Palmdale vs. State Board of Equalization.
The chronology is as follows:
- Out of state retailer sells goods from Pomona warehouse, thus all California purchasers have to pay California sales tax, which since this retailer has no resale permit in the state, is allocated to all agencies in the county (the "warehouse rule".)
- Retailer pays $9.6 million in taxes over 14 years.
- Pomona files an appeal in 1994 challenging this rule, which is exhausted in 2000.
- The rules change in 2006.
- Pomona files an appeal under the new rules in 2008.
- State Board of Equalization grants hearing in 2009.
- Board staff recommend granting $4.8 million to Pomona, or 50% of the disputed amount.
- The elected board overrules staff and grants Pomona $7.1 million, or 75% of the disputed amount.
- Cities for which the money gets taken away from sue the State Board in 2010.
- The Superior Court overturns the State Board decision in 2011.
- Following legal back and forth, parties settle, such that the cities that sued the Board withdraw the lawsuit, the State Board's decision is reinstated and the State pays Pomona the $7.1 million, at which point Pomona would pay each city an individually agreed upon amount. Pomona reimburses each of the other cities a total of about 51% of the Board-ordered amount, such that the City of Los Angeles recovers about $2 million and the others a smaller amount. As a result of the settlement, everyone has to tell the appeals court to go along with the withdrawal of the judgment, pretending that the lawsuit never happened.
- The appeals court refuses to go along with this, and voids the settlement, noting that the City of Los Angeles would have lost $2.32 million under the State Board's decision, and that the State Board overreached in making the original decision in the first place. Therefore, no funds are paid to Pomona at all.
The appeals court noted the following:
Today, all cities in the state are in need of funds to provide adequate police and fire protection, libraries, public parks, and other public services. [...] Cities and their residents — the public — have a right to know why a city is losing or gaining millions in local sales tax revenues, that is, a right to know the Board‘s grounds for reallocating those taxes.
Citizens also have a right to know why the City was counting on over a million dollars in funds that didn't actually exist. Did the Finance Manager count on this settlement revenue in Fiscal Year 2012-13, out of a sense of optimism, instead of waiting for all appeals to expire? Did the City Attorney, in believing that a deal had been cut with every other party, think that the appeals court would just rubber stamp the decision? Why was this revenue even booked in the first place, considering the endless amount of legal fees that this lawsuit seems to have consumed?
These are questions that no one will answer in public because of "litigation" and "negotiation with employee representatives", but it deserves to be asked. This failure to consider contingencies does not speak well of City management.