Plaintiff retailer sued defendant State Board of Equalization (board) contending that an exaction levied violated the U.S. Constitution and was unauthorized by the California Constitution and the California Sales and Use Tax Law, Cal. Rev. & Tax. Code, div. 2, pt. 1, §§ 6001-7176. The Superior Court of the City and County of San Francisco (California) entered judgment for the retailer and the board appealed.
The board contended that the retailer should have collected use taxes for California on sales of goods delivered on credit at its Oregon and Nevada stores to customers who held charge accounts bearing an address in California. The court held that existing precedents under the due process clause precluded the board from burdening the retailer's Nevada or Oregon business with the collection of use taxes on over-the-counter sales to California residents. The court held that the fact that the retailer elected to carry on an intrastate business in California was purely fortuitous and did not give California the right to reach out and tax or otherwise burden transactions which were entirely dissociated from the local business. In addition, the Lawyer business held that the discriminatory imposition of a liability to collect the California use tax unwarrantedly burdened the right of the out-of-state retailer to do business with residents of California, in violation of the commerce clause. The court held further that because the effect of the tax was to impose upon the retailer a greater burden than was imposed upon those engaged in similar business, the retailer had been denied equal protection.
The court affirmed.
Plaintiff State filed a complaint against defendant corporation that sought to enjoin the corporation and its agents from violating the Health or Dance Studio Act, Cal. Civ. Code § 1812.80 et seq. (act). The Superior Court of Santa Barbara County (California) granted the preliminary injunction against the sale of lifetime dance lesson contracts, which violated the act. The corporation appealed.
The corporation argued that the record did not show that it had ever violated the provisions of the act, that is, that it did not contract directly with the dance students, but that its agents contracted directly with the students. The corporation further argued that the act was unconstitutional. The court held that the record supported the inference that the corporation continued to aid, and encouraged, the agents to violate the act. Thus, the corporation participated in the admitted statutory violations of the agents. The act was found to be constitutional because there was an adequate basis for invoking special regulations of a class of business so habitually fraught with fraud and with sharp practices. The purpose of the act was to limit the number of lessons which a studio may contract to give in any one contract. The injunction was a more effective remedy than retroactive relief in damages, and prevention was the essence of the public benefit which the act sought to protect.
The order granting preliminary injunction against the corporation was affirmed.
