Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Santa Barbara Optical Co., Inc. v. State Board of Equalization . . . (1975)

Santa Fe Energy Co. v. State Board of Equalization . . . (1984)

Satco, Inc. v. State Board of Equalization . . . (1983)

Sav-On Drugs, Inc. v. Superior Court . . . (1975)

Schnyder et al. v. State Board of Equalization . . . (2002)

Scholastic Book Clubs, Inc. v. State Board of Equalization . . . (1989)

Searles Valley Minerals Operations Incorporated v. State Board of Equalization . . . (2008)

Sierra Summit, Inc.; California State Board of Equalization v. . . . (1989)

Simplicity Pattern Co. v. State Board of Equalization . . . (1980)

Sluggo's Chicago Style, Inc. , In re . . . (1990)

Snoozie Shavings, Inc. v. State Board of Equalization . . . (1979)

Southern California Edison Co. v. State Board of Equalization . . . (1972)

Southern Pacific Equipment Co. v. State Board of Equalization . . . (1971)

Sperry & Hutchinson Co.; Botney v. . . . (1976)

Sprint Communications Co. v. State Board of Equalization . . . (1995)

Superior Court ( llc); State Board of Equalization v. . . . (2006)

Standard Engineering Corp.; Wright v. . . . (1972)

Standard Oil Co. of California v. State Board of Equalization . . . (1974)

Sternoff v. State Board of Equalization . . . (1980)

Stewart v. State of California . . . (1969)

Stockton Kenworth, Inc. v. State Board of Equalization . . . (1984)

Sunshine Art Studios of California v. State Board of Equalization . . . (1974)

Superior Court (Associated Sales Tax Consultants); State Board of Equalization v. . . . (1992)

Superior Court (O'Hara & Kendall Aviation, Inc.); State Board of Equalization v. . . . (1985)

Superior Court (Petroleum Contractors, Inc.) v. State Board of Equalization . . . (1980)

Szabo Food Service, Inc. of California v. State Board of Equalization . . . (1975)


A Class Action Can Be Brought Against the Board for Refund of Sales Taxes Based on a Class Refund Claim

Plaintiffs brought a class action against the Board for refund of sales taxes paid by them and others similarly situated. The Board demurred on the ground that the complaint contained no allegation that the unnamed plaintiffs had filed claims as required by law. The trial court sustained the demurrer, but the court of appeal reversed with directions to the trial court to overrule the demurrer.

The Revenue and Taxation Code makes the filing of a claim for refund with the Board mandatory. However, the court held that "claimant" must be equated with the class itself and rejected the contention that individual claims must be filed for each member of the class where the claim by the plaintiffs was filed for themselves and for all others similarly situated. The court also rejected the Board's argument that it is impossible to act on a claim for refund where there are unnamed claimants and no specific amount is claimed, stating that the Board could determine the identity of each unnamed plaintiff and the amount of his tax payments from the Board's own records.

The court found that there is an ascertainable class with a well defined community of interest in the questions of law and fact affecting the parties; and that a class action is therefore proper. Santa Barbara Optical Co., Inc. v. State Board of Equalization (1975) 47 Cal.App.3d 244 [disapproved to the extent inconsistent with Woosley v. State of California (1992) 3 Cal.4th 758].

Sale of Assets Is Taxable when Seller is Required to Hold Seller's Permit

A corporation engaged in the exploration, development, and production of crude oil sold its assets. Prior to the sale of its assets, the corporation had neither sold tangible personal property at retail nor consumed any of the crude oil it produced. Rather, all the crude oil it produced was sold for the purpose of refining or processing into gasoline, fuel oil, or other petroleum products.

The Board imposed sales tax on the corporation's sale of its assets. The purchaser of the assets paid the tax and filed suit for refund. The trial court granted judgment in favor of the Board.

The court of appeal affirmed. It held that the sale of the assets was subject to sales tax because the sale was a retail sale, and the corporation was a "seller" under Revenue and Taxation Code section 6014 since the crude oil it sold was suitable for retail sale. It was irrelevant that the crude oil was not sold at retail but was instead sold for processing into other petroleum products. Since the sale of the assets was by a seller required to hold a seller's permit, the sale was not an exempt occasional sale. Santa Fe Energy Co. v. State Board of Equalization (1984) 160 Cal.App.3d 176.

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Sales of Goods to Common Carrier Not Exempt Unless a Proper Bill of Lading Is Issued

Taxpayer sold goods to an airline common carrier under bills of lading which listed the carrier, not the taxpayer, as the shipper. The goods were delivered to and inspected by the carrier in California, but were for use out of state.

