A new regulation has been proposed to interpret Revenue and Taxation Code Section 6596. This section grants tax relief for reliance on erroneous written advice from the Board of Equalization.

In the code, the conditions of relief are:

1. The person must request in writing that the Board advise him of the tax application of a particular transaction.

2. The Board responds in writing to that person and renders such advice.

3. The person, because of the advice given, does not charge or collect a sales or use tax.

Only the person making the request would be entitled to rely on that advice.

It has long been the practice of the Board Members, however, to be somewhat more liberal in their application of this section. For example, if it was clear that erroneous advice was given in a prior audit, they would grant relief even though condition number one technically was not met.

Now proposed regulation 1705 provides that if a prior audit contains written advice which demonstrates clearly that the issue in question was discussed with that person, such evidence will be considered “written advice from the Board…” However, the notation of a transaction in an audit either in a sample test or on an actual basis, does not constitute discussion of an issue. Therefore, relief would not be granted.

Also, the new regulation emphasizes that in the case of erroneous written advice resulting from a specific inquiry, the person making the inquiry (if not the taxpayer) must identify the taxpayer. On this issue, a recent proposed annotation dealt with an accountant who sent an inquiry to the State Board of Equalization without identifying his client. Later when he received a favorable response, he wrote another letter which identified the client in the previous letter in order that the client could rely on the written advice received from the Board. The State Board of Equalization later ruled that since the first letter did not identify the client, the taxpayer could not claim reasonable reliance even though the factual situation in the second letter was identical. The State Board of Equalization reasons that letters are never retroactive to the date of any other correspondence.

In another other proposed change, Regulation 1543 would expand the exemption provided to publishers for original manuscripts to include columns, cartoons, and cartoon strip drawings. Thus, artists who create original drawings for publishers could exempt the sale from tax.