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Date: 07-16-2018

Case Style: Larry Littlejohn v. Costco Wholesale Corporation

Case Number: A144440

Judge: Siggins

Court: California Court of Appeals First Appellate District Division Three on appeal from the Superior Court, San Francisco County

Plaintiff's Attorney: Daniel Berko

Defendant's Attorney: David Frank McDowell, Jr., Purvi Govindlal Patel and Miriam A. Vogel

Description: Plaintiff Larry Littlejohn appeals from a ruling sustaining a demurrer to his third
amended complaint (complaint) without leave to amend. Littlejohn sought to sue Costco
Wholesale Corporation and Costco Wholesale Membership, Inc. (Costco), the California
Board of Equalization (Board) and Abbott Laboratories, Inc. (Abbott) to recover amounts
he paid in sales tax reimbursement on purchases of Abbott’s product Ensure.
Littlejohn alleged that because Ensure is properly categorized as a food product no
sales tax was actually due on his purchases. Costco should not have charged him sales
tax reimbursement, and was under no obligation to pay and should not have paid sales tax
to the state on its sales of Ensure.
Littlejohn based his claim on a cause of action identified by our Supreme Court in
Javor v. State Board of Equalization (1974) 12 Cal.3d 790 (Javor), that held under “the
unique circumstances” of that case, that the customer could sue “to compel defendant
retailers to make refund applications to the Board and in turn require the Board to
respond to these applications by paying into court all sums, if any, due defendant
retailers.” (Id. at p. 802.) Because this case does not involve allegations of unique
2
circumstances showing the Board has concluded consumers are owed refunds for taxes
paid on sales of Ensure, we affirm.
BACKGROUND
The complaint alleges a putative class action against Costco and the Board. It
alleges that on February 16, 2013, Littlejohn purchased a case of Ensure nutritional
drinks at Costco and was charged sales tax reimbursement. Costco paid sales tax on this
purchase to the Board even though, according to the complaint, the Board had “already in
the first instance ‘ascertained’ that the Ensure products involved in this action are not
subject to sales tax.”1 Costco allegedly collected sales tax reimbursement and paid sales
tax on Ensure from August 2006 through the date of Littlejohn’s purchase in 2013,
although by the time the third amended complaint was filed it had stopped doing so for
more than a year.
The complaint alleges in considerable detail, supported by documents issued by
the Board, that during the period in question Ensure was classified as a food product
exempt from sales tax, not a nutritional supplement that would have been subject to tax.
For some time before 2002, it appears Ensure was considered a food product not subject
to sales tax. In 2002 the labelling on Ensure was changed and, due to the labelling
change, at that time the Board considered Ensure to be a nutritional supplement. But the
labeling was changed again in 2006, and the Board, in an informal opinion of tax counsel,
advised a taxpayer that Ensure qualified as “a food product for human consumption, the
sales of which are not subject to tax.” In March 2013 a letter from one of the Board’s
auditors, in response to an e-mail inquiry, restated the position that sales of Ensure were
not taxable. This position was also restated in the Board’s September 2013 Tax
Information Bulletin stating that: “The products Ensure [and] Ensure Plus . . . are not
currently taxable because their labels meet the definition of a nontaxable food product.”
The complaint asserted two causes of action against Costco, and a third cause of
action against Costco and the Board. The first alleged that Costco breached an implied

1
The specific products Littlejohn claims are not subject to tax are Ensure, Ensure
Plus and Ensure Clinical Strength (Ensure).
3
contract with its customers by charging sales tax reimbursement on products not actually
subject to tax. The second alleged that Costco engaged in unfair business practices by
representing to customers that sales of Ensure were taxable and collecting sales tax
reimbursement on such sales. The third cause of action presents the issue before us. It is
predicated on Javor, and alleges the Board is a constructive trustee of the sales tax
erroneously collected and paid to the state by Costco on its sales of Ensure. Accordingly,
that sales tax should be refunded to Costco and in turn refunded to the Costco customers
who paid the sales tax reimbursement. This cause of action seeks to require the court to
“[o]rder Costco to immediately apply to the full extent it legally can do so to the [Board]
for reimbursement of all sales tax it paid to the [Board] due to sales of Ensure in order to
immediately return to the class the sales tax reimbursement it paid to Costco for Ensure
and to pay interest on said sums from the date they were paid to Costco to the full extent
allowed by law.”
Defendants demurred. Littlejohn opposed the demurrers and moved to compel
Costco to file a refund claim with the Board. The court sustained the demurrers without
leave to amend and denied the motion to compel. The court concluded that the judicially
noticed documents in the record showed the Board had not resolved the question of
whether Ensure was nontaxable during the relevant period. Specifically, it ruled that the
opinion of counsel and other documents said to support the third cause of action were not
the functional equivalent of the Board’s determination in Javor. The court held that the
documents were entitled to deference, but they did not have the same force of law as
regulations adopted by the Board and were not binding.
Littlejohn’s appeal is timely.
DISCUSSION
1. The Claims Against Costco
a. Claims Premised on the Unfair Practices Act.2