The Board denied an exemption under Revenue and Taxation Code Section 6385 because the bill of lading did not show taxpayer as the shipper as required in Regulation 1621. The taxpayer filed an action for refund, and the trial court entered judgment for the taxpayer.

The court of appeal reversed and held in favor of the Board. The court held that the place of delivery determines whether sales to common carriers are exempt under Section 6385. Taxpayer's sales were not exempt because the bills of lading did not show taxpayer as the consignor, the contract documents indicated delivery occurred in California, and the carrier's inspection of the goods at the place of delivery was the kind of inspection performed by a purchaser, not a common carrier. Satco, Inc. v. State Board of Equalization (1983) 144 Cal.App.3d 12.

Taxpayer Cannot Be Compelled to Disclose Information Concerning Specific Entries on His Sales Tax Return

Taxpayer was a defendant in a class action suit in which it was alleged that taxpayer had collected excess sales taxes from retail customers. Plaintiff submitted an interrogatory to taxpayer seeking disclosure of information concerning specific entries in taxpayer's sales tax return. Taxpayer objected to this interrogatory and refused to answer. The Superior Court granted plaintiff's motion for an order compelling taxpayer to answer the interrogatory. Taxpayer then sought a writ of prohibition.

The Supreme Court, in issuing the writ, held that Section 7056 of the Revenue and Taxation Code, which makes it unlawful for the Board to disclose any information that a retailer is required to furnish to the Board, including any return, manifests a clear legislative intent that disclosures made in tax returns shall not be indiscriminately exposed to public scrutiny. The court noted that the purpose of provisions such as Section 7056 is to facilitate tax enforcement by encouraging a taxpayer to make full and truthful declarations in his return without fear that his statements will be revealed or used against him for other purposes, and held that the returns are privileged. To require a taxpayer to furnish information concerning specific entries in the return would render the privilege meaningless. Sav-On Drugs, Inc. v. Superior Court (1975) 15 Cal.3d 1.

Buyers of Business Liable as Successors Even Though They Complied with Bulk Sales Law

The buyers of a grocery business in a bulk sale sued the Board for a tax refund after the Board determined that the buyers were personally liable, pursuant to the successor liability statutes (Rev. & Tax. Code, §§ 6811 and 6812), as successors for the sales and use taxes owed by the sellers of the business. The trial court granted summary judgment in favor of the Board.

The Court of Appeal affirmed. The court held that the buyers did not comply with the withholding requirement of section 6811, and thus were personally liable under section 6812, for the sales and use taxes owed by the sellers of the business. The buyers deposited the purchase funds with an escrow agent and then filed an interpleader action with the purchase funds, in order to allow the business's creditors, including the Board, to resolve the amounts owed. However, the buyers failed to withhold the purchase funds as required by section 6811. The court also held that the buyers could not avoid personal liability for their failure to comply with the withholding requirement, notwithstanding that the buyers filed the interpleader action with the purchase funds in order to allow the business's multiple creditors to resolve the amounts owed. The provisions of the bulk sales law (Cal. U. Com. Code, § 6101 et seq.) do not take priority over the successor liability statutes. The court further held that the Board was not collaterally estopped from imposing successor liability on the buyers of a grocery business in a bulk sale, notwithstanding that the Board's stipulation in federal court disclaimed any interest it might have had in the interpleaded funds. Schnyder et al. v. State Board of Equalization (2002) 101 Cal.App.4th 538.

Out-of-State Retailer's Use of Teachers and Librarians to Solicit Book Sales Constitutes Sufficient Nexus with California for California to Impose the Use Tax Collection Duty on the Retailer

Plaintiff was an out-of-state retailer of books and other items. Plaintiff had no employees or places of business in California, but it distributed catalogs by mail to teachers and librarians at California schools. The teachers who elected to do so distributed offer sheets to their students, consolidated the students' orders, collected payments, and submitted a single order and full payment to plaintiff in the teacher's name. Plaintiff shipped the items ordered from its Missouri warehouse to each teacher placing the order, and each teacher distributed the items to the students who ordered them. The taxpayer rewarded the teachers with bonus points for merchandise.

Taxpayer contended that it was not a retailer engaged in business in California under Revenue and Taxation Code Section 6203 because the teachers had no initial obligation to act to solicit orders, and had no written agency agreement with the taxpayer. Since the teachers had no obligation to act, plaintiff argued, the teachers were not acting under plaintiff's authority in soliciting orders.

