NORTHWEST ENERGETIC SERVICES v. CALIFORNIA FRANCHISE TAX BOARD

Filed 1/31/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

Story continued from Part I..

In any event, the Legislature provided sources other than the Levy to compensate the FTB and the Secretary of State for the costs of implementing the LLC Act. The Legislature appropriated $350,000 to the FTB for the first year of the LLC Acts implementation. (See Stat. 1994, Ch. 1200  94 [For purposes of implementing and administering this act in the 1994-1995 fiscal year, the sum of three hundred fifty thousand dollars ($350,000) is hereby appropriated from the General Fund to the Franchise Tax Board, in augmentation of Item 1730-001-001 of the Budget Act of 1994. It is the intent of the Legislature that the funds required to administer this act for the 1995-1996 fiscal year and each fiscal year thereafter, shall be provided for in the annual Budget Act.].) The Legislature appropriated an additional $234,000 to the Secretary of State. (Stat. 1994, Ch. 1200  27 [enacting Corp. Code,  17705, providing an appropriation of $234,000 to the Secretary of State from the Secretary of States Business Fees Fund for expenditure in the 1994-1995 year, to be expended on the initial program costs and to initiate the development of an automated system to support the program].) The legislation also included a separate schedule of filing fees to reimburse the Secretary of State for ongoing costs associated with processing LLC filings. (Stat. 1994, Ch. 1200  27 [enacting Corp. Code,  17700-17704, providing for LLC filing fees].) These filing fees are deposited into the Secretary of States Business Fees Fund, which is intended to cover the cost of the program it supports. (Gov. Code,  12176, subd. (b) [It is the intent of the Legislature that moneys deposited into the Secretary of States Business Fees Fund shall be used to support the programs from which fees are collected [and] that fees shall be sufficient to cover the costs of these programs . . . .].)

Applying the distinction between fees and taxes set forth in Sinclair Paint and Professional Scientists, we conclude that the Levy more closely resembles a tax.

B. Is the Levy Unconstitutional?

We next determine whether the Levy is constitutional. Because we conclude that imposition of the section 17942 Levy as to Northwest during the Years in Issue violated the Commerce Clause, we need not, and do not, decide whether section 17942 is unconstitutional on its face or whether it violates due process.^[1]

Article I, section 8, clause (3) of the United States Constitution states in pertinent part that the powers granted to Congress include the power [t]o regulate commerce . . .

among the several states. By implication, the Commerce Clause prohibits state taxation or regulation that discriminates against or unduly burdens interstate commerce and thereby imped[es] free private trade in the national marketplace. (General Motors Corp. v. Tracy (1997) 519 U.S. 278, 287 (GMC).) This is often referred to as the dormant Commerce Clause. (Ibid.; see Oklahoma Tax Commn v. Jefferson Lines, Inc. (1995) 514 U.S. 175, 179 (Jefferson Lines).)

For decades, state statutes that impose taxes on income earned outside the states jurisdiction, or that fail to apportion total income in accordance with the income earned within the jurisdiction, have been held to violate the Commerce Clause. (See, e.g., Gwin, Etc., Inc. v. Henneford (1939) 305 U.S. 434, 439-440 [Washington tax measured by the entire volume of the interstate commerce in which appellant participates, and not apportioned to its activities within the state, violates Commerce Clause]; Greyhound Lines v. Mealey (1948) 334 U.S. 653, 662-664 [New York tax on gross receipts from transportation of passengers violates Commerce Clause to extent receipts were attributable to portion of mileage outside the state].) More recent cases confirm that the Levy is inconsistent with the Commerce Clause.

1. The Complete Auto Test and Internal and External Consistency

In Complete Auto Transit, Inc. v. Brady (1977) 430 U.S. 274 (Complete Auto), the United States Supreme Court acknowledged that a state tax may not violate the Commerce Clause if it (1) is applied to an activity with a substantial nexus with the taxing State, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services provided by the State. (Complete Auto, supra, at p. 279; see Jefferson Lines, supra, 514 U.S. at p. 189 [applying Complete Auto test in upholding Oklahoma sales tax on full price of a bus ticket from Oklahoma to another state].) Northwest does not contend that the section 17942 Levy fails the first, third or fourth prongs of the Complete Auto test. The question is whether the Levy meets the second requirement, that it be fairly apportioned. (Jefferson Lines, supra, at p. 189.)

