EDMUND G. BROWN JR. WILLIAM L. CARTER JILL BOWERS. Attorney General of California. Supervising Deputy Attorney General

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1 EDMUND G. BROWN JR. Attorney General of California WILLIAM L. CARTER Supervising Deputy Attorney General JILL BOWERS Deputy Attorney General State Bar No I Street, Suite 125 P.O. Box Sacramento, CA Telephone: (916) Fax: (916) Jill.Bowers@doj.ca.gov Attorneys for Respondent California Franchise Tax Board SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SACRAMENTO , CALIFORNIA TAXPAYERS' ASSOCIATION, v. Petitioner, CALIFORNIA FRANCHISE TAX BOARD, et al., Respondents. Case No REPLY TO PETITIONER'S OPPOSITION TO DEMURRER BY RESPONDENT CALIFORNIA FRANCHISE TAX BOARD TO PETITION FOR WRIT OF MANDATE AND VERIFIED COMPLAINT FOR INJUNCTIVE RELIEF AND DECLARATORY JUDGMENT Date: April 24, 2009 Time: 11:00 a.m. Dept: 29 Judge: The Hon. Timothy M. Frawley Trial Date: May 8, 2009 Action Filed: February 17, 2009

2 TABLE OF CONTENTS Page Introduction 1 Discussion 1 I. Petitioner's prepayment facial challenge to revenue and taxation code, section 19138, is barred by California Constitution, Article XIII, section 32 1 II. Petitioner's claims are barred by the "pay first, litigate later" rule 4 A. Petitioner's claims are barred for failure to exhaust administrative remedies 4 B. California's Franchise and Income Tax Law provides adequate post-deprivation remedies 5 C. Petitioner's claim for mandamus relief must be denied because California's Franchise and Income Tax Law provides an adequate post-deprivation legal remedy 6 III. Respondent's claims for relief in the form of an injunction and writ of mandamus must be denied because such relief is prohibited by Revenue and Taxation Code, section IV. Petitioner lacks standing to bring this lawsuit V. Petitioner's claims are not ripe for judicial review 9 Conclusion

3 1 TABLE OF AUTHORITIES 2 3 CASES Page Abbott Laboratories v. Gardner (1967) 387 U.S :... 9 x \ g " Andal v. City of Stockton (2006) 137 Cal.App.4th 86 '... 5 Aronoffv. Franchise Tax Board (1963) 60 Cal.2d Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65.:... 4, 6 Bueneman v. City of Santa Barbara (1937) 8 Cal.2d , 5, 8 Casey v. Bonelli (1949) 93 Cal.App.2d Franchise Tax Board v. Superior Court of Los Angeles County (Bobby L. Bonds and Patricia L. Bonds) (1989) 212 Cal.App.3d Helms Bakeries v. State Board of Equalization (1942)53Cal.App.2d '.... 1,2 Helvering v. Mitchell (1938) 303 U.S Howard Jarvis Taxpayers Association v. City of Los Angeles (2000) 79 Cal.App.4th Hunter-Reay v. Franchise Tax Board (1983) 140 Cal.App.3d John Tennant Memorial Homes, Inc. v. City of Pacific Grove (1972) 27 Cal.App.3d , 8 Louis Eckert Brewing Company v. Unemployment Reserves Commission (1941) 47 Cal.App.2d '...,... 7 McKesson Corporation v. Division of Alcoholic Beverages and Tobacco, Department of Business Regulation of Florida (1990) 496 U.S , 6

4 TABLE OF AUTHORITIES (continued) 7 Pacific Gas & Electric Co. v. State Board of Equalization (1980)27Cal.3d People ex rel. Franchise Tax Board v. Superior Court of Los Angeles County (Safeco Life 9 Insurance Company) 10 (1985) 164 Cal.App.3d 526 1, 3, 6, Page Modern Barber Colleges, Inc. v. California Employment Stabilization Committee (1948) 31 Cal.2d 720.'.' 2, 4, 7 Mystery Mesa Mission Christian Church, Inc. v. Assessment Appeals Board No. 1 for the County of Los Angeles (1976)63Cal.App.3d37 6 State Board of Equalization v. Superior Court of Los Angeles County (O 'Hara & Kendall Aviation, Inc.) (1985) 39 Cal.3d 633 1, " Valley Fair Fashions, Inc. v. Valley Fair (1966)245Cal.App.2d615 7 Western Oil & Gas Association v. State Board of Equalization (1988) 44 Cal.3d 208 3, 4, 8 STATUTES 26 United States Code California Revenue and Taxation Code passim : ,7,9 Evidence Code, Tax Law 5, in

