California Supreme Court Holds Government Claims Act Preempts Local Tax Refund Procedures
Decision Rejects Mandatory Local Administrative Prerequisites for Postpayment Tax Refund Claims
On August 10, 2026, the California Supreme Court held that the Government Claims Act (Gov. Code, § 810 et seq.) preempts local procedures requiring taxpayers to complete additional administrative steps before presenting certain postpayment tax refund claims. In Tesoro Refining & Marketing Company LLC v. City of Carson, the Court concluded that the Act establishes the exclusive claim-presentation requirements for claims seeking money or damages from local public entities.
A prepayment challenge occurs when a taxpayer disputes an assessment through an administrative process before paying the tax. A postpayment refund claim arises after the taxpayer pays the disputed amount and seeks reimbursement from the taxing agency. Tesoro concerned a postpayment refund claim.
Background
The case arose from the City of Carson’s Oil Industry Business License Tax. Under the City’s Municipal Code, a taxpayer seeking a refund was required to submit a written request to the City’s finance director. The taxpayer could appeal the finance director’s decision to the city manager, whose decision was final and subject to review through a petition for administrative mandate.
Following an audit, the City determined that Tesoro had underpaid its business license tax. Tesoro paid the disputed amount under protest and submitted a refund claim using the City’s Government Claims Act form. After the City denied the claim, Tesoro filed a lawsuit seeking reimbursement. Tesoro did not separately request a refund from the finance director or appeal to the city manager under the Municipal Code. The trial court sustained the City’s demurrer, and the Court of Appeal affirmed. Both courts treated the City’s administrative process and the Government Claims Act as separate requirements, concluding that Tesoro was required to satisfy both.
The Supreme Court’s Decision
Based on the Government Claims Act’s text, structure, and legislative history, the Court concluded that the Legislature enacted the Government Claims Act to replace the numerous and inconsistent claim-presentation requirements previously imposed by state and local laws with a uniform statewide procedure. The Court reasoned that the Legislature intended to occupy the entire field of presentation requirements for claims seeking money or damages from local public entities. The Court ultimately found that the City’s procedure imposed additional claim presentation requirements by directing Tesoro to submit its refund request to another City official, pursue an administrative appeal and potentially seek administrative mandate, all in addition to complying with the Government Claims Act. Because these requirements went beyond those established by state law, the Court held that they were preempted.
The Court also rejected the City’s exhaustion defense. A public agency cannot require a claimant to exhaust administrative procedures that are themselves preempted.
Limits of the Decision
The Court limited its holding to mandatory local procedures governing postpayment tax refund claims seeking money or damages from a local public entity. The decision does not affect:
- Refund procedures for property taxes, sales and use taxes, or other local taxes prescribed by the Revenue and Taxation Code or another state statute;
- The general requirement to exhaust available, nonduplicative administrative remedies for claims other than claims for money or damages against local public entities; or
- Prepayment tax appeals, which the Court did not address.
The Court also declined to decide whether Tesoro was required to pursue an administrative appeal before paying the disputed tax.
Considerations for Local Agencies
Local agencies may wish to review existing and proposed tax refund provisions to determine whether those provisions require taxpayers to complete a local administrative process before presenting a Government Claims Act claim. Following Tesoro, an agency cannot enforce such procedures as additional claim-presentation requirements or rely on a claimant’s failure to exhaust those procedures as the basis for an exhaustion defense. However, optional postpayment procedures may still serve a practical purpose by allowing claimants and public agencies an opportunity to resolve disputes without litigation.
Any review should distinguish those procedures from prepayment appeals not addressed by the Court and state law refund procedures unaffected by the decision. If you have questions about the decision or how it may affect local tax refund procedures, please contact Andrew Saghian and/or Irene Lee.
