Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales and Use Tax Annotations


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R

460.0000 REIMBURSEMENT FOR SALES TAX—Regulation 1700

Annotation 460.0025

460.0025 Excess Tax Reimbursement—Intent to Evade Tax. In a Petition for Redetermination, the taxpayer claims that it charged sales tax reimbursement on design charges which it believed in good faith were not subject to tax. It collected and retained the tax reimbursement only as a way to obtain extra payment for services without causing customer complaints. Therefore, the taxpayer concludes, its failure to pay tax on these charges was not due to an intent to evade tax, but that it intended to defraud its customers, not the state, and the fraud penalty thus cannot be sustained. The taxpayer relied on a statement in Marchica v. State Board of Equalization 107 Cal.App.2d 501 (1951) which cited a federal income tax case.

Federal income tax cases for the statement in question are not relevant because the sales tax, unlike the income tax, can be passed on to customers as a separately stated charge. The fraud penalty here is proper since the taxpayer knowingly and intentionally collected money from customers under a false representation that it was sales tax which would be paid to the state and then retained the money as its own profit. There is nothing in the Marchica opinion to indicate that the taxpayer had charged tax reimbursement to customers. The only question before the court was whether a mere understatement of tax, without more, was sufficient to sustain a fraud penalty. The court was not asked to decide, and in fact did not decide, whether the penalty is proper when a person knowingly collects and retains tax reimbursement. 10/1/96.