5 1 TABLE OF AUTHORITIES (continued) 2 - Page.^ 3 CONSTITUTIONAL PROVISIONS 4 California Constitution : 3, 4 5 Article I, 1 : 3 6 Article XIII, 32 ; 1, 2, 8, 9 Article XIII, 33 3, 8 7 " IV

6 1 2 INTRODUCTION 3 Petitioner California Taxpayers' Association has failed to state facts sufficient to constitute 4 a cause of action for pre-enforcement legal or equitable relief from California Revenue and 5 Taxation Code, section (imposing a 20 percent penalty on large corporate understatement 6 of tax in excess of $1 million). This Court should therefore sustain Respondent Franchise Tax 7 Board's demurrer to Petitioner's pre-enforcement facial challenge. 8 DISCUSSION 9 I. PETITIONER'S PREPAYMENT FACIAL CHALLENGE TO REVENUE AND TAXATION CODE, SECTION 19138, IS BARRED BY CALIFORNIA 10 CONSTITUTION, ARTICLE XIII, SECTION \ Petitioner is not entitled to injunctive, declaratory and mandamus relief from section because the California Constitution bars such relief. Section imposes a 20 percent penalty 13 on "large corporate tax understatement" defined as understatement in excess of $1 million. (Rev. 14 & Tax. Code, 19138, subd. (a)(l).) Under California law, a penalty is part of the tax and must 15 be paid before "any proceeding in any Court against this State to prevent or enjoin" its collection 16 may go forward. (Cal. Const., art. XIII, 32.) Petitioner's claims are barred because Petitioner 17 seeks to enjoin or prevent the collection of a tax. (State Board of Equalization v. Superior Court 1 g of Los Angeles County (O 'Hara & Kendall Aviation, Inc.) (1985) 39 Cal.Sd 633, 639 (O 'Hara & 19 Kendall) [granting Board's petition for writ of mandate requiring the Superior Court to enter an 20 order sustaining the Board's demurrer, without leave to amend, to taxpayer's action for refund, 21 where petition for redetermination was still pending before the Board when the complaint was 22 filed and the tax had not been paid]. "[I]njunctive relief is not available to restrain the collection 23 of any tax even though the tax statute may be unconstitutional and the alleged tax therefore void." 24 (People ex rel. Franchise Tax Board v. Superior Court of Los Angeles County (Safeco Life 25 Insurance Company) (1985) 164 Cal.App.3d 526 (Safeco), citing Hunter-Reay v. Franchise Tax 26 Board (1983) 140 Cal.App.3d 875, 878, and Helms Bakeries v. State Board of Equalization 27 (1942) 53 Cal.App.2d 417, 422 [Helms Bakeries].) 1