The court of appeal decided in favor of the Board, holding that the teachers were not acting under anyone else's authority except that of plaintiff, and that once the teachers undertook to solicit orders, they were acting under plaintiff's authority as its agents. By accepting the orders and shipping the items, the taxpayer ratified the acts of the teachers and confirmed their authority as its agents. Plaintiff depended upon the teachers to act as its conduit to the students. The court held that plaintiff's use of teachers and school librarians to solicit sales from students constituted sufficient nexus to require the taxpayer to collect the use tax due on the students' purchases. Scholastic Book Clubs, Inc. v. State Board of Equalization (1989) 207 Cal.App.3d 734.

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Tax Applies to Sale of Coal for Production of Electricity.

The trial court ruled in favor of the California State Board of Equalization in determining that taxpayers were not entitled to a refund of use taxes. The taxpayers produced and sold electricity to California consumers. They paid use taxes on coal purchased outside California, which they used to produce steam to power their turbines.

The Court of Appeal affirmed the judgment. The court held that electricity constitutes tangible personal property within the meaning of Sections 6007 and 6008 as property purchased for resale in the regular course of business because the coal was not incorporated into a final product within the meaning of Regulation 1525. Rather, the coal functioned as a catalyst in the manufacturing process. The California Supreme Court denied review. Searles Valley Minerals Operations Incorporated v. State Board of Equalization (2008) 160 Cal.App.4th 514.

Liquidation Sales by Trustee in Bankruptcy Are Subject to Tax

Respondent purchased skis from a bankruptcy trustee for use as rentals. The U.S. Court of Appeals, Ninth Circuit, held that the bankruptcy court's injunction against the Board's assessment of sales tax or use tax on a trustee's liquidation sale of the skis also barred the purchaser's collection of use tax from its lessees. The Court of Appeals relied on two previous Ninth Circuit cases, Cal. St. Bd. of Equalization v. Goggin (1951) 191 F.2d 726, and Cal. St. Bd. of Equalization v. Goggin (1957) 245 F.2d 44. In the Goggin cases, the Board assessed sales and use taxes on bankruptcy liquidation sales. The Ninth Circuit Court of Appeals held that the taxes were unlawful because they burdened the federal functions of the bankruptcy court, and violated the principle of intergovernmental tax immunity. However, other federal circuit courts had reached the contrary result in similar cases.

The U.S. Supreme Court held in favor of the Board. The court held that a nondiscriminatory tax on a bankruptcy liquidation sale was not barred by the now-discredited intergovernmental tax immunity doctrine, and that there was no longer any constitutional impediment to the imposition of a sales tax or a use tax on a bankruptcy liquidation sale. The tax does not discriminate against bankruptcy trustees or those with whom they deal. Nor is the bankruptcy trustee so closely connected to the federal government that the two cannot realistically be viewed as separate entities. The court also held that there was no federal statute expressly preempting the power of the states to tax in this area. California State Board of Equalization v. Sierra Summit, Inc. (1989) 490 US 844, 104 L.Ed.2d 910.

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Transfer of Master Film Negatives Was a Sale of Tangible Personal Property

Plaintiff filed an action for a refund of sales tax paid on the transfer of film negatives and master recordings used to make audio visual materials for training medical personnel. The transfer was part of a sale by plaintiff of the segment of its business devoted to producing and marketing such materials. The transfer consisted of an exchange of the assets and name of its wholly owned subsidiary for common stock of the transferee's parent. The subsidiary dissolved after the exchange, and plaintiff assumed its liability.

Plaintiff contended that the transfer of certain master film negatives to be used for reproduction purposes involved the sale of intangible property; that the transfer was a sale for resale, since the masters were to be used to make copies for resale; and that the transfer was exempt as a merger. The trial court entered judgment in favor of the Board. The Supreme Court affirmed, holding that the sale was a sale of tangible personal property; that the tax on the transfer was measurable by what plaintiff received for the property as a whole, without deduction for amounts paid for intellectual or other intangible components; that the sale was not a sale for resale, since the primary purpose of selling the film negatives and master recordings was to use them in manufacturing the final product rather than to incorporate them into that product; and that the transfer did not meet the requirements of a tax-free merger. Simplicity Pattern Company v. State Board of Equalization (1980) 27 Cal.3d 900.

