A taxpayer is entitled to a trial by jury in a refund action against the Franchise Tax Board, the First District Court of Appeal (Division Five) ruled August 27. The ruling upheld a San Francisco Superior Court decision, and was a loss for the FTB, which was asking the court to overturn that decision.
However, the court distinguished tax refund actions from tax collection actions, and also ruled that the taxpayer does not have a right to a jury trial for a cross complaint in which the FTB is seeking to apply a $2.5 million penalty.
The case involves Tom Gonzales, who filed a complaint in July 2006 seeking refund of California personal income taxes for 2000 and 2001. Mr. Gonzales was acting as the personal representative of the taxpayer, Thomas J. Gonzales II, who died in December 2001.
At issue was more than $15 million paid by the taxpayer's estate in 2004 under the tax amnesty program. The complaint alleged that the $15 million was not due because the estate was entitled to deductions for substantial capital losses from investments in 2000. The underlying dispute related to whether the transactions resulting in the losses were "abusive tax avoidance transactions," as claimed by the FTB.
Mr. Gonzales seeks a refund of the entire $15 million for the 2000 tax year, along with a little more than $2,000 from the 2001 tax year. The FTB filed a cross complaint seeking an additional penalty of almost $2.5 million.
Mr. Gonzales demanded a jury trial in a November 2006 case management conference statement, and almost two years later, the FTB moved to strike his jury demand. In July 2008, the trial court denied the FTB's motion.
The Court of Appeal's 25-page decision in Franchise Tax Board v. the Superior Court of the City and County of San Francisco includes a lengthy history of the right to a jury trial in California, dating back to the period before statehood was achieved. The court concluded: "To the extent there is any uncertainty regarding the scope of claims cognizable in the common law actions or variance in the historical practice, we will not use such uncertainty or variance to justify restricting the right to a jury trial. … (W)e conclude Gonzales has a state constitutional right to a trial by jury of the issues of fact in this action."
Many of the FTB's arguments against the right to a jury trial were based on the doctrine of sovereign immunity, the court noted. The court, however, said it had an "obligation to construe the right to a jury trial broadly and to resolve all doubts in favor of this right."
The opinion was written by Justice Mark Simons. Presiding Justice Barbara Jones and Justice Henry Needham Jr. concurred.
Cal-TaxReports, September 8, 2009
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