7 1 Petitioner also asks this Court to declare that section is unconstitutional and therefore 2 unenforceable. But declaratory relief in this case, as in O 'Ham & Kendall, must be denied 3 because a declaratory judgment that section was invalid would have the net result of 4 preventing Respondent's assessment and collection of the tax imposed by that statute. (O 'Hara 5 & Kendall, supra, 39 Cal.3d 633, 640, quoting Modern Barber Colleges, Inc. v. California 6 Employment Stabilization Committee (1948) 31 Cal.2d 720, 723 [Modern Barber Colleges 1 [internal quotation marks omitted].) "Since the net result of the relief prayed for herein would be 8 to restrain the collection of the tax allegedly due, the action must be treated as one having that 9 purpose." (O'Hara & Kendall, supra, 39 Cal.3d 633, 640.) 10 The constitutional bar also precludes Petitioner's demand for traditional mandamus relief. 11 In Pacific Gas & Electric Company v. State Board of Equalization, (1980) 27 Cal.3d 277, the California Supreme Court "held that the public utility could not maintain an action in 13 mandamus to compel the Board of Equalization to adjust the assessment of its real property prior 14 to payment of the property tax." (O 'Hara & Kendall, supra, citing Pacific Gas & Electric Co. v. 15 State Board of Equalization.') Pacific Gas & Electric Company "did not literally seek to enjoin 16 the collection of property taxes," but the court found that its mandamus action was barred by 17 section 32 because "the assessment of real property is an integral part of the taxing process, and a 18 court order invalidating an assessment will in effect prevent or enjoin the collection of the tax, in 19 violation of [section 32]." (Ibid.) (Accord, Modern Barber Colleges, supra, 31 Cal.2d 720, [Modern Barber Colleges] [holding that where the net result of the mandamus relief sought 21 would be to restrain the collection of the tax allegedly due, the action must be treated as one 22 seeking to enjoin the collection of the tax, and denying relief on that basis]; Helms Bakeries, 23 supra, 53 Cal.App.2d 417 [denying petition for writ of mandate where grant of relief would have 24 indirect result of preventing or enjoining the collection of an allegedly unconstitutional tax and 25 petitioner had adequate post-deprivation legal remedy in the form of a claim for refund and 26 judicial review in the Superior Court].) 27 Petitioner errs as a matter of law in its contention that the constitutional bar may be lifted in ' this case because compliance with section requires it to disclose questionable tax positions 2

8 1 that are privileged against disclosure. "That an action turns on a challenge to the Board's / 2 demands for information does not alone lift the constitutional bar" imposed by section (Western Oil & Gas Association v. State Board of Equalization (1988) 44 Cal.Sd 208, [Western Oil & Gas] (in bank) [holding that the State Board of Equalization may compel the 5 disclosure of information on lands and rights of way used by pipeline owners and operators and 6 that the exclusive remedy for relief from its assessment was the suit for refund after payment]; 7 and cf. Petitioner's Memorandum of Points and Authorities in Opposition to Demurrer by 8 Respondent Franchise Tax Board [Opposition], pp. 5:15-6:2, 10:11-17 with Safeco, supra, Cal.App.3d 526 [issuing mandamus to compel Superior Court to order insurance company to 10 comply with the Franchise Tax Board's administrative subpoenas].) 11 The Safeco court ruled that the Franchise Tax Board had the power to compel an objecting 12 insurance company to identify policy holders under its deferred annuity plan and to disclose the 13 amounts of interest and other income credited to the custodian accounts of those policy holders 14 "in aid of its "duty and authority... to administer and enforce" the tax law." (Safeco, supra, Cal.App.3d 526, 548.) The Safeco court concluded that this power was not trumped >either by 16 the California Right to Financial Privacy Act or the right to privacy guarantee of California 17 Constitution, article I, section 1. (Id. at ) And the Safeco court grounded its v 18 determination that the Board cannot be prevented or enjoined from the assessment or collection of 19 any tax in California Constitution, article XIII, sections 33 (requiring the Legislature to "pass all 20 laws necessary to carry out the provisions of the tax law) and 32: 21 Section 32 is part of the fundamental law of our state, it is a mandate permitting no 22 deviation. All statutes, all courts, and all lawsuits are subject to the Constitution. As Our. 23 Supreme Court said... [t]he provision of the California Constitution is much more than a mere 24 declaration of the rules generally applicable in proceedings for injunction, mandamus, or other 25 legal or equitable relief... It follows that cases... which discuss the various instances under 26 which an injunction may be available according to the common-law rules of equity or under 27 statutes restating them are not relevant here. s

