The California Court of Appeals made it just a little bit easier for taxpayers who are appealing CA sales use tax determinations. In a recent case, the court ruled (Agnew V. SBE CA CT APP 2nd div 7) that revenue and taxation code sections 6901 to 6908 do not require the payment of interest in order for the taxpayer to file a valid claim for refund.
As a review, the normal appeals procedure following a sales and use tax audit involves the following steps:
BEFORE THE BILLING (NOTICE OF DETERMINATION)
1/ Discussion with the auditor.
2/ Discussion with the supervisor.
3/ Discussion with the Principle Tax Auditor (as a response to the 10 day letter.)
AFTER THE BILLING (NOTICE OF DETERMINATION)
1/ A petition for redetermination must be filed within 30 days from the date of the Notice of Determination.
2/ An appeals conference is held and a Decision & Recommendation (D & R) is issued.
3/ The taxpayer and/or the staff can request reconsideration.
4/ A Board Hearing is held with the members of the Board of Equalization.
If the Board Members redetermine the liability, (make no adjustments) or if the petitioner is not satisfied with any adjustments made, he must pay the liability in full and file a claim for refund within 6 months from the later of the date of payment or the date the liability is redetermined. As a side note, in the event of partial payments, a claim for refund must be filed every six months.
Once the claim (or final claim in the event of payments) is filed, the board has six months to mail a notice of action.
In the event the board denies the claim or fails to respond, the taxpayer may bring suit in superior court within 90 days.
The board has held that taxpayers are not eligible to bring suit until the sales and use tax liability is paid in full including the interest thereon.
The Agnew case, however, reverses the board on this point.
Now, if a taxpayer looses his final Board Hearing, he can file his final claim for refund, (and ultimately have his day in court), by paying all the tax and none of the interest. Since the audits cover a three year period and because the appeals process takes several years, the accrued interest is often a large part of the original tax liability.
For example, the board is now hearing cases covering a typical audit period from 1990 to 1993 – the accumulated interest on a 1st quarter 1990 tax liability is 90% of the tax (1% per month simple interest) thru 10-31-97. If a petitioner was assessed $50,000 in that quarter which is in dispute, the related interest would be approximately $45,000 for a total deficiency of $95,000. Prior to this case, the State Board of Equalization’s position was that the taxpayer had to pay all $95,000 before filing the final claim for refund. Thus until it was all paid, he would have no right to file suit in superior court. Now, the taxpayer only has to pay $45,000 before filing his claim and ultimately (assuming the claim is denied) filing suit for CA tax. As usual a sales tax consultant could save lots of CA sales use tax in appeals process.
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