2 Business and Professions Code section 17200 et seq.
4
In Loeffler v. Target Corp. (2014) 58 Cal.4th 1081 (Loeffler) our Supreme Court
reviewed the history and development of California law on the issues raised by
Littlejohn’s complaint. In a brief overview, the Court summarized: “under California’s
sales tax law, the taxpayer is the retailer, not the consumer. In addition, the taxability
question, whether a particular sale is subject to or is exempt from sales tax, is
exceedingly closely regulated, complex, and highly technical. A comprehensive
administrative scheme is provided to resolve these and other tax questions and to govern
disputes between the taxpayer and the Board. Under these administrative procedures, it
is for the Board in the first instance to interpret and administer an intensely detailed and
fact-specific sales tax system governing an enormous universe of transactions.
Administrative procedures must be exhausted before the taxpayer may resort to court. . . .
[T]his comprehensive statutory scheme is inconsistent with consumer claims such as
plaintiffs’ by which a party other than the taxpayer would seek to litigate whether a sale
is taxable or exempt.” (Loeffler, supra, 58 Cal.4th at p. 1103.) For that reason the Court
rejected unfair business practice claims against a retailer based on the allegation that the
retailer had collected a sales tax reimbursement on take-out sales of coffee allegedly not
subject to a sales tax, because resolution of the claims would require the court to
determine the taxability of the transactions. For the same reason, the trial court clearly
was correct in this case to sustain the demurrers to plaintiff’s first and second causes of
action. Both are based on the premise that the sale of Ensure is not taxable, which fact the
court would have to determine to sustain the claim.
b. Claim Premised on Javor
Article XIII, section 32 of our state constitution provides in part: “After payment
of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with
interest, in such manner as may be provided by the Legislature.”
As Loeffler described, sales tax is imposed on retailers for the privilege of selling
tangible personal property, and it is the retailers, not the purchasing consumers, who pay
the tax. What is commonly understood to be sales tax paid on transactions by consumers
is really sales tax reimbursement paid to the retailer. These principles are particularly
5
relevant to actions or claims for refunds. It is the taxpaying retailer who may file a claim
for a refund with the taxing agency after first paying sales tax, not the consumer or
purchaser of goods. (Loeffler, supra, 58 Cal.4th at pp. 1104, 1107.)3
In Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 252
(Decorative Carpets), our Supreme Court held that legislative policy supported a
constructive trust theory that would justify ordering a plaintiff retailer who sought and
obtained a refund for overpayment of sales taxes to repay its customers who were
charged the tax. (Id. at p. 255.) In reaching this holding, the court explained that the
Board’s “liability to refund taxes erroneously collected, however, is governed by statute
(Rev. & Tax. Code, § 6901 et seq.) and the orderly administration of the tax laws requires
adherence to the statutory procedures and precludes imposing on [the Board] the burden
of making refunds to the taxpayer’s customers. [The Board], however, has a vital interest
in the integrity of the sales tax (County of San Bernardino v. Harsh Calif. Corp., supra,
52 Cal.2d 341, 345), and may therefore insist as a condition of refunding overpayments
to plaintiff that it discharge its trust obligations to its customers. To allow plaintiff a
refund without requiring it to repay its customers the amounts erroneously collected from
them would sanction a misuse of the sales tax by a retailer for his private gain.” (Ibid.)
In Javor, supra, 12 Cal.3d 790, our Supreme Court considered whether a customer
could file a direct action against the Board for a refund of sales tax. In rejecting a direct
action, the court observed that “to give customers a direct cause of action against the
Board for all erroneously collected sales tax reimbursements which have already been
paid to the Board by the retailer would neither be consonant with existing statutory