9 1 (Id. at p. 543, quoting in support Modern Barber Colleges, supra, 31 Cal.2d 720, [citation and internal quotation marks omitted].) 3 Petitioner's claims for injunctive, declaratory and mandamus relief are barred by section Respondent's demurrer should therefore be sustained. 5 II. PETITIONER'S CLAIMS ARE BARRED BY THE "PAY FIRST, LITIGATE LATER" RULE. 6 7 A. Petitioner's Claims Are Barred for Failure to Exhaust Administrative Remedies. 8 9 It is well settled in California that the "pay first, litigate later" rule applies to lawsuits 10 challenging the legality of a tax: 11 [MJoney is the lifeblood of modern government. Money comes primarily from taxes, and, 12 as the importance of a predictable income stream from taxes has grown, governments at all levels 13 have established procedures to minimize disruptions, primary among which is the condition 14 precedent that a tax may be challenged only after it has been paid. Stated otherwise, preemptive, 15 precollection, or prepayment lawsuits are, with a few exceptions not present here, not permitted. 16 This principle is generally known as the "pay first, litigate later" rule, and it applies at all levels of 17 government-the federal, the state, and the local. 18 (Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65, (Batf) 19 [citations omitted].) Exceptions to this "deal primarily with situations where the taxpayer is 20 facing criminal penalties or is forced to endure unwarranted criminal procedures." (Ibid, at p. 72, 21 fn. 4, citing Western Oil & Gas, supra,44 Cal.3d 208, ; Bueneman v. City of Santa 22 Barbara (1937) 8 Cal.2d 405, 408 (Bueneman) [holding that laundry owners could bring pre- 23 payment action in equity to challenge constitutionality of city ordinance that imposed a license 24 fee, enforced by criminal misdemeanor penalties including arrest, confinement in jail, and fines, 25 on laundries located outside the city but not on laundries located in the city]; and John Tennant 26 Memorial Homes, Inc. v. City of Pacific Grove (1972) 27 Cal.App.3d 372, 378 (John Tennant) 27 [holding that non-profit qualified state and federal income tax-exempt corporations which owned and operated retirement homes providing life care to occupants pursuant to contracts which could 4 Reply to Opposition to Demurrer (Case No )

10 1 not be terminated on the basis of the occupant's indigence had standing to bring pre-payment 2 challenge to city ordinance that imposed a tax on occupants of non-profit retirement homes, but 3 not on occupants of for-profit retirement homes, and that provided penal sanctions for failure to 4 pay and collect the tax].) 5 In opposing Respondent's demurrer to its pre-payment facial challenge to section 19138, 6 Petitioner does not show that it or any of its members are facing criminal penalties or have been 7 forced to endure unwarranted criminal procedures as a result of the large corporate < 8 understatement penalty created by the challenged statute. (Cf. Opposition, pp. 6:21-7:10 [listing 9 allegations of harm] with Bueneman, supra, 8 Cal.2d 405.) Absent such a showing, suggesting an 10 exception to the "pay first, litigate later" rule, that rule applies to bar Petitioner's claims. 11 Respondent's demurrer should therefore be sustained. 12 B. California's Franchise And Income Tax Law Provides Adequate Post- 13 Deprivation Remedies. 14 Petitioner contends its pre-payment facial challenge to Revenue and Taxation Code, section , is not barred by the constitutional "pay first, litigate later" rule because the statutory post- 16 deprivation remedies are constitutionally inadequate. (Opposition, pp.l:22-23, 2:23-15; 3:10-12, 17 4:11-25.) But California's Franchise and Income Tax Law provides Petitioner "with all of the 18 process it is due: an opportunity to contest the validity of the tax and a clear and certain remedy 19 designed to render the opportunity meaningful by preventing any permanent unlawful deprivation 20 of property." (McKesson Corporation v. Division of Alcoholic Beverages and Tobacco, 21 Department of Business Regulation of Florida (1990) 496 U..S. 18, 40. (McKesson) [internal 22 quotation marks omitted].) 23 Contrary to Petitioner's contention, the post-deprivation remedy is not limited to the 24 administrative claim for a refund but includes judicial review in the Superior Court. (Cf. 25 Opposition, p. 4:11-25 with Rev. & Tax. Code, 19138, subd. (e), 19382, and See 26 Andal v. City of Stockton (2006) 137 Cal.App.4th 86, 92 [noting that a legal remedy in the form 27 of a suit for a refund in superior court, in which constitutional objections to the tax could be raised with the right of appeal of any adverse decision, is an adequate legal remedy].) "[D]ue 5

