” (S.F. Ord. No. 207-20, adding section 6.17-

4.1, italics added.) 
18

in connection with the filing and payment of hotel taxes: they hired a 

qualified company to manage the hotels, as is common in the industry; the 

management company hired a qualified individual who was responsible to 

pay the taxes; and that employee did not pay the taxes but made it appear to 

plaintiffs as though the taxes had been paid by lying to them, providing them 

with false financial statements, and offering plausible explanations for the 

non-filing notices that the Hotel Owners received from the City. 

In its reply brief, the City argues for the first time that even if the 

ordinary care standard is interpreted to permit reliance on an agent or 

employee, plaintiffs did not present evidence sufficient to establish that they 

exercised ordinary care. This argument has been forfeited, first, because the

argument is not raised in the City’s opening brief (Cold Creek Compost, Inc. 

v. State Farm Fire & Casualty Co. (2007) 156 Cal.App.4th 1469, 1486), and 

second because the City failed to set forth all the relevant evidence in its 

opening brief. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881; 

see also Cal. Rules of Court, rule 8.204(a)(2)(C) [appellant’s opening brief 

must “[p]rovide a summary of the significant facts”].)17 

2. Imposition of Penalties Under Section 6.11-3

The parties agree that all the hotel tax penalties imposed against the 

Gajanan and Mangal hotels were based on Code sections that are subject to 

waiver of penalties under section 6.17-4, as were the penalties imposed 

against the AGPME and KPH hotels for the months of January, October, 

November, and December of 2014 and some of the penalties imposed against 

the AGPME and KPH hotels for the months of February through September 

17 The City’s opening brief devotes two paragraphs (amounting to less 

than one page) in its statement of facts to what it characterizes as the

“failure to timely file returns and remit hotel taxes.” 
19

2014. But the parties do not agree as to some of the penalties imposed on the 

AGPME and KPH hotels for the months of February through September 

2014. The City contends that in those months for those hotels, it imposed 

penalties under sections 6.11-3, 6.17-2, and 6.17-3, and the penalties imposed 

under section 6.11-3 are not subject to waiver. (S.F. Ord. No. 291-10 [section 

6.17-4 applies to penalties or interest assessed under sections 6.17-1, 6.17-2, 

or 6.17-3].) Plaintiffs contend that the penalties the City assessed against 

them and attributed to section 6.11-3 could only have been assessed under 

section 6.17-1, which means they are waivable. We will use the term 

“disputed penalties” here to refer to the penalties the City attributes to 

section 6.11-3.

a. Additional Background

The City was never clear about the statutory basis for imposing the 

disputed penalties against AGPME and KPH. 18 The City’s June 2015 

“Notice of Determination and Redetermination,” concerning the tax liability 

of the AGPME and KPH hotels was sent with spreadsheets showing

“Monthly Hotel Payments, Penalties & Interest Calculation” through June 1, 

18 The City contends that it presented undisputed evidence that the 

disputed penalties were assessed under section 6.11-3, subdivision (a). The 

City’s evidence consists of the June 2015 notice and spreadsheets, and 

testimony from the City’s director of business tax explaining how the 

spreadsheets should be interpreted. But the City’s director of business tax 

testified that the City has no records predating those June 2015 spreadsheets 

that would show that the disputed penalties were computed under section 

6.11-3, and acknowledged that the spreadsheets did not reference section 

6.11-3. Plaintiffs contend that they presented evidence that the City 

originally assessed penalties under section 6.17-1, subdivision (a), and only 

later retroactively attributed some of the penalties to section 6.11-3 as a 

litigation strategy after plaintiffs challenged the penalties. Because we 

conclude that as a matter of law section 6.11-3 does not apply in the 

circumstances before us, we need not resolve this factual dispute.
20

2015. Neither the June 2015 notice nor any of the accompanying 

spreadsheets refer to section 6.11-3 (or any other section under which a 

penalty was purportedly being imposed). The trial court found that although 

the disputed penalties were calculated under the heading “penalty 20%,” 

which appeared to “correlate[ ]” to section 6.11-3, the City could not rely on 

that section in imposing these penalties because section 6.11-3 is inapplicable

“under the facts of this case and the law.” 

b. Section 6.11-3 Does Not Apply 

In urging that section 6.11-3 applies to the disputed penalties, the City 

argues that it was “forced” to issue the January 2015 notices of determination 

with respect to the hotel taxes due from the AGPME and KPH hotels for 

February through September 2014 because the hotels had not filed the 

required returns.19 The City further argues that because it had issued 

notices of determination for those hotels and for those months, it imposed 

penalties under section 6.11-3 subdivision (a) (and also under sections 6.17-2 

subdivision (c) and 6.17-3 subdivision (b)), and that the penalties imposed 

under each section are reflected on the spreadsheets the City sent in June 

2015 with the Notice of Determination and Redetermination.20 The City

contends that section 6.11-3 applies to the disputed penalties by its terms. 

Plaintiffs dispute this point, and argue that under the plain terms of the 

19 By contrast, Notices of Determination were not sent to Gajanan and 

Mangal until July 2015, after they had filed returns. The City does not 

explain why it was “forced” to issue notices of determination in January 2015 

for the AGPME and KPH hotels, but not for the Gajanan and Mangal hotels, 

even though as of January 2015 none of the hotels had filed returns or paid 

hotel taxes for February through September 2014. 