3
Sales taxes were formerly administered by the defendant Board of Equalization.
(Loeffler, supra, 58 Cal.4th at p. 1107.) In 2017, the functions of the Board relevant to
this case were transferred to the California Department of Tax and Fee Administration.
(Gov. Code § 15570.22; 2017 Stats. 2017, ch 16, § 5.) We will continue to refer to the
Board in this opinion as the entity responsible for administering the tax.
We also deny appellant’s request for judicial notice. The regulations of the Board
that appellant seeks to have this court notice have been superseded by emergency
regulations that pertain to the authority of the Department of Tax and Fee Administration
to consider claims for refunds.
6
procedures nor with the import of Decorative Carpets.” (Id. at p. 800.) Nonetheless, the
court recognized that the Board had a duty ‘to see that the customer obtains any refund
made to the retailer.” (Ibid.)
But Javor arose under “unique circumstances.” (Javor, supra, 12 Cal.3d at
p. 802.) There, the customer was seeking a refund of sales tax paid on a purchase price
that included a repealed federal excise tax. The Board promulgated a regulation
authorizing retailers who had collected and received refunds of the repealed tax to seek a
refund of sales tax on the condition that they pay the refunded taxes to their customers.
(Id. at p. 794.) The process required the retailer to demonstrate to the Board that a refund
had been paid in order to receive a like amount from the Board. The court observed that
“[u]nder the procedure set up by the Board the retailer is the only one who can obtain a
refund from the Board; yet, since the retailer cannot retain the refund himself, but must
pay it over to the customer, the retailer has no particular incentive to request the refund
on his own. Despite this lack of incentive, the Board has not required the retailer to
refund the total excessive amount collected, but rather has merely allowed retailers to
collect a refund when the retailer is compelled to pay a refund to a customer who has
demanded it.” (Id. at p. 801.)
The Javor court recognized that there had been an urgency statute that arguably
provided customers a cause of action against a retailer for the refund, but that statute had
expired. (Javor, supra, 12 Cal.3d at p. 802.) “Therefore, purchasers can most effectively
enforce their refund right by compelling retailers to claim their own refunds from the
Board. The Board has admitted that it must pay these refunds to retailers. All that
plaintiffs seek in this action is to compel defendant retailers to make refund applications
to the Board and in turn require the Board to respond to these applications by paying into
court all sums, if any, due defendant retailers. . . . [¶] We think that to require this
minimal action from the Board is clearly mandated by the Board’s duty to protect the
integrity of the sales tax by ensuring that customers receive their refunds. . . . [¶]
[A]llowing the Board to be joined as a party for these purposes in the customer’s action
7
against the retailer is an appropriate remedy entirely consonant with the statutory
procedures providing for a customer’s recovery of overpaid sales tax.” (Ibid.)
We know of no published case since Javor that has allowed a cause of action
against the Board to proceed for the purpose of directing a retailer to file a claim for a
refund of sales tax. In Loeffler, our Supreme Court confirmed that the exact contours of a
Javor-type claim remain undefined: “The integrity of the tax system and avoidance of
unjust enrichment, possibly of the retailer, but more probably of the state, in certain
circumstances may support a Javor-type remedy for consumers. Plaintiffs, however,
declined to pursue such a remedy, and we need not consider the exact showing required
of consumers to demonstrate their entitlement to the Javor remedy.” (Loeffler, supra, 58
Cal.4th at pp. 1133–1134.)
The most recent published case to reject a possible Javor cause of action is
McClain v. Sav-on Drugs (2017) 9 Cal.App.5th 684, review granted June 14, 2017,
S241471 (McClain). McClain distilled from Decorative Carpets and Javor three factors
for courts to consider in deciding whether to recognize a Javor cause of action. They are:
1) whether the plaintiff has an available statutory remedy for a tax refund; 2) whether the
proposed judicial remedy would be consonant with statutory tax refund procedures; and
3) whether there has been a “precursor determination” either by the Board or as a result
of legal action by a taxpayer that a tax refund is due and owing. (Id. at p. 697.) McClain
concludes that “[l]imiting a court’s authority to fashion new tax remedies to situations
involving all three of these requirements specifically reinforces the constitutional
mandate, described above, that the Legislature have primacy in fixing the procedures by
which tax refunds are obtained.” (Id. at p. 698.) We agree.
Appellant argues this case is the one that should recognize a Javor cause of action.
According to appellant, the August 21, 2006 informal opinion of the Board’s tax counsel
(annotation), a March 2013 letter from one of the Board’s auditors, and the Board’s
September 2013 Tax Information Bulletin stating that some forms of Ensure are not
taxable as a food product constitute a precursor determination of refund that provide the
8
unique circumstances warranting a Javor remedy. For the reasons that follow, we
disagree.
In this case, there is no question that the first requirement identified in McClain is
met. Appellant, a Costco customer, has no statutory remedy for a sales tax refund. Nor
is the remedy he proposes, compelling Costco as the taxpayer to file a refund claim with
the Board, in fatal conflict with the statutory scheme. But appellant has not shown that
the Board made a precursor determination that sales tax paid on purchases of Ensure
between May 30, 2009, and mid-2014 must be refunded.
In the most fundamental sense, the documents appellant relies upon to demonstrate
the Board’s position are substantively deficient for the simple reason that they say
nothing of the propriety of refunds for retailers who paid taxes on sales of Ensure. The
most that can be said is that for some time following a product labelling change in 2002,
the Board’s counsel opined that sales of specified Ensure products were subject to tax. In
2006 counsel’s view changed and it concluded sale of those products were not taxable.
However, none of the documents were issued in response to an inquiry about refunds or
address whether tax paid by retailers on sales of Ensure products would be refunded. In
sharp contrast, in Javor “[t]he Board ha[d] admitted that it must pay these refunds to
retailers.” (Javor, supra, 12 Cal.3d at p. 802, italics added.) The Board has made no
such determination in this case.
More importantly, the Board’s regulations and case law make clear that the
documents plaintiff relies upon do not have the force of law and are not binding on the
Board. Opinions of counsel, such as the one plaintiff relies upon issued in August 2006,
have no precedential effect and may be relied upon only by the person seeking advice
from the Board. (Cal. Code Regs., tit 18, § 1705.)4 Of course, they are written on the