Automatic Stay in Bankruptcy Violated by Board's Cashing of Certificate of Deposit Taken as Security from Taxpayer

The Board required that, as a condition of taxpayer's doing business, taxpayer provide security for payment of the sales and use taxes. Taxpayer complied by providing a certificate of deposit payable to the Board. Taxpayer subsequently filed a petition for reorganization pursuant to Chapter 11 of the Bankruptcy Law and ceased doing business, at which time taxpayer owed the Board sales and use tax in excess of the amount of the certificate. The Board presented the certificate for payment, and the Chapter 11 proceeding was converted to a Chapter 7 proceeding. The Ninth Circuit Court of Appeals rejected the Board's argument that the certificate of deposit became the property of the Board held in trust and was thus immune from the claims of general creditors. Property seized by a creditor prior to the filing of a petition for reorganization pursuant to Chapter 11 belongs to the bankruptcy estate, and the court therefore found that the Board violated the automatic stay in bankruptcy by cashing taxpayer's certificate of deposit. In re Sluggo's Chicago Style, Inc. (9th Cir. 1990) 912 F.2d 1073.

Taxpayer Entitled to Maintain Refund Action While Making Partial Payments of Use Tax Liability

A California corporation incurred a use tax liability for certain personal property purchased outside the state. Appellant corporation made two partial payments of $250 each on the tax owed, and entered into an installment agreement to pay under protest the total tax liability in monthly installments of $1,000. A claim for refund was filed for the $500 actually paid and was not acted upon by the Board within six months. Appellant then filed suit while the installment agreement was in effect. The court held that when a taxing authority voluntarily agrees to accept payment on an installment basis, and in the absence of any statutory provision to the contrary, a taxpayer may maintain a refund action which, in effect, determines the validity of the entire tax in question. Snoozie Shavings, Inc. v. State Board of Equalization (1979) 97 Cal.App.3d 771 (disapproved in State Board of Equalization v. Superior Court (O'Hara & Kendall Aviation, Inc.) (1985) 39 Cal.3d 633).

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Payments in Settlement of Litigation

Plaintiff utilities sought refunds of sales tax reimbursement and use taxes paid with respect to purchases of electrical equipment made between 1956 and 1959. By late 1965, plaintiffs had entered into settlement agreements with the manufacturers of the equipment under which the manufacturers were to pay so-called "voluntary price adjustments" to the plaintiffs in exchange for the plaintiffs' dismissing pending treble damage actions against the manufacturers based upon the manufacturers' price-fixing activities. The plaintiffs then claimed that their taxes were subject to re-computation based on the "adjusted" price of their purchases.

The California Supreme Court, in reversing the decision of the trial court allowing the refund, held that so-called "voluntary price adjustments" arrived at in settlement of antitrust litigation do not entitle a taxpayer to a tax refund measured by the "inflated" portion of the sales price. The court observed that the payments in the instant case, although termed "voluntary price adjustments," were in no way distinguishable from other payments, by way of settlement or judgment, which might be received by a purchaser of goods from the seller as a result of litigation arising out of the sales transaction. The court also stated that the allowance of a tax refund under the circumstances of this case would, in general, produce the undesirable and inequitable effect of shifting one cost of a price-fixing conspiracy from the perpetrators of the conspiracy to the taxpayers of the state, since federal antitrust law contemplated that violators of the law are to be held liable for all damages resulting from any illegal activity, including foreseeable excess tax costs to victims of the conspiracy. Southern California Edison Co. v. State Board of Equalization (1972) 7 Cal.3d 652.

Tax Applies to Sale to Common Carrier Acting in Dual Capacity as Purchaser and Carrier

Taxpayer had been assessed tax upon the sale of freight car wheels shipped to out-of-state points via the purchasing common carrier railroad. Shipment was made in technical compliance with Section 6385 of the Revenue and Taxation Code, which provides an exemption for certain sales of tangible personal property to common carriers, if the property is shipped by the seller via the purchasing carrier to out-of-state destinations. Prior to completing delivery of the wheels out-of-state, the railroad unloaded them at its shops in California and pressed them onto axles owned by it. The wheel-axle units were then shipped out of state.

The court, in holding that the tax had been properly assessed, stated that in order for the exemption in Section 6385 to apply, the role of the common carrier inside the state must be limited solely to its capacity as a common carrier transporting the purchased property, and that the purchaser-carrier had exercised sufficient dominion over the property in California so as to transform its capacity from that of common carrier to that of buyer. Southern Pacific Equipment Co. v. State Board of Equalization (1971) 16 Cal.App.3d 302.