20 The City contends that for the other months and hotels at issue in 

this case, it imposed penalties under sections 6.17-1, subdivision (a) and 6.17-

3, subdivision (b). 
21

Code, only section 6.17-1 penalties, and not section 6.11-3 penalties, could

apply. 

Plaintiffs have the stronger argument. 

Section 6.11-3 applies when a taxpayer has not timely filed a return or 

paid tax, in which case the City estimates the tax due, calculates a penalty 

based on that estimate, and sends the taxpayer a Notice of Determination. 

(§ 6.11-3, subds. (a) & (c); S.F. Ord. No. 206-13, amending section 6.11-3.) 

The City’s determination is prima facie evidence of the taxpayer’s liability “in 

any subsequent administrative or judicial proceeding.” (§ 6.11-3, subd. (a).) 

But of course, prima facie evidence can be rebutted, and a taxpayer can rebut 

the estimate by presenting evidence of the tax that is actually due and filing 

a return; that is what plaintiffs did here. When an estimate has been 

rebutted and the actual tax liability is established, the penalty provision of 

section 6.11-3 (which based the penalty on an estimate of the taxes due) no 

longer applies; instead, the relevant penalty provision is section 6.17-1.

Section 6.17-1 applies when a taxpayer has failed to timely pay tax, but 

has filed a return, in which case the penalty is based upon the actual tax due, 

rather than upon an estimate. (S.F. Ord. No. 271-13, amending section 6.17-

1; compare §§ 6.17-1, subd. (a) [penalty calculated on the basis of “tax”] and 

6.11-3, subd. (a) [penalty calculated on the basis of “estimate”].) 

The two sections, taken together, give the City authority to impose 

penalties whether a taxpayer files a return or not. If the taxpayer never files 

a return, the taxpayer is subject to a nonwaivable penalty based upon 

estimated tax liability. (§ 6.11-3, subd. (a).) If the taxpayer files a timely 

return but pays late, the taxpayer is subject to a penalty based on the actual 

amount due, and not on an estimate. (§ 6.17-1, subd. (a).) If the taxpayer 

files a late return and pays late after the City has issued a Notice of 
22

Determination, the taxpayer is subject to a penalty based on the actual 

amount due if the taxpayer successfully rebuts the estimated liability 

reflected in the notice. (§ 6.17-1, subd. (a).)

In its opening brief, the City argues that section 6.17-1, subdivision (a), 

applies “where the city was not forced to issue a determination based on

estimates,” and that section 6.11-3 applies instead once a Notice of 

Determination has been issued. In other words, the City argues that once a 

Notice of Determination has been issued, section 6.17-1 cannot apply, even if 

a later return is filed. This position finds no support in the statutory 

language, because section 6.17-1, subdivision (a) says nothing about notices of 

determination or section 6.11-3. (S.F. Ord. No. 271-13, amending section 

6.17-1.) And the City appears to argue that the penalty provision that 

applies to a late-filing taxpayer depends entirely upon the City’s seemingly

arbitrary decisions whether and when to issue Notices of Determination.21 

The AGPME and KPH hotels filed their hotel tax returns and paid the 

actual taxes due after they received the January Notices of Determination, 

which were based on estimated tax liability. The late-filed returns served to 

21 In the trial court, the City argued that when a taxpayer files a return 

after a Notice of Determination is issued, the City is authorized to apply 

section 6.17-1, subdivision (a) “in addition to” the penalty in section 6.17-1, 

subdivision (a), the City elects to limit the penalties imposed to those in 

section 6.11-3, subdivision (a). The City does not make this argument on 

appeal, but does not expressly disavow it, either. We decline to adopt such an 

interpretation of the Code, which (as we understand the City’s interpretation)

would allow the City to make an arbitrary decision whether to apply one 

penalty or both penalties, and which would authorize the imposition of a 

larger penalty on a taxpayer who files a late return after receiving a Notice of 

Determination (and is subject to penalties under sections 6.11-3 and section 

6.17-1) than on a taxpayer who files no return at all (and is subject only to 

penalties under section 6.11-3). 
23

rebut the estimates made by the City under section 6.11-3, taking the hotels 

out of the realm of section 6.11-3 estimated liability and into the realm of 

section 6.17-1, subdivision (a), reported liability. Accordingly, the nonwaivable penalty of section 6.11-3, subdivision (a) was no longer appropriate. 

Instead, any penalty would have to be assessed under section 6.17-1, 

subdivision (a), and would be subject to the waiver provision of section 6.17-4, 

which, as we discussed above, requires the refund of penalties in this case. 

DISPOSITION

The judgment is affirmed Respondents shall recover their costs on 

appeal. 
24

_________________________

Miller, J.

WE CONCUR:

_________________________

Richman, Acting P.J.

_________________________

Mayfield, J.*

A160539, Gajanan, Inc. et al. v. City and County of San Francisco et al.

* Judge of the Mendocino County Superior Court, assigned by the Chief 

Justice pursuant to article VI, section 6 of the California Constitution.