4
The California Business Taxes Law Guide, volume 2, published by the Board
provides the following explanatory note: “Annotations published in the Business Taxes
Law Guides are summaries of the conclusions reached in selected legal rulings of
counsel. ‘Legal ruling of counsel’ means a legal opinion written and signed by the Chief
Counsel or an attorney who is the Chief Counsel’s designee, addressing a specific tax
9
Board’s letterhead and considered to be the opinions of the Board’s counsel. But when
the Board determines to issue a decision with binding effect, it does so in the form of a
“precedential decision” of the Board. (Cal. Code Regs., tit. 18, § 5551, subd. (b)(4).)
In contrast, the purpose of advice letters of counsel is to provide the requesting
taxpayer a safe harbor from tax liability. By inquiring of the taxability of a transaction or
item for sale, the taxpayer can use the Board’s reply as a defense to any claim. To that
end, Revenue and Taxation Code section 6596 provides that if a person’s “failure to
make a timely return or payment is due to the person’s reasonable reliance on written
advice from the board, the person may be relieved of the [sales and use] taxes imposed . .
. and any penalty or interest added thereto.” As counsel for the Board advised this court
in oral argument, there appear to be hundreds, if not thousands, of such letters issued each
year. (See generally, Board of Equalization, Business Taxes Law Guide, Volume 2.) We
are therefore concerned that holding counsels’ replies to specific taxpayer inquiries to be
a precursor determination sufficient to support a Javor cause of action will have a
perverse effect on the integrity of our sales tax system. “[I]t is presumed that all “gross
receipts” are subject to the sales tax unless the contrary is established by the retailer. (§
6091.) This presumption exists in order to ensure ‘the proper administration of [the sales
tax law] and to prevent evasion of the sales tax. . . .’ [Citation.] Taxpayers’ exemption
claims must be supported by adequate records. [Citation.] The burden of proof is on the
taxpayer.” (Loeffler, supra, 58 Cal.4th at p. 1107.) Moreover, the willingness of
taxpayer retailers to seek safe harbor written advice from the Board could be stifled if
doing so would expose them to potential litigation under a Javor scenario and the burdens

