Did California stop charging interest on unpaid sales and use tax while a bankruptcy automatic stay prevented collection?

Plain-English summary

California did not stop interest from accruing merely because a bankruptcy automatic stay temporarily prevented the Board from collecting the liability.

The account had omitted $510 in district tax for the second quarter of 1994. The Board's February 1995 determination included that tax and $30.61 in accrued interest. A later $51 penalty was assessed, and two December 1996 payments paid the tax and reduced the penalty to $37.64. The remaining interest bill was $141.13.

Legal staff said the interest and penalty had been assessed under the cited statutes. Although the automatic stay prevented collection while it was in effect, interest on the unpaid tax continued to run until the tax was paid.

Common questions

Did the automatic stay erase the tax debt?

No. The source says it prevented collection during the stay.

Did interest stop during the stay?

No. The letter says interest on the unpaid tax continued to accrue.

Did the letter waive the remaining penalty or interest?

No.

Citations and references

• California Revenue and Taxation Code section 6561 — finality provision cited for the determination
• California Revenue and Taxation Code section 6591 — interest and penalty provision cited by the letter

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0000-500.pdf

Original ruling text

170.0000.500

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 445-6496
FAX: (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
___
JOHN CHIANG
Acting Member
Fourth District, Los Angeles
_____

May 29, 1997

E. L. SORENSEN, JR.
Executive Director

Mr. R--- V--- K--XXXX --- --- Drive
---, California XXXXX

Re:

S--- G--- and B--Permit No: SR -- XX-XXXXXX

Dear Mr. V--- K---:
This office has received your letter dated May 26, 1997 in which you state that the Board has billed you $141.13 in interest and $37.64 as a penalty on the above account. You state that the billing is not appropriate as you made every effort to pay the $510.00 in tax due as the result of an error made by a C.P.A./bookkeeper. Our review of the file on your account indicates that the return filed for the 2nd Quarter of 1994 did not report $510.00 due for district tax on line 18 of the return. On February 27, 1995, the Board issued a Notice of Determination to you in the amount of $510.00 tax and
$30.61 accrued interest. The interest was assessed pursuant to Revenue and Taxation Code section 6591. The determination became final pursuant to Revenue and Taxation Code section 6561. On April 12, 1995, a $51.00 penalty was assessed pursuant to Revenue and Taxation Code section 6591. On December 10, 1996, two payments were received which paid the tax portion of the liability and reduced the penalty liability to $37.64. The 141.13 in interest liability for which you have been billed consists of interest stated in the Notice of determination and interest on the tax portion of the liability which has accrued from that time until the tax portion was paid. The interest and penalty owing on the above account was assessed pursuant to the statutes cited above. Interest continues to accrue on any outstanding tax due during the pendency of any bankruptcy action. Although the Board was prevented from collecting the

Mr. R--- V--- K---

-2-

May 29, 1997
170.0000.500

liability while the bankruptcy “automatic stay” was in effect, interest on the unpaid tax due continued to accrue during this period. Very truly yours,

Thomas J. Cooke
Tax Counsel
TJC/cmm
cc:

Sacramento District Office (KH)