This story was originally published by The Recorder, an American Lawyer affiliate.
Pillsbury Winthrop Shaw Pittman has joined several local San Francisco firms suing the city and county over objections to a voter-approved payroll tax on partner profits.
Pillsbury tax partner Jeffrey Vesely and counsel Richard Nielsen filed the firm’s suit in San Francisco Superior Court on Friday.
Like the other firms suing the city, Pillsbury wants a refund of the payroll expense taxes it has paid since voters passed Proposition Q in 2008. The ordinance, which established a tax on profit distributions made to owners of so-called pass-through entities such as law firms, “is invalid and unconstitutional,” attorneys allege.
Because the text of Prop Q was “fatally flawed,” voters didn’t realize it was a change to an already existing law, Pillsbury claims. Under California state law, certain new taxes and assessments must be approved by voters.
But similar claims made by other local law firms haven’t gotten far in state court. In July, S.F. Superior Court Judge Harold Kahn dismissed all but one claim in suits filed by Sideman & Bancroft and Shartsis Friese, saying the plaintiffs failed to “allege sufficient facts to state cognizable claims.” Kahn let stand their claim that they overpaid the tax.
Earlier this year, Kahn also dismissed related suits filed by Hanson Bridgett and Coblentz, Patch, Duffy & Bass. Those cases are now before the First District Court of Appeal, and discovery in the suits filed by Sideman & Bancroft and Shartsis Friese has been stayed. Amy Silverstein of Silverstein & Pomerantz is representing all four firms in those cases.
Pillsbury lawyers said the firm had to file its suit after the city denied its claim for a payroll tax refund.
“Procedurally, we were at a point where we had to file something as a protective measure while awaiting the outcome of similar cases that are pending or in the court of appeal,” Nielsen said.