Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Although Board Annotations Are Entitled to Some Consideration by Courts, They Are Not Regulations and Are Not Entitled to the Same Deference

Plaintiff was a seller of musical instruments, and it made gifts of some instruments by removing them from California inventory and delivering

them to common carriers for shipment to donors throughout the county. The Board issued a determination for use tax based on the cost of the instruments based on the conclusion that plaintiff had used the instruments in California when making gifts of them in this state. The trial court held in favor of plaintiff. The Court of Appeal reversed, holding in favor of the Board, based on annotations of legal opinions for the Board's legal staff. The determination of the Board had been consistent with these annotations, some of which were over 30 years old.

The Supreme Court reversed and remanded the matter for further consideration by the Court of Appeal. The Supreme Court held that the lower court had placed too much weight on the Board's annotations. The Court held that the Board's annotations are entitled to some consideration by a court upon review of a claim for refund, but that the annotations are not entitled to the same deference as a regulation. Rather, the court held that the weight of an annotation in a particular case depends upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control. The court directed the Court of Appeal to again consider the merits of plaintiff's claim in light of the clarification given as to the proper weight to be given to the Board's annotations. Yamaha Corp. of America v. State Board of Equalization (1998) 19 Cal.4th 1.

Gifts Sent Outside California

Upon remand by the California Supreme Court (see above), the Court of Appeal applied the instructions of the Supreme Court. Relying on the annotations and, alternatively, on its own analysis, the court concluded that a gift occurs, and California use tax applies, when property is delivered to a common carrier in California for shipment to a donee. This is true whether the donee is inside or outside California because the gift is completed for sales and use tax purposes in California at the time the donor delivers the property to the common carrier for shipment to the donee. Yamaha Corp. of America v. State Board of Equalization (1999) 73 Cal.App.4th 338.