Fair apportionment requires both internal consistency and external consistency. (Jefferson Lines, supra, 514 U.S. at p. 185.) Internal consistency is preserved when the imposition of a tax identical to the one in question by every other State would add no burden to interstate commerce that intrastate commerce would not also bear. (Ibid.) Here, if the Levy were replicated in every state, an LLC engaging in business in multiple states with the same total income as Northwest would pay the maximum Levy in every state in which it did business or registered to do business. An LLC operating only in one state would pay the maximum Levy only once. Thus, the Levy places a greater burden on interstate commerce than intrastate commerce.

FTB contends that the internal consistency test is inapplicable and Northwest must by some other means demonstrate that the Levy burdens interstate commerce. For this proposition, FTB relies on American Trucking Assns., Inc. v. Michigan Pub. Serv. Commn. (2005) 545 U.S. 429 (American Trucking). FTB is incorrect.

In American Trucking, Michigan imposed a flat $100 annual fee upon trucks engaging in intrastate commercial hauling (undertaking point-to-point hauls between Michigan cities). (American Trucking, supra, 545 U.S. at p. 431.) Petitioners challenged the fee on the ground that it discriminated against interstate carriers and unconstitutionally burdened interstate trade, because the fee was flat but trucks carrying both interstate and intrastate loads engaged in less intrastate business than trucks carrying

only intrastate loads. (Id. at pp. 431-432.) The United States Supreme Court held that the fee did not violate the dormant Commerce Clause, because it was imposed upon only activities taking place exclusively within the states borders, did not facially discriminate against interstate or out-of-state activities or enterprises, and applied evenhandedly to all carriers making domestic journeys. (Id. at p. 434.) In addition, there was little if any evidence that the fee imposed any significant practical burden upon interstate trade or unfairly discriminated against interstate truckers. (Id. at pp. 434-435.) In response to petitioners argument that the fee failed the internal consistency test, the court conceded that if every state imposed such a fee, an interstate trucker doing local business in multiple states would have had to pay hundreds or thousands of dollars in fees if it supplemented its interstate business by carrying local loads in many other states. The court nonetheless found no Commerce Clause violation, because it would have to incur such fees only because it engaged in local business in all those states. (Id. at p. 438.) An interstate firm with local outlets normally expects to pay local fees that are uniformly assessed upon all those who engage in local business, interstate and domestic firms alike. (Ibid.)

American Trucking is distinguishable from the matter at hand. The Michigan fee in American Trucking was a flat fee, which does not seek to tax a share of interstate transactions, which focuses upon local activity, and which is assessed evenhandedly. (American Trucking, supra, 545 U.S. at p. 438, italics added.) Here, by contrast, the Levy is not a flat fee imposed on all LLCs for the privilege of doing business locally in California, but a percentage of the LLCs total worldwide income, which therefore does tax a share of interstate transactions. Moreover, the court in American Trucking did not reject the internal consistency requirement altogether. Instead, it found no Commerce Clause violation notwithstanding the absence of internal consistency, because petitioners would incur intrastate (local) fees in multiple states only by engaging in local business in those states. Here, by contrast, an LLC incurs the Levy based on its total worldwide income merely by registering with the state, even if it does no business there.

In any event, the Levy does not meet the requirement of external consistency. External consistency . . . looks . . . to the economic justification for the States claim upon the value taxed, to discover whether a States tax reaches beyond that portion of value that is fairly attributable to economic activity within the taxing State. (Jefferson Lines, supra, 514 U.S. at p. 185.)

Here, the economic justification for the Levy is either the revenue necessary to make up for the decrease in corporate taxes or, according to FTB, the funds necessary to provide certain benefits to LLCs in California. Because the Levy is measured by the LLCs total income wherever earned, and not just what is earned in California, the Levy reaches beyond that portion of value that is fairly attributable to economic activity within the taxing State. (Jefferson Lines, supra, 514 U.S. at p. 185.) The fact that the Levy is based on non-California income, not attributable to activities in California, amounts to extraterritorial taxation. FTB has not addressed the issue of external consistency in this appeal.

Failing to meet the internal consistency and external consistency requirements,the Levy as applied to Northwest violated the Commerce Clause.

2. Section 17942 Levy Would be Unconstitutional Under Pike

The FTB argues that, as a fee, the Levy would be valid under a balancing test articulated in Pike v. Bruce Church, Inc. (1970) 397 U.S. 137 (Pike). We disagree.

