Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2012

Sales And Use Tax Court Decisions

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City of Gilroy v. State Board of Equalization . . . (1989)

Sales of Lottery Ticket Forms to California Lottery Commission Not Exempt from Sales Tax

Taxpayer entered into a contract with the California Lottery Commission for the printing of instant game tickets, and opened a plant in the city of Gilroy to manufacture the tickets. The Board advised taxpayer and the Lottery Commission that sales of the tickets were subject to tax. Taxpayer paid the tax and filed a claim for refund, arguing that the sales were exempt pursuant to Government Code Section 8880.68, which provides that no state or local taxes shall be imposed upon the sale of lottery tickets. The Board voted to grant the refund and so informed Gilroy, which filed a lawsuit seeking to set aside the refund decision.

The court found in favor of Gilroy, first determining that Section 8880.68 did not exempt taxpayer's sale of the printed lottery tickets to the Lottery Commission from sales tax. The key ingredient of a lottery ticket is the right of the purchaser to a chance to win, which derives from the authority of the

Lottery Commission, not taxpayer, to dispense that right. Therefore, Section 8880.68 did not apply to taxpayer's sale of printed material to the Lottery Commission.

The court also found that Gilroy had standing to challenge the Board's refund decision, even though the statutory procedure permits only the taxpayer to claim a refund of erroneously collected taxes, and there is no provision for local entitles to participate in refund proceedings initiated by retailer-taxpayers within their jurisdiction. In County of Sonoma v. State Board of Equalization (1987) 195 Cal.App.3d 984, the court held that the Bradley-Burns Law, which required the county to contract with the Board to administer its sales tax ordinance, implicitly granted the county standing to judicially challenge the Board's actions under the contract, including its interpretation and application of a statutory tax exemption. The court followed the rationale in County of Sonoma v. State Board of Equalization, since the Board's actions to reclaim sales tax revenue from Gilroy and its decision whether to collect sales tax from taxpayer in the future were taken pursuant to its duties and powers under the Bradley-Burns Law and its agreement with Gilroy.

The court held that collateral estoppel did not bar litigation of the legal issues relating to interpretation and application of Section 8880.68 because, even though those issues were the subject of an administrative proceeding before the Board, neither the Board as decision maker nor the Board's staff were in privity with Gilroy. City of Gilroy v. State Board of Equalization (1989) 212 Cal.App.3d 589.