11 1 process does not guarantee the right to judicial review of tax liability before payment" because 2 "the remedy of suit to recover alleged overpayments of taxes, or illegal taxes, satisfies the due 3 process requirements of the United States and California Constitutions." (Safeco, supra, Cal.App.3d 526, 546.) Due process is satisfied where government provides "a procedure which, 5 at some point, provides the taxpayer a meaningful opportunity to contest the legality of the 6 exaction." (Batt, supra, 155 Cal.App.4th 65, 72, citing, inter alia, Aronoffv. Franchise Tax 1 Board (1963) 60 Cal.2d 177, 179, and McKesson, supra, 496 U.S. 18, 31 [internal quotation 8 marks omitted].) 9 Application of the "pay first, litigate later" rule to Petitioner's facial challenge to the section large corporate understatement penalty does not implicate due process constraints because. 11 Petitioner has a constitutionally adequate post-deprivation legal remedy. Respondent's demurrer 12 should therefore be sustained. 13 C. Petitioner's Claim for Mandamus Relief Must Be Denied Because California's Franchise and Income Tax Law Provides an Adequate Post- 14 Deprivation Legal Remedy. 15 As noted above, California's Franchise and Income Tax Law provides an adequate post- 16 deprivation remedy to the alleged illegality of section in the form of a claim for refund and 17 the availability of judicial review in the superior court, with the right to appeal an adverse \ 18 decision. Petitioner's claim for mandamus relief must therefore be denied, and Respondent's f 19 demurrer sustained, because equitable relief does not lie where there is an adequate legal remedy. 20 (Mystery Mesa Mission Christian Church, Inc. v. Assessment Appeals Board No. 1 for the County 21 of Los Angeles (1976) 63 Cal.App.3d 37, 40 [affirming Superior Court order sustaining Board's 22 demurrer, without leave to amend, to taxpayer's petition for writ of administrative mandate 23 because the California Revenue and Taxation Code provided an adequate legal remedy].) 24 in. RESPONDENT'S CLAIMS FOR RELIEF IN THE FORM OF AN INJUNCTION AND WRIT OF MANDAMUS MUST BE DENIED BECAUSE 25 SUCH RELIEF IS PROHIBITED BY REVENUE AND TAXATION CODE, SECTION California Revenue and Taxation Code, section 19381, prohibits the issuance of an injunction or writ of mandate "or other legal or equitable process... in any suit, action, or 6

12 1 proceeding in any court against this state or against any officer of this state to prevent or enjoin 2 the assessment or collection of any tax" but for the limited circumstance, not at issue here, of a 3 protest to a notice of tax deficiency based on "alleged residence in this state[.]" (Rev. and Tax. 4 Code, ) Where a statute prohibits the granting of an injunction or writ of mandamus to 5 prevent collection of a tax, an action for a declaration that the tax is not legally collectible would i 6 "circumvent the law[;]" accordingly, declaratory relief should be denied. (Modern Barber 1 Colleges, supra, 31 Cal.2d 720, [holding that mandamus will not lie where such relief 8 "has been expressly prohibited" by statute]; Louis Eckert Brewing Company v. Unemployment 9 Reserves Commission (1941) 47 Cal.App.2d 844, 846; Casey v. Bonelli (1949) 93 Cal.App.2d ; Valley Fair Fashions, Inc. v. Valley Fair (1966) 245 Cal.App.2d 615, 616.) 11 Petitioner is not entitled to injunctive or mandamus relief because such relief is prohibited 12 by statute. Respondent's demurrer should therefore be sustained. 13 IV. PETITIONER LACKS STANDING TO BRING THIS LAWSUIT. 14 Respondent's demurrer should also be sustained because Petitioner lacks standing to bring 15 this lawsuit. Petitioner concedes that in this action it asserts not its own rights but those of its 16 alleged members, none of which is a party to this action. (Opposition, pp.6:3-7:17.) But 17 Petitioner fails to cite any law supporting its contention that the California court has recognized 18 associational standing in any tax controversy. Indeed, no such support can be found in California 19 law because the California court has construed the constitutional "pay first, litigate later" rule to ^ 20 require each member of a taxpayer association to file an administrative refund claim before the 21 court has jurisdiction to hear his or her challenge to a tax. (Howard Jarvis Taxpayers Association 22 v. City of Los Angeles (2000) 79 Cal.App.4th 242, 249.) Petitioner's failure to allege that it has 23 paid the challenged large corporate understatement penalty and been denied a refund is fatal to its 24 claims. Respondent's demurrer must therefore be sustained. This defect cannot be cured by 25 amendment since Respondent has not yet assessed the large corporate understatement penalty 26 against any taxpayer. The demurrer should therefore be sustained without leave to amend. 27 Further, Petitioner errs in its contention that compliance with section may cause its members irreparable harm in the form of an illegally compelled disclosure of areas in their returns 7 /