In Pike, a regulation dictated the manner of packing cantaloupes grown in Arizona. Its practical effect would have compelled the appellee company to build packing facilities in Arizona at a cost of approximately $200,000. The United States Supreme Court described the Commerce Clause standard as follows: Although the criteria for determining the validity of state statutes affecting interstate commerce have been variously stated, the general rule that emerges can be phrased as follows: Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. [Citation.] If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. (Id. at p. 142.) The court found that, although the law was supported by a legitimate state interest, the interest did not justify the requirement that the appellee build and operate an unneeded $200,000 packing plant in the state. One state may not require business operations to be performed within the state if they could be performed more efficiently elsewhere. (Id. at p. 145.)

FTBs reliance on Pike is misplaced. First of all, Pike is distinguishable factually, since it pertained not to a monetary imposition like the Levy but to a regulation dictating the manner of packing cantaloupes grown in Arizona. Indeed, contrary to FTBs argument, Pike did not even involve a fee.^[2]

In any event, the Levy would not pass the Pike test, which requires the following: (1) the statute regulates evenhandedly to effectuate a legitimate local public interest; (2) its effects on interstate commerce are only incidental; and (3) the burden imposed on such commerce is not clearly excessive in relation to the putative local benefits. (Pike, supra, 397 U.S. at p. 142.)

As to the first requirement, we will assume that the Levy supports a legitimate state interest in allowing LLCs to form in California while rendering state income tax revenues neutral, but we question whether this interest is effectuated evenhandedly: it is evenhanded in the sense that interstate and intrastate LLCs are charged on the same basis, but it is not evenhanded to the extent that those who do no California business are effectively paying for benefits they do not receive.

As to the second requirement, the impact on interstate commerce is not merely incidental. Although FTB argues that the Levy amounted to less than 0.2 percent of Northwests total income, FTB provides no authority that a charge of 0.2 percent of an entitys total income is a constitutionally permissible increase in the cost of interstate

commerce.

Moreover, even if the Levy met the first two Pike requirements, it could not be

upheld under Pike because the burden it imposes on interstate commerce is clearly excessive in relation to local benefits. In this regard, FTB argues that Northwest received many benefitsrelated to its ability to do business in California and its members enjoying limited liabilitywhich are extremely valuable compared to a fee of less than 0.2 percent of total income. In fact, however, Northwest received no benefits, since it did not transact any business in California. Nor is there any indication that the Levy actually funds the benefits provided by the LLC Act.

We note as well that the LLC Act authorized the formation of new LLCs under California law at a time when the FTB was already taxing foreign LLCs on a pass-through basis as partnerships. Thus, the revenue loss anticipated by the LLC Act was due primarily to the prospect of California entities forming as LLCs rather than as corporationsin other words, the Levy was set up to combat revenue loss stemming not from foreign business entities, but domestic business entities. Saddling a non-California entity with a levy based on non-California business to recoup amounts lost from California entities certainly does not promote interstate commerce. Because of the Levys burden on interstate commerce, it would not pass muster under Pike, even if the Pike test applied.

In sum, whether the Levy is called a tax or a fee, and whether we apply the internal consistency test, the external consistency test, or the Pike balancing test, the application of the Levy to Northwest in the Years in Issue violated the Commerce Clause.

3. FTBs Voluntary Choice Argument is Meritless

FTB argues that the Levy did not violate the Commerce Clause, and in fact Northwest cannot even bring a Commerce Clause challenge, because Northwest voluntarily registered as a foreign LLC and did not elect to be taxed as a corporation, which would have avoided the imposition of the Levy. (See  18633.5, subd. (h) [requiring LLCs that are classified as corporations to pay tax as a corporation].)^[3] Thus, FTB argues, the Levy was imposed solely as a result of Northwests election as between two options: (1) to be taxed under a scheme which involves income apportionment; or (2) to forego the apportioned tax and be subject to the Levy under section 17942. Because of this voluntary election, FTB maintains, the Levy does not place a burden on the flow of commerce across Californias borders that commerce wholly within those borders would not bear.