application inquiry from a taxpayer or taxpayer representative, a local government, or
Board of Equalization staff.
Business Taxes Annotations are a research tool to locate selected legal rulings of
counsel. Annotations are intended to provide guidance regarding interpretation of Board
statutes and regulations as applied by staff to specific factual situations. Annotations do
not have the force or effect of law. Although annotations are synopses of past advice
provided by Board’s legal staff, the advice is not binding and may be revised at any
time.”
10
of preparing an administrative claim for refund and distributing refunded amounts to
potentially countless consumers.
5
For similar reasons that we decline to give legal effect to the opinion of counsel,
we decline to give effect to the March 2013 letter by a Board auditor. The March 13
letter is written in response to an e-mail inquiry by a consumer. It is not advice to a
taxpayer, nor does it address particular sales transactions over a specific time. It merely
directs the inquiring consumer to address a possible claim of refund with the appropriate
retailer. Neither is the information in The Tax Information Bulletin a precursor
determination by the Board, for the simple reason that it is a newsletter, not a decision of
the Board, a legal opinion, or even a reply to a specific factual inquiry. The Tax
Information Bulletin provides general information to inform taxpayers and interested
parties “in simplified terms the most common areas of noncompliance” they are likely to
encounter. (See Rev. and Tax. Code, § 7084.) There is no basis to give this document
legal effect.
Appellant in oral argument said the decision most favorable to his position is
Loeffler. Presumably, he is referring to the court’s suggestion that a Javor remedy lies
“when neither the Board nor the taxpayer has an interest in ‘ascertaining’ whether excess
reimbursement has been charged.” (Loeffler, supra, 58 Cal.4th at p. 1122.) However, in
light of the Board’s vital interest in the integrity of our state’s tax laws, we decline to
infer, absent some particular allegation, that the Board has no interest in ascertaining
whether excess sales tax reimbursement has been charged to a California consumer.
Loeffler acknowledged informal remedies available to consumers who believe
they have been charged excess sales tax reimbursement. The Board fields a large number