13 1 where they may have taken questionable positions on the tax law; that is, the return as filed is not 2 correct under the law, and to avoid the penalty the taxpayer will have to correct its return. As 3 noted above, the Safeco court ruled that the Franchise Tax Board's constitutional duty to assess 4 and collect taxes empowers it to compel disclosure of information. (Safeco, supra, Cal.App.3d 526, 548; accord, Western Oil & Gas, supra, 44 Cal.3d 208, 213.). In light of Safeco 6 and Western Oil & Gas Association, the disclosure to which Petitioner objects on behalf of its 7 non-party members is not legally cognizable as any harm at all. Irreparable harm in a tax case has 8 to be something more than choosing whether to disclose a questionable position or to incur a 20 9 percent penalty when that undisclosed tax position is discovered and disallowed, because 10 taxpayers have no privilege against disclosure of all questionable positions. (See, e.g., 11 Bueneman, supra, 8 Cal.2d 405; John Tennant, supra, 27 Cal.App.3d 372, 378.) 12 The Legislature has the power to impose the penalty on the large corporate understatements 13 of tax liability at issue here. (See Safeco, supra, 164 Cal.App.3d 526, 542 [construing Cal. 14 Const., art. XIII, 32 and 33].) "The power of the Legislature in the area of taxation is 15 paramount, and any constitutional restriction on that power must be strictly construed against the 16 limitation." (Franchise Tax Board v. Superior Court of Los Angeles County (Bobby L. Bonds and 17 Patricia L. Bonds) (1989) 212 Cal.App.3d 1343, 1347 [holding that enactment of a tax statute that 18 postpones collection of a tax until a specified time does not implicate the constitutional anti- 19 injunction principle].) If, as Petitioner contends, large understatements of tax in excess of $1 20 million are "a routine and expected occurrence among the corporate taxpayers to which section might apply," then the Legislature is empowered to correct this routine. (Opposition, 22 p.l:16-17.) 23 Nor is the imposition of penalties on a taxpayer's failure to fully disclose its tax positions in 24 a return an "extraordinary" legislative act "unlike any seen before[.]" (Opposition, p. 1:7-8.) As 25 early as 1938, the Supreme Court of the United States recognized that a taxing authority relies.26 primarily upon the taxpayer's disclosure of the relevant facts in its return and held that the 27 legislature may, in its discretion, impose criminal or civil penalties to ensure full and honest disclosure and to discourage fraudulent attempts to evade the tax. (Helvering v. Mitchell (1938) 8