Method of Establishing Value of Trading Stamps Approved

Regulation 1671 defines the selling price, for sales tax purposes, of goods exchanged for trading stamps as being the average amount paid to the trading stamp operator by its customers for the stamps surrendered in exchange for the goods. That regulation further provides that the amount the operator pays as tax must not be less than the amount of tax reimbursement it collects from its customers. The defendant trading stamp operator in this case, Sperry & Hutchinson Co. (S & H), had collected sales tax reimbursement and paid sales tax on the basis of $3.00 per book of 1200 stamps. S & H catalogs and stamp books stated that sales tax on redemption would be based on $3.00 per book. The $3.00 figure approximated the average amount paid to defendant for the stamps, without taking into account certain cash rebates and extra stamps given to customers.

Plaintiffs brought a class action claiming that defendant had overcollected sales tax reimbursement by failing to include the cash rebates and extra stamps in calculating the average price. Defendant cross-complained against the Board for indemnification in the event plaintiffs prevailed. The court of appeal upheld the trial court in finding that the method of calculation used was justified since the rebates or free stamps were given only in exchange for services rendered such as promotional advertising, guaranteed large distributions, and other services, and were not reductions in the selling price of the stamps. Botney v. Sperry & Hutchinson Co. (1976) 55 Cal.App.3d 49.

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The Board Can Properly Reduce Amounts Awarded Under a Claim for Refund by Deficiencies Owed for the Period Covered by the Claim

The Court of Appeal held that the Board properly reduced amounts awarded under timely filed claims for refund by deficiencies that occurred during the periods covered by the claim for refund, even though the deficiencies were offset after the expiration of both the statute of limitations and agreements extending the time for assessing such deficiencies. The court reasoned that under the doctrine of "equitable setoff," a claim for refund "throws open the taxpayer's entire tax liability for the period in question." Applying this doctrine, the court held that even though the Board was barred by the statute of limitations from issuing a deficiency assessment attributable to one reporting period, it was proper for the Board to apply that underpayment against an overpayment in a different reporting period, provided both periods are covered by the claim for refund. However, the court ruled that this doctrine could not be used to allow a claim for refund to set off a deficiency assessment attributable to a period barred by the statute of limitations if the barred period was not included in the claim for refund. Sprint Communications Company v. State Board of Equalization (1995) 40 Cal.App.4th 1254.

Proper Venue for Sales and Use Tax Refund Litigation Is in County Where Attorney General Maintains a Legal Office

In this case, plaintiff llc sued the Board for a tax refund in Santa Clara County Superior Court, contending that the online retailer was not a retailer engaged in business in this state and had insufficient nexus with the state, so that it had no duty to report and pay use tax arising from its sales into the state. In connection with tax refund litigation, Revenue and Taxation Code section 6933 provides in relevant part that "the claimant may bring an action against the board on the grounds set forth in the claim in a court of competent jurisdiction in any city or city and county of this state in which the Attorney General has an office for the recovery of" any refund. In a motion to transfer venue, the Board contended that because the Attorney General did not maintain a legal office in Santa Clara County, venue was improper there and the case must be transferred. Plaintiff contended that because the Department of Justice, under the Attorney General's direction, maintains an office of the Bureau of Narcotics Enforcement in San Jose (Santa Clara County), the Attorney General's presence there supports venue pursuant to section 6933.

The Court of Appeal agreed with the Board, stating, "In considering the type of office that was intended by the Legislature, we observe that section 6933 contemplates tax litigation, not enforcement of California's drug laws. There simply could be no rational purpose for the Legislature to establish the place of trial in a tax refund action in a city or city and county where a branch office of the Bureau of Narcotics Enforcement is located." State Board of Equalization v. Superior Court ( llc) (2006) 138 Cal.App.4th 951.

State Has Priority Claim to Assets in Hands of Receiver

The State Board of Equalization intervened in an action brought by a creditor on a promissory note against a delinquent taxpayer. A receiver had been appointed by the court and had come into possession of the proceeds of the principal receivership asset, a dealer's reserve account, following the rendering of judgment for the creditor. The Board sought to assert its priority under Section 6756 of the Revenue and Taxation Code, which grants to the State a priority for unpaid taxes against general creditors of a debtor when the debtor is insolvent, and under Section 6757 of the code, under which the Board may obtain, upon the filing of a certificate of delinquency, a lien for unpaid taxes having the force, effect, and priority of a judgment lien. The Board had filed a certificate of delinquency prior to the time that the creditor secured judgment. The creditor contended that the receiver was the owner of the debtor's assets and that, therefore, the Board acquired no priority.