5
Filing a claim for refund of sales tax is subject to a strict limitation period and
can be a fairly complex and burdensome process. (See Cal Code Regs. tit. 18, §§ 5230,
5231, 5232; Barnes v. State Bd. of Equalization (1981) 118 Cal.App.3d 994 [Board
remedy for refund not exhausted when retailer failed to produce date of each sale or
purchase, contract or invoice number for each sale, sales/purchase price for each item,
periods in which tax was paid and amount of state (versus local) sales tax paid on each
item].)
11
of telephone calls and e-mails from the public; tips from informants can lead to taxpayer
audits; complaints can lead to deficiency determinations; and interested persons may
petition for the Board to adopt, amend or repeal regulations, or file declaratory relief
actions challenging the imposition of a tax. (Loeffler, supra, 58 Cal.4th at p. 1123.)
Finally, Loeffler’s suggested remedy of declaratory relief actions to challenge the
imposition of sales tax as inconsistent with statute or constitution (see ibid) is not
toothless. To the contrary, such actions can lead to a legislatively crafted refund remedy
that takes into account public policy and the administrative burden and expense of
processing claims. In Rider v. County of San Diego (1991) 1 Cal.4th 1 (Rider), the court
declared unconstitutional a supplemental sales and use tax designed to pay for
construction of a county jail and youth facility because it was not approved by two-thirds
of San Diego’s voters as required under Article XIII A, section 4 of our state constitution.
In response to Rider, the legislature crafted a refund remedy for consumers with a
threshold of purchases in excess of $5,000. In affirming the legislative refund scheme
and rejecting a Javor-type class remedy, the Court of Appeal observed: “[S]ince a
consumer with under $5,000 in purchases would be entitled to a return of less than $25,
the administrative costs associated with the court-ordered scheme of direct refunds to all
consumers would likely neutralize a substantial portion of the scheme’s asserted benefits.
Thus, given the great latitude accorded the Legislature in tax matters, we conclude the
statutory $5,000 threshold requirement for refunds is not impermissible.” (Kuykendall v.
State Bd. of Equalization (1994) 22 Cal.App.4th 1194, 1214.) This kind of pragmatic
approach that may be employed by a legislative body counsels us not to employ a
judicially created remedy when the entitlement to a refund of sales tax and the
administrative burdens of a refund process are unclear.
We are aware that Loeffler cautions: “The integrity of the tax system and
avoidance of unjust enrichment, possibly of the retailer, but more probably of the state, in
certain circumstances may support a Javor-type remedy for consumers.” (Loeffler,
supra, 58 Cal.4th at p. 1133.) But the state is not unjustly enriched when sales taxes are
overpaid due to a taxpayer’s good faith misinterpretation of his or her obligation to pay
12
tax. “One may not recover under a theory of unjust enrichment a payment made to a unit
of government unless it was made under coercion. A person who, at the time of payment
misinterprets the law to his detriment does not thereby gain a right of recovery; he must
have paid as a result of compulsion.” (Reynolds v. City and County of San Francisco
(1975) 53 Cal.App.3d 99, 101.) There is no allegation here that Costco paid sales tax on
Ensure under protest or as a result of any threatened enforcement action or other
government coercion.
Our review of the foregoing authorities lead us to conclude that a Javor remedy
should be limited to the unique circumstances where the plaintiff’s allegations show that
the state has been unjustly enriched by the overpayment of sales tax, and the Board
concurs that the circumstances warrant refunds to consumers. Requiring such allegations
ensures that courts will be faithful to our state constitution’s delegation of authority to
craft a remedy for the overpayment of sales tax to the Legislature, and to the statutory
scheme that allows the Board to first take into account the timeliness of any claims for
refund, the likely amounts involved and the burdens and costs implicit in its refund
procedure.
2. The claims against Abbott
Plaintiff’s second amended complaint also contains two causes of action against
Abbott, the manufacturer of Ensure. It alleges the existence of an unspecified agreement
under which Costco purchases Ensure from Abbott that is “in force regardless of who
actually sells the product to Costco.” The pleading alleges, “Although Abbott does or
may also use distributors or middlemen to sell the product it remains liable for all
promises made in the chain of distribution to Costco to induce it to stock and sell
Ensure.” The agreement allegedly contains an “implied and/or express” provision that
Abbott would “alert Costco of a potential tax consequence of all material ingredient and
label changes of Ensure and . . . take all reasonable steps to alert Costco of changes that
do, or are reasonably likely to, affect sales tax consequences and of the fact that any such
changes do or are likely to affect sales tax status.” Plaintiff and all persons who
13
purchased Ensure from Costco allegedly are third party beneficiaries of the agreement.
The second amended complaint alleges one cause of action for breach of the alleged
agreement and another cause of action alleging that Abbott’s conduct violated Business
and Professions Code, sections 17200 and 17500 “by failing to adequately notify
retailers, including Costco, that the sales tax status of Ensure had changed, was likely to
change, and/or that the label or ingredients had changed.”
The trial court sustained Abbott’s demurrer to both causes of action without leave
to amend. The court explained, among other things, that “the complaint makes it plain
that Abbott had nothing to do with the collection or payment of the taxes. . . . [T]here is
no suggestion that Abbott was under a duty to notify the retailers of [the fact that the tax
status of the product had changed], or how plaintiff would in some way be the beneficiary
of that duty.” We agree with the trial court. From the pleading it is far from clear that
there was ever any agreement between Abbott and Costco, much less one that contains
either an express or implied provision such as plaintiff describes or with respect to which
all Costco customers would be third party beneficiaries. Moreover, no facts are alleged
that would give rise to a duty on Abbott’s part to advise retailers of the sales taxability of
its products in the various jurisdictions in which the products are sold, or that would
create a duty to customers paying sales tax reimbursement on their purchases of the
product. Plaintiff has cited no authority supporting these claims, nor has he suggested
any facts he might add to the complaint were leave to amend granted that would establish
a right to relief against Abbott. Abbott’s demurrer was properly sustained without leave
to amend.

Outcome: The judgment is affirmed.

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