FTB bases its argument on United States Borax & Chemical Corp. v. Carpentier (Ill. 1958) 150 N.E.2d 818, 824 (Carpentier). In Carpentier, a Nevada corporation challenged franchise taxes and license fees it paid under protest pursuant to the states Business Corporation Act. (Carpentier, supra, at p. 820.) At the time Illinois authorized the plaintiff to conduct business in Illinois, the plaintiff filed an annual report electing to pay Illinois franchise tax on its entire stated capital and paid-in surplus, rather than on the basis of its property and business within the state. (Ibid.) In the next several months, however, the plaintiff increased its capital stock and paid-in surplus so that only about two percent of its property and business was in Illinois. (Id. at pp. 820-821.) The plaintiff also merged with a New Mexico corporation, which further increased its stated capital and paid-in surplus. (Ibid.) The plaintiff submitted to the state its computation of franchise taxes, license fees, and related amounts computed under the apportionment formula. (Id. at p. 821.) The state refused this offer and instead computed the amount due based on the entire increase in the stated capital and paid-in surplus, because the

plaintiff had not timely filed an amended report changing to the apportionment formula. (Ibid.) Indeed, a provision in the states Business Corporation Act specifically stated that a corporate electing to pay its tax upon the entire capital and paid-in surplus must be assessed on that basis unless the corporation timely changed its election. (Carpentier, supra, at p. 823.)

On appeal to the Illinois Supreme Court, the plaintiff in Carpentier nonetheless contended that the tax it was assessed violated the Commerce Clause, because the tax was measured by property and transactions outside of Illinois. (Carpentier, supra, 150 N.E.2d at p. 822.) The court held that there was no Commerce Clause violation, or the plaintiff had waived its right to complain of one, because the plaintiffs was given but failed to avail itself of statutory choices to avoid the tax by, inter alia, timely electing a different method for calculating the tax. (Id. at pp. 825-826.)^[4] The plaintiff made its voluntary election, stood by and confirmed it, and neglected or refused to take any step afforded by our statute until too late to better its position. (Id. at pp. 826-827.)

Aside from the fact that we are not bound by a 1958 decision from an Illinois state court in deciding the propriety of a 1994 California statute, Carpentier is readily distinguishable from the matter at hand. In the first place, the act constituting waiver in Carpentier was the failure to comply with a statute to amend a report to change the method of calculating a tax after acquiring additional assets; there is no corresponding or equivalent statute in the LLC Act. Moreover, as discussed below, the election in Carpentier was vastly different than the type of election the FTB would force Northwest and other LLCs to make here.

The basis for the decision in Carpentier was that the plaintiff failed to timely file an amendment to change the method with which its tax would be calculated in Illinois. Here, an election by Northwest to be taxed as a corporation rather than as a pass-through LLC would have more dramatic consequences. Among other things, such an election would require Northwest to make the same election with the Internal Revenue Service, thus changing the manner in which Northwest and its members would be taxed at the federal level, with likely similar changes in all the other states in which Northwest did business. Avoiding the double-taxation aspect of a corporation (by which the entity is taxed on profits and its members on distributions) is one of the hallmark benefits of an LLC. Indeed, in passing the LLC Act, our Legislature recognized this facet of LLCs as one of the major reasons for such interest in LLCs in the first place. The FTB now would have LLCs surrender this advantage not only in California, but in all other states in which the LLC pays taxes and on its federal tax returns as well, simply so California can impose a tax based on income generated outside of California. The idea that this could somehow ameliorate the burdens on interstate commerce, or insulate the Levy from scrutiny under the Commerce Clause altogether, is simply untenable. Nor do we think that LLCswhich our Legislature wanted to attract to California in passing the LLC Actshould be forced to endure an unconstitutional assessment merely because they proceeded under the auspices of a California statute (former  17942).

Indeed, the FTBs argument is difficult to accept, because its implication is that the Levy could never be challenged: only an LLC that was subject to the Levy would have standing to bring a challenge; but under the FTBs theory an LLC that was subject to the Levy would be precluded from bringing such a challenge, since it never elected not to be subject to it.^[5]

In the final analysis, the Levy as applied to Northwest violated the Commerce Clause. Northwest, which conducted no business in California, is entitled to a refund of the amounts it paid under former section 17942. The FTB agrees that the amount of a refund in this case would be the entire amount of the LLC fees at issue in the action below.^[6]

C. Award of Attorney Fees

In its motion for costs under Code of Civil Procedure section 1032, subdivision (b), Northwest sought $5 million in attorney fees under Code of Civil Procedure section 1021.5 and the common fund doctrine, as the prevailing party in the litigation. Counsel had pursued the lawsuit on Northwests behalf on a contingency fee basis, except for $24,000 received from other LLCs interested in the litigations outcome. In support of its request for attorney fees, counsel contended that fees through trial would have totaled $214,287.50 if Northwest had been billed at the firms standard billing rates, and that this lodestar should be adjusted upward due to the nature of the issues and the benefits obtained in the litigation.