14 1 303 U.S. 391, 399. Accord, Safeco, supra, 165 Cal.App.3d 526, 548. See 26 U.S.C [imposing federal 20 percent accuracy-related penalty]; Cal. Rev. & Tax. Code, (creating 3 state equivalent to federal 20 percent accuracy-related penalty].) 4 Respondent disagrees with Petitioner's contention that filing an amended return as 5 permitted by section implicates the attorney work product privilege, and certainly, in a 6 facial challenge, the court would have to reach the impossible conclusion that every act of 7 complying with section implicates the attorney work product doctrine. (Opposition, p. 12.) 8 In any event, Petitioner's contention is of no legal moment for three reasons. First, all privileges 9 in California are creatures of statute. (Evid. Code, 911.) Thus, the Legislature has the power to 10 eliminate the work product privilege in the context of any disclosure required by compliance with 11 section 19138, in furtherance of the important government purpose of revenue collection. 12 Second, a taxpayer may avoid waiver of the work product privilege simply by not relying on an 13 attorney's questionable advice in preparing its amended return. And third, because Petitioner 14 brings this action as a pre-payment facial challenge to section 19138, there are no facts before this 15 Court showing that attorneys have been involved in questionable tax positions taken on returns. 16 Petitioner lacks standing to bring this lawsuit. Respondent's demurrer should therefore be 17 sustained. 18 V. PETITIONER'S CLAIMS ARE NOT RIPE FOR JUDICIAL REVIEW. 19 Petitioner's reliance on Abbott Laboratories v. Gardner (1967) 387 U.S. 136 (Abbott) to 20 support its contention that this case is ripe for judicial review is misplaced because this case is 21 readily distinguishable from Abbott in three respects. First, Abbott is a challenge to a regulation, 22 not a statute. (Ibid. at pp ) Second, the Abbott court expressly states that Congress did 23 not indicate it wanted to preclude pre-enforcement review (Id. at pp [noting at p that "[t]he Government relies on no explicit statutory authority for its argument that pre- 25 enforcement review is unavailable[.]'y By contrast, California Constitution, article XIII, section 26 32, and Revenue and Taxation Code, section 19381, make clear an intent to preclude pre- 27 enforcement review. Third, as the Abbott court recognized, the drug companies were essentially faced with unrecoverable expenses imposed by the necessity to comply with a final, non- 9

15 appealable agency determination enforced by criminal as well as civil penalties. (Id at pp ) But here, the taxpayers have a constitutionally adequate post-deprivation remedy in the form of a claim for a refund and judicial review in the Superior Court. This case is not ripe for judicial review. Respondent's demurrer to the complaint on ripeness grounds should therefore be sustained. CONCLUSION For the foregoing reasons, Respondent's demurrer to the Petition and Complaint should be sustained without leave to amend. ^ Dated: April 17, Respectfully Submitted, EDMUND G. BROWN JR. Attorney General of California WILLIAM L. CARTER Supervising Deputy Attorney General JILL BOWERS Deputy Attorney General Attorneys for Respondent California Franchise Tax Board

16 DECLARATION OF SERVICE BY AND FACSIMILE TRANSMISSION AND OVERNIGHT COURIER Case Name: California Taxpayers' Association v. California Franchise Tax Board, et al. No.: I declare: I am employed in the Office of the Attorney General, which is the office of a member of the California State Bar, at which member's direction this service is made. I am 18 years of age or older and not a party to this matter; my business address is: 1300 I Street, Suite 125, P.O. Box , Sacramento, CA I am familiar with the business practice at the Office of the Attorney General for collection and processing of correspondence for overnight mail with the GOLDEN STATE OVERNIGHT. In accordance with that practice, correspondence placed in the internal mail collection system at the Office of the Attorney General is deposited with the overnight courier that same day in the ordinary course of business. Amy L. Silverstein, Esq. 55 Hawthorne Street, Suite 440 San Francisco CA address: Facsimile: asilverstein(o),sptaxlaw.com (415) On April served the attached REPLY TO PETITIONER'S OPPOSITION TO DEMURRER BY RESPONDENT CALIFORNIA FRANCHISE TAX BOARD TO PETITION FOR WRIT OF MANDATE AND VERIFIED COMPLAINT FOR INJUNCTIVE RELIEF AND DECLARATORY JUDGMENT by transmitting a true copy via electronic mail and facsimile transmission. In addition, I placed a true copy thereof enclosed in a sealed envelope, in the internal mail system of the Office of the Attorney General, for overnight delivery, addressed as follows: I declare under penalty of perjury under the laws of the State of California the foregoing is true and correct and that this declaration was executed on April 17, 2009, at Sacramento, California wpd Gloria Montano Declarant Signature