Did one partner's Chapter 13 filing or removal of another partner's name from an alcohol license notify California that the other partner had withdrawn from the seller-permit business?

Plain-English summary

Another partner's Chapter 13 bankruptcy filing did not notify the Board that the levied former partner had withdrawn from the business. One partner could file bankruptcy while another remained in the partnership, and notice to another state agency did not itself notify the Board.

Removal of the former partner's name from the alcoholic-beverage license also did not substitute for notice to the Board. Regulation 1699(f) required notice to a Board office or authorized representative, normally with delivery of the seller's permit, or receipt of a successor's permit application.

Even without proper notice, the source said section 6071.1 and the regulation limited the former partner's tax liability to the quarter of transfer and the next three quarters. If he proved that he withdrew on December 31, 1995, the April through June 1997 liabilities would fall outside that period, and staff concluded he was entitled to a refund of the levied funds.

Common questions

Did the other partner's bankruptcy notify the Board of withdrawal?

No.

Did the ABC license change provide notice?

No.

Could the former partner still recover the levy?

Yes, if he supplied sufficient proof of the claimed withdrawal date.

Citations and references

• California Revenue and Taxation Code section 6071.1 — former partner liability limited to the transfer quarter and three subsequent quarters
• California Code of Regulations, title 18, section 1699(f) — acceptable notice of business transfer or cessation
• 11 U.S.C. section 1301(a)(1) — cited for the fact that one partner's Chapter 13 filing did not establish another partner's withdrawal

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/170-0039.pdf

Original ruling text

170.0039

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION – MIC: 85
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-2653
FAX (916) 324-2618

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento

December 26, 1997
JOHN CHIANG
Acting Member
Fourth District, Los Angeles

REDACTED TEXT
Re:

REDACTED TEXT

E. L. SORENSEN, JR
Executive Director

Dear REDACTED TEXT:
This office has received your letter dated December 23, 1997 in which you state that you represent REDACTED TEXT, a former partner and permitholder in the above business. Mr. REDACTED TEXT’s bank account was levied on December 4, 1997 for $2,082.22. You are requesting a refund of the funds obtained by the levy on the grounds that the State Board of Equalization was on actual notice that REDACTED TEXT no longer had an interest in REDACTED TEXT by the bankruptcy filing on April 21, 1997 of REDACTED TEXT], Mr. REDACTED TEXT’s partner in the business. You state that Mr. REDACTED TEXT ceased to be a partner in the business on December 31, 1995 and was not on the ABC license since November 15, 1996. Therefore, you contend, Mr. REDACTED TEXT cannot be held responsible for taxes incurred in April, May and June of 1997 when tax returns were filed for those months without payment. Sales and Use Tax Regulation 1699(f) provides, in part: “Upon discontinuing or transferring a business, a permit holder shall promptly notify the board and deliver his or her permit to the board for cancellation. To be acceptable, the notice of transfer or discontinuance of a business must be received in one of the following ways: “(1) Oral or written statement to a board office or authorized representative, accompanied by delivery of the permit, or followed by deli very of the permit upon actual cessation of the business. The permit need not be delivered to the board, if lost, destroyed or is unavailable for some other acceptable reason, but notice of cessation of business must be given. “(2) Receipt of the transferee or business successor’s application for a seller’s permit may serve to put the board on notice of the transferor’s cessation of business.

Mr. REDACTED TEXT

-2-

December 26, 1997
170.0039

“Notice to another state agency of a transfer or cessation of business does not in itself constitute notice to the board.” We do not believe that Mr. REDACTED TEXT’s Chapter 13 bankruptcy filing constituted actual notice that Mr. REDACTED TEXT no longer had an interest in the business. One partner in a business may file a Chapter 13 bankruptcy action while another partner has not filed bankruptcy. See 11 U.S.C. section 1301(a)(1). The fact that Mr. REDACTED TEXT may have ceased to be a partner on December 31, 1995 or that his name has not been on the ABC license since November 15, 1996 is irrelevant if the Board has not received notice that he has withdrawn as a partner. However, even if the withdrawing partner failed to give notice to the Board that he was withdrawing from the partnership, Revenue and Taxation Code section 6071.1 and Sales and Use Tax Regulation 1699(f) limits his tax liability “to the quarter in which the business is transferred, and the three subsequent quarters.” If you can furnish sufficient proof of your statement that Mr. REDACTED TEXT withdrew from the business on December 31, 1995 to the Board’s district office, it is our opinion that Mr. REDACTED TEXT is entitled to a refund of the levied funds. Very truly yours, Thomas J. Cooke Tax Counsel TJC/cmm cc:

Oakland District Administrator (w/encl.) - CH