The trial court awarded Northwest its attorney fees under both Code of Civil Procedure section 1021.5 and the common fund doctrine. The court found reasonable the hourly rates charged by Northwests attorneys and legal assistant ($350 and $100, respectively), as well as the expenditure of 631 hours through trial, and validated a corresponding lodestar amount of $214,287.50. The court adjusted the lodestar upward to $3.5 million in light of numerous circumstances, discussed post.

FTB challenges the attorney fee award on three grounds: (1) the court erred by awarding attorney fees under Code of Civil Procedure section 1021.5 and the common

fund doctrine, because the only means by which Northwest could recover for its attorney fees resides in section 19717; (2) Northwest did not meet the requirements of Code of Civil Procedure section 1021.5 and the common fund doctrine; and (3) the court erred in adjusting the lodestar computation upward.

1. Revenue and Taxation Code Section 19717

Code of Civil Procedure section 1032, subdivision (b) provides that [e]xcept as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding. (Italics added.) Costs include attorney fees provided by contract, statute, or law. (Code Civ. Proc.,  1033.5, subd. (a)(10).) Northwest pursued attorney fees as provided by statute (Code Civ. Proc.,  1021.5) and law (the common fund doctrine).

FTB contends, however, that section 19717 is the exclusive statute by which a party may recover for its attorney fees and costs in a tax refund action. Section 19717, subdivision (a) states: The prevailing party may be awarded a judgment for reasonable litigation costs incurred, in the case of any civil proceeding brought by or against the State of California in a court of record of this state in connection with the determination, collection, or refund of any tax, interest, or penalty under this part. (Italics added.) Northwests complaint sought a refund under section 19382, which is the same statutory part (Part 10.2 of Div. 2, Revenue and Taxation Code) as section 19717.

It may matter a great deal whether section 19717 is the exclusive means of recovering attorney fees, because a prevailing party under section 19717 is different from a prevailing party under Code of Civil Procedure section 1032, subdivision (b). There is no dispute that, under the latter statute, a prevailing party includes one who obtains a net monetary recovery in the litigation, and Northwest meets this definition. (See Code Civ. Proc.,  1032, subd. (a)(4).) Under section 19717, by contrast, [a] party shall not be treated as the prevailing party . . . if the State of California establishes that its position in the proceeding was substantially justified. ( 19717, subd. (c)(2)(B)(i), italics added.) The term [s]ubstantially justified is construed to mean not necessarily a prevailing position but one which is justified to a degree that would satisfy a reasonable person or . . . has a reasonable basis both in law and in fact. [Citations.] (Lennane v. Franchise Tax Bd. (1996) 51 Cal.App.4th 1180, 1188-1189.) Indeed, where reasonable minds could . . . differ, the FTBs position has been deemed to be substantially justified. (Id. at p. 1189; see also Tetra Pak, Inc. v. State Bd. of Equalization (1991) 234 Cal.App.3d 1751, 1763 [substantial justification equated to good faith dispute or non-frivolous claim].) FTB contends that Northwest is not a prevailing party under section 19717, because FTBs position in the case was substantially justified.

The purported exclusivity of section 19717 could also be significant because it provides a different basis for determining the entitlement and amount of fees than do Code of Civil Procedure section 1021.5 and the common fund doctrine. Under section 19717, the [r]easonable litigation costs recoverable under subdivision (a) includes attorney fees at market rates, potentially subject to a statutory cap on the hourly rate. ( 19717, subd. (c)(1)(B)(iii).)^[7] Code of Civil Procedure section 1021.5, however, permits an award of attorney fees that are reasonable without regard to a statutory cap, but only if the successful party enforced an important right affecting the public interest, conferring a significant benefit . . . on the general public or a large class of persons. (Code Civ. Proc.,  1021.5.) Under the common fund doctrine, reasonable attorney fees may be awarded where the litigation created a fund from which, in equity, the successful plaintiffs attorney should be paid.

Story continues as Part III..

Publication Courtesy of California lawyer directory.

Analysis and review provided by Escondido Property line attorney.