The court of appeal, in holding that the Board was entitled to priority under both statutory provisions, stated that a receiver takes the property in the condition existing at the time of his appointment, impressed with the legal and equitable rights and claims of creditors. The creditor never had a lien on the funds paid to the receiver, no levy having been made on the specific property, and thus had no right greater than that of a general creditor. Likewise, when the Board recorded its certificate of delinquency it acquired a lien entitling it to priority, since the general creditor's judgment lien did not come into existence until a later date. Wright v. Standard Engineering Corp. (1972) 28 Cal.App.3d 244.

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Delivery of Liquefied Petroleum Gas by Hose from Vendor's Tank Truck to Buyer's Storage Tank Is Not Exempt Delivery of Gas Through Mains, Lines, or Pipes

Plaintiff sought a refund for use tax that it had paid with respect to liquefied petroleum gas (LPG). The LPG had been transported by a vendor's tank truck to plaintiff's storage facility and had been delivered by passing it from the truck to plaintiff's container through the vendor's flexible high pressure tube or hose. Plaintiff based its claim on Section 6353 of the Revenue and Taxation Code, which exempts from tax the use of "gas, electricity, and water when delivered to consumers through mains, lines or pipes." Plaintiff claimed that LPG is a gas, even though delivered in liquid form, and that the delivery from the truck to the storage tank was through a main, line, or pipe.

The Board had long construed Section 6353 as not including within its exemption the sale or use of substances emptied from vendors' vehicles by means of hoses.

The court of appeal reversed the trial court judgment and upheld the Board's interpretation of the statute. The court held that the Board's construction was entitled to great weight and was not to be overturned unless clearly erroneous or unauthorized. Then, using dictionary definitions, the court found that mains, lines, and pipes did not ordinarily include hoses, and that a later amendment of the statute indicated that the Legislature in its use of the words "mains, lines, and pipes" meant fixed conduits such as those which ordinarily provide a particular geographical area with utility services.

Finally, noting that statutes granting exemptions from taxation must be reasonably, but strictly, construed against the taxpayer, the court found that the Board's construction was neither clearly erroneous nor unauthorized. The court distinguished a 1943 opinion of the Attorney General that held exempt the sale of gas through installations placed by a public utility on the premises of its customers on the basis that in that situation there were as many as 24 customers connected to each installation, the pipes were owned by the customers, the tanks and their contents were owned by the utility, there was continuous delivery of gas from the tank, and the flow was through the utility's meter into the customer's pipe and gas consumption devices. The court found it unnecessary to decide whether the LPG was a gas within the meaning of Section 6353. Standard Oil Company of California v. State Board of Equalization (1974) 39 Cal.App.3d 765.

Custom Packers Are Consumers of Raw Materials Bought for Containers

Plaintiffs perform custom packing including the construction from raw material of containers around goods which require special preparation prior to shipment. Plaintiffs maintain inventories of lumber, nails, strapping material, and other types of container material which become components of the container. This container material was purchased without payment of sales tax after plaintiffs issued resale certificates to their various suppliers. Plaintiffs were not the sellers of any of the goods that were packaged and plaintiffs did not perform any of the subsequent shipment of goods. The packing and preparation was generally performed by plaintiffs at their various business locations. Thereafter, the contained goods would be delivered to a carrier for shipment pursuant to directions from plaintiffs' customers.

Items packaged for shipping included delicate instruments and machinery and computers, which were principally shipped in interstate or foreign commerce. The containers and packages were made for customers on an individual or job basis to hold specific goods. There was no understanding that the containers or packages would be returned to plaintiffs by plaintiffs' customers for reuse. Plaintiffs billed their customers a lump sum amount for packing and containing and did not make a "separate charge" for the container material. Although each transaction was based on an "express" contract agreement with the customer, there was no express provision for the passage of title to the container material in plaintiffs' billings, invoices, or other contract writings. Most of the purchase orders received by plaintiffs were verbal.

The Board assessed tax on plaintiffs' purchases of the materials on the ground that plaintiffs were not "selling" the containers to the customers but were instead providing a service of which the containers were an integral part.

Thus, the plaintiffs were consumers of the materials used in constructing the containers and could not purchase the materials for resale. The court of appeal held that plaintiffs did not meet the conditions required for effecting a retail sale of the containers but were instead the consumers of the materials. As such, tax applied to their purchases of the materials. Sternoff v. State Board of Equalization (1980) 103 Cal.App.3d 828.

