Decorative Carpets, Inc. v. State Board of Equalization

TRAYNOR, J. Defendant appeals from a judgment awarding plaintiff a refund of sales taxes. (Rev. & Tax. Code, § 6933.) The facts were stipulated. Since April 1, 1955, plaintiff has sold carpeting at retail and has also furnished and installed carpeting. The tax with respect to sales of carpeting only was properly computed and paid. The tax with respect to sales and installations of carpeting, however, was overpaid. In each such transaction plaintiff collected a separately stated amount to cover the sales tax imposed upon it. (Rev. & Tax. Code, § 6052.)

Plaintiff computed the amount to cover the sales tax on the total price charged the customer for carpeting, material, and labor in about 60 per cent of the transactions involved. [254]In the other 40 per cent, it computed the amount to cover sales tax on the price of the carpeting materials alone. Plaintiff paid to defendant the total amount collected from its customers to cover the sales tax. It is agreed that plaintiff was a consumer and not a retailer of the carpeting and other materials used in its installations (Cal. Admin. Code, tit. 18, § 1921) and was therefore liable only for a tax measured by the price that it paid for such carpeting and materials. (Rev. & Tax. Code, § 6094.) Because of its misunderstanding as to the proper method of computing the tax, plaintiff collected from its customers and paid to defendant $4,337.45 more than it should have collected and paid.

At the trial plaintiff’s president testified that the refund sought included excessive reimbursements for sales tax from 882 customers and that plaintiff had invoices showing their names and addresses. Plaintiff stipulated, however, that it is seeking the refund for itself only and does not intend to pass it on to these customers.

The trial court held that plaintiff was entitled to the refund on the ground that the retailer is the taxpayer (Rev. & Tax. Code, § 6051; De Aryan v. Akers, 12 Cal.2d 781, 785 [87 P.2d 695]) and the state has no interest in any liability the retailer may have to its customers for collecting excessive tax reimbursements from them under a mistake of law. (123 East Fifty-Fourth Street, Inc. v. United States (2d Cir. 1946) 157 F.2d 68-70.) Defendant contends that plaintiff would be unjustly enriched were it permitted to recover the excess tax without paying it over to its customers.

Civil Code section 2224 provides: ‘ ‘ One who gains a thing by fraud, accident, mistake, ... is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.” A mistake of law that causes the erroneous computation of tax reimbursements and payments, as in this case, gives rise to an involuntary trust. (Donovan v. Stevens, 179 Cal. 32, 38 [175 P. 400] ; First Nat. Bank v. Wakefield, 148 Cal. 558, 561 [83 P. 1076].) “ [I]f the plaintiff collected the money under what the guests must have understood to be a statement that it was obliged to pay it as a tax, and that it meant to do so, the money was charged with a constructive trust certainly so long as it remained in the plaintiff’s hands. ...” (Learned Hand, J., dissenting in 123 East Fifty-Fourth Street, Inc. v. United States, supra, p. 71.)