^[1] In general, a statute may be facially unconstitutional if there are no circumstances under which it can be validly applied. (See United States v. Salerno (1987) 481 U.S. 739, 745; Sanchez v. City of Modesto (2006) 145 Cal.App.4th 660, 678-679.) FTB argues that, even if unconstitutional as applied to Northwest in this case, former section 17942 may be constitutionally applied to other LLCs, including those formed and doing business solely within the state of California. Northwest also contended in its complaint that the Levy violated its due process rights. (U.S. Const., 14th Amend.; Cal. Const., art. I,  7, subd. (a).) FTB maintains that the Levy does not offend due process under a rational basis test, because the LLC Act provides legal rights and benefits for which the state asks a fee in return.

^[2] For this and other reasons, we do not share the view that it makes a difference whether the Levy is characterized as a tax or a fee for Commerce Clause purposes. The Commerce Clause applies to taxes and regulations that discriminate against or unduly burden interstate commerce. (See, e.g., GMC, supra, 519 U.S. at p. 287.) FTB relies on Pike to argue a different test applies to fees, but Pike did not involve a fee. Furthermore, both a fee and a tax were subjected to the fair apportionment requirement, without any analytical distinction between the two, in American Trucking Assns., Inc. v. Scheiner (1987) 483 U.S. 266, 282-287 [applying internal consistency test in invalidating a flat identification marker fee and a flat axle tax because they resulted in a higher charge per mile for out-of-state vehicles].) Woosley v. State of California (1992) 3 Cal.4th 758 (Woosley)a case on which FTB relies for other purposesapplied the Complete Auto test to strike down a license fee and a use tax. (Woosley, supra, at pp. 777-783.)

^[3] By default, the FTB treats an LLC as a pass-through tax entity: an LLC with more than one member as a partnership and an LLC with one member as a sole proprietorship. The LLC files California form 568 (Limited Liability Company Return of Income) and pays an $800 tax ( 17941) and amounts due under the Levy (former  17942) based on total annual gross worldwide income. However, the LLC has the option of being taxed as a corporation by filing an election with the Internal Revenue Service, which the FTB honors. As a corporation, the LLC files California form 100 and is taxed at the corporate tax rate, in an amount not less than the minimum tax of $800. (www.ftb.ca.gov/businesses/bus_structures/LLcompany.shtml; Dec. 20, 2007.)

^[4] In reaching this conclusion, the Illinois court relied on an earlier Illinois decision that held it was constitutional for Illinois to tax a corporation on the basis of all of its capital stock where the corporation failed to provide the necessary information to enable the state to assess the franchise tax on its stock in proportion to its business and property in Illinois. (Carpentier, supra, 150 N.E.2d at pp. 824-825.)

^[5] FTB makes other similar waiver and estoppel arguments, contending that Northwests decision not to elect to be taxed as a corporation should permit the state to impose an unconstitutional tax. We note that Northwest never voluntarily paid the Levy and promptly filed a request for a refund after it did pay, and as far as we can see from the record has at all times maintained that it owed nothing under former section 17942. In any event, we have fully considered the arguments and authorities cited by FTB and, for much the same reasons as we reject the related contention in the text, we reject as well the FTBs additional waiver and estoppel theories.

^[6] As a general matter, only the portion of the Levy that exceeds Commerce Clause limits must be refunded. (Macys Dept. Stores, Inc. v. City and County of San Francisco (2006) 143 Cal.App.4th 1444, 1449-1450 (Macys).) This amounts to the entirety of the Levy collected in Northwests case, because none of its total income derived from California sources.

^[7] The relevant provisions state: (B) Based upon prevailing market rates for the kind or quality of services furnished, any of the following: [] . . . [] (iii) Reasonable fees paid or incurred for the services of attorneys in connection with the civil proceeding, except that those fees shall not be in excess of one hundred twenty-five dollars ($125) per hour unless the court determines that a special factor, such as the limited availability of qualified attorneys for the proceeding, the difficulty of the issues presented in the case, or the local availability of tax expertise justifies a higher rate. In the case of each calendar year beginning with calendar year 2001, the Franchise Tax Board shall recomputed the dollar amount referred to in the preceding sentence. That computation shall be made by increasing the amount in this clause by an amount equal to the cost-of-living adjustment determined under subdivision (h) of Section 17041. . . . [] (iv) The court may award reasonable attorney fees under subdivision (a) in excess of the attorney fees paid or incurred if the fees are less than the reasonable attorneys fees because the attorney is representing the prevailing party for no fee or for a fee which (taking into account all the facts and circumstances) is no more than a nominal fee. This clause shall apply only if the award is paid to the attorney or the attorneys employer. ( 19717, subd. (c)(1).)