Receiver Liable in Representative Capacity for Sales Tax Reimbursement Collected on Sales

The order of appointment of a receiver stated that he was authorized to conduct and operate the business, but that he would incur no personal risk for his operation of the business as receiver. After operating the business, the court discharged the receiver and ordered that he file a final account and report. The receiver reported sales tax and unemployment insurance tax to the appropriate agencies and set forth in his final account and report. However, although the receiver had collected sales tax reimbursement from customers on sales of tangible personal property and had made deductions from employees' paychecks under the provisions of the Unemployment Insurance Code, he did not pay the tax amounts to the appropriate state agencies. The State of California filed objections to the accounting and sought to prevent the discharge of the receiver, requesting a surcharge against the receiver for the tax amounts due. The trial court issued an order which approved, allowed, and settled the final account and report and exonerated the receiver's bond.

The California Court of Appeals reversed, holding that the State did not seek to hold the receiver personally liable, but sought to proceed against the bond for the receiver's failure to properly discharge his duties as receiver. The court held that a receiver who collects and withholds sales tax reimbursement and unemployment disability tax is liable in his representative capacity as a receiver for the payment of such funds on a priority basis in case of the insolvency of the receivership estate. Stewart v. State of California (1969) 272 Cal.4th 345.

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Driving Trucks Out of State Is Not a Taxable Use of Trucks in State

Taxpayer purchased trucks in California for lease to out-of-state carriers, and drove the unloaded trucks out of state, where the leases commenced. The Board imposed use tax on the purchases, and taxpayer filed suit for refund. The trial court entered judgment in favor of the taxpayer.

The court of appeal affirmed, holding that under Revenue and Taxation Code section 6009.1, no use tax can be imposed where the sole use of the property in the state is the delivery of the property to an out-of-state lessee. The Board's Regulation 1620(b)(5), which required that the property must be passively transported out of state, not transported under its own power, was an unwarranted abridgement of the exemption created in favor of taxpayers who transport property outside the state for use thereafter solely outside the state. Stockton Kenworth, Inc. v. State Board of Equalization (1984) 157 Cal.App.3d 334.

Distributor of Greeting Cards Held to Be the Retailer of Cards Sold Through Agents

Plaintiff, a California corporation that distributed greeting cards to independent salesmen in California and other western states, sought a refund of taxes paid by it, contending that the salesmen were the actual retailers of the cards. The salesmen, who were solicited by an out-of-state corporation associated with plaintiff, forwarded orders to that corporation who in turn forwarded them to plaintiff. Plaintiff mailed the cards, which were drawn from stocks acquired from its out-of-state parent corporation, directly to the salesmen. The Board had ordered that plaintiff, rather than the salesmen, be regarded as the retailer of the cards pursuant to Revenue and Taxation Code Section 6015 which provides that the Board may, for the efficient administration of the Sales Tax Law, regard salesmen as agents of the distributors ". . . under whom they operate or from whom they obtain the tangible personal property sold by them . . ." and the distributors as retailers.

The trial court found that plaintiff distributed the cards to the salesmen, that the salesmen obtained the cards from plaintiff, and that the salesmen were so numerous that the Board could not effectively collect the tax directly from the salesmen. In affirming, the court of appeal held that plaintiff was not required to have an ownership interest in the cards to be a distributor. The fact that it was a subsidiary of the parent corporation and that the cards sent to the salesmen by plaintiff bore its identification in the form of a return address, and at times even contained sales literature inserted by it, was sufficient. The court noted that it was plaintiff which actually delivered the erecting cards to the salesmen, and that this act constituted the final service accorded to the salesmen by any of the entities. The court further held that plaintiff was not entitled to a refund with respect to sales which might have been made outside the state since it failed to offer any evidence as to which of its sales were made outside of California. Sunshine Art Studios of California v. State Board of Equalization (1974) 39 Cal.App.3d 223.

Board Records that Interpret Regulations Are Considered Part of the Agency's Working Law and Are subject to the Public Records Act

A business providing advice to taxpayers on the construction and application of the Sales and Use Tax Law requested records from the Board relating to the Board's interpretation of two tax regulations pursuant to the California Public Records Act (PRA). The business offered to pay fees for copying and for excising confidential taxpayer information from the requested records.

The court held that the request was sufficiently specific and that it sought the Board's "working law" which is a matter of public interest. The court stated that the Board could not restrict disclosure merely because the records contained confidential taxpayer information since such information could be excised without destroying the utility of the records. The fact that the records were sought for commercial use was irrelevant, since the PRA does not differentiate among those who seek access to public information. The court also stated that it was not an abuse of discretion to require the Board's preparation of a document list to assist the taxpayer in identifying the records it wished to obtain. State Board of Equalization v. Superior Court (Associated Sales Tax Consultants) (1992) 10 Cal.App.4th 1177.

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California Constitution Bars Taxpayer Action for Refund Before Full Payment

After the Board sent taxpayer a notice of determination of sales taxes and interest due of $187,000 for several different quarters, taxpayer sent the Board $250 and instructed the Board to apportion the partial payment to all of the transactions the Board claimed were taxable. Taxpayer later filed an action for refund of the $250 in Superior Court, while the taxpayer's petition for redetermination of the balance of $187,000 liability was still pending before the Board. After the trial court overruled the Board's demurrer and denied the motion to strike the complaint, the Board sought a writ of mandate.

The California Supreme Court granted the Board's petition for a writ of mandate. The court held that Article XIII, Section 32 of the California Constitution, which prohibits actions to prevent or enjoin the collection of any tax, barred an action for refund of a partial payment before the full amount of the disputed tax was paid. This action would require adjudication of the taxpayer's liability for each disputed quarter, since the doctrine of res judicata would bar any subsequent Board action to collect additional taxes, even though almost all the assessed taxes remain unpaid. Article XIII, Section 32 forbids this result. The court disapproved two earlier cases, Snoozie Shavings, Inc. v. State Board of Equalization (1979) 97 Cal.App.3d 771 and Schaffer v. State Board of Equalization (1952) 109 Cal.4th 574, to the extent they are inconsistent with this decision. State Board of Equalization v. Superior Court (O'Hara & Kendall Aviation, Inc.) (1985) 39 Cal.3d 633.

A Purchaser Cannot Sue the Board for Refund of Sales Tax

A purchaser brought an action against the State Board of Equalization seeking the recovery of sales tax reimbursement which it assertedly overpaid to its vendors who, in turn, overpaid the Board. The Board successfully moved for summary judgment on the ground that the purchaser was not the taxpayer and thus lacked standing to sue for refund of sales tax. On granting summary judgment, the trial court granted the purchaser leave to file an amended cross-complaint to bring itself within the rule of Javor v. State Board of Equalization (1974) 12 Cal.3d 790, which provides a limited exception to the general rule prohibiting suits for tax reimbursement by anyone other than the taxpayer. The Board applied for extraordinary relief, challenging as an abuse of discretion the trial court's order denying its motion to strike the amended complaint and overruling its demurrer thereto.

The court of appeal issued a writ of mandate directing the trial court to vacate its order and to enter an order granting the relief sought. The court held that, because the purchaser did not lack a remedy, the exception to the general rule was inapplicable.

The court further held that the amended complaint expressly alleged that several of the purchaser's vendors had pending administrative refund proceedings against the Board, and in the event the vendors were successful in those proceedings, any refund so obtained would be reachable by the purchaser. The court also held it was clear from the allegations in the purchaser's complaint that existing administrative remedies had not been exhausted, and that pending completion of those administrative proceedings, the trial court lacked jurisdiction. State Board of Equalization v. Superior Court (Petroleum Contractors, Inc.) (1980) 111 Cal.App.3d 568.

Employers' Subsidies to Cafeteria Operators Not Subject to Tax

Plaintiff operated cafeterias on the premises of public and private employers. Plaintiff entered into management operating agreements with the employers whereby each employer guaranteed expenses plus a fixed or a percentage fee to plaintiff for operating the cafeteria. If sales exceeded the cost plus fee, plaintiff paid the excess to the employer.

The Board assessed and collected taxes on the additional amounts paid by employers to plaintiff on the basis that these constituted gross receipts from the cafeteria sales. Plaintiff's claim for refund of taxes paid on the subsidies was granted in the trial court and upheld in the court of appeal.

Since the Board's finding that the subsidies were a part of taxable gross receipts was not based on any formal regulation, the court held that the weight normally attached to Board findings did not apply and that this finding was subject to judicial review for errors in factual analysis and legal interpretation.

The court then found that the subsidies were not consideration for the food sold to employers nor a part of the gross receipts from the sale of meals. The subsidies were thus not subject to tax where they could not be traced to particular sales of particular meals. Rebates paid by plaintiff to the employers were, however, a part of plaintiffs taxable gross receipts. Szabo Food Service, Inc. of California v. State Board of Equalization (1975) 46 Cal.App.3d 268.

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