Did a vessel owner receive a refund of use tax paid on lease receipts after the purchase-period assessment became time-barred?

Plain-English summary

California Appeals staff recommended granting the vessel owner's petition against a deficiency determination because the taxable purchase occurred in May 1991, outside the June 1991-through-December 1992 period covered by the notice, and the limitations period for a May 1991 deficiency had expired.

That did not produce the refund the owner requested. The owner had paid use tax measured by lease receipts in 1992, while both sides agreed the correct measure was the vessel's purchase price. Relying on Owens-Corning and Lewis v. Reynolds, the recommendation said expiration of the assessment period did not erase the underlying tax liability or require California to return payments that did not exceed what could properly have been assessed.

The owner also relied on an opinion letter issued to a different taxpayer. Appeals said it did not apply under Revenue and Taxation Code section 6596(b). The split recommendation therefore granted the petition against the determination but denied any credit or refund of the lease-receipt payments.

Common questions

Why was the petition granted?

Because the taxable vessel purchase occurred outside the period in the notice, and the limitations period for assessing that purchase had expired.

Why was the refund denied?

Because Appeals concluded that the purchase tax still accrued and California could retain prior payments up to the amount that could properly have been assessed.

Could the owner rely on another taxpayer's opinion letter?

No, according to the recommendation and section 6596(b).

Citations and references

• California Revenue and Taxation Code section 6596(b) — reliance on another taxpayer's opinion letter rejected
• Owens-Corning Fiberglass Corp. v. State Board of Equalization (1974) 39 Cal.App.3d 532 — retention of payments after limitations period discussed
• Lewis v. Reynolds (1932) 284 U.S. 281 — quoted through Owens-Corning
• Annotation 465.0110 — related published annotation cited in the source

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/170-0066-800.pdf

Original ruling text

STATE OF CALIFORNIA

170.066.800

BOARD OF EQUALIZATION
APPEALS SECTION
In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law of:
REDACTED TEXT
Petitioner

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SUPPLEMENTAL
DECISION AND RECOMMENDATION
No.

REDACTED TEXT

The Appeals conference in the above-referenced matter was held by Staff Counsel Rachel M. Aragon on October 6, 1994, in Sacramento, California. A Decision and Recommendation (D&R) dated December 14, 1994, was mailed on December 23, 1994. The D&R concluded that the sale price of the vessel was the proper measure of tax and not the lease receipts. The D&R recommended that petitioner be credited for tax previously paid on the lease receipts. The information set out in the original D&R is incorporated herein by reference as though fully set forth above. Petitioner, through his representative REDACTED TEXT, submitted a timely request for reconsideration. Petitioner agrees that petitioner made a taxable use of the vessel in question in May 1991. Petitioner also agrees that the correct measure of tax is the purchase price. However, the vessel was purchased in May 1991; the determination was issued for the period June 1, 1991, to December 31, 1992; therefore, tax was not due during the period covered by the notice. The Sales and Use Tax Department (Department) agreed with petitioner that the vessel was purchased in May 1991. The Department noted that petitioner had filed a sales tax return which covered the period January 1, 1991, through December 31, 1991; therefore, the three-year statute of limitations applies and has expired. Since the statute of limitations has expired, the Department cannot issue a deficiency determination covering the period of May 1991 when the vessel was purchased. The Department recommended that the petition be granted. I agree that the petition should be granted. Petitioner stated that since there is no deficiency determination petitioner is entitled to a refund of the lease receipt payments. Petitioner relies on an opinion letter from Mr. Glenn Bystrom, written to a different taxpayer, to support that position. The Board stated that although a determination cannot be issued to enforce collection of the tax, the tax liability still accrued under the law and the use tax submitted with respect to the same transaction may be retained in satisfaction of the liability.

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March 4, 1996
170.0066.800

We agree with the Department that no credit or refund is due. In Owens-Corning Fiberglass Corp. v. State Board of Equalization (1974) 39 Cal.App.3d 532, the court cited a statement used in Lewis v. Reynolds (1932) 284 U.S. 281, 283 [76 L.Ed. 293, 294, 52 S.Ct. 145] which was applicable to Owens-Corning and which is applicable here. In Lewis, after an initial assessment had been paid, a claim for refund was filed and the statute of limitations for enforcement had lapsed. The Lewis court stated (Owens-Corning, at page 536) that ‘[a]lthough the statute of limitations may have barred the assessment and collection of any additional sum, it does not obliterate the right of the United States to retain payments already received when they do not exceed the amount which might have been properly assessed and demanded.’ See also Annotation 465.0110 (12/26/90). The opinion letter which petitioner cites was not written to petitioner; therefore, the opinion letter is not applicable. (See Rev. & Tax. Code § 6596(b).) In any event, we see nothing in Mr. Bystrom’s letter which is inconsistent with our decision herein. Petitioner is not entitled to a refund of the lease receipts paid in 1992. Recommendation It is recommended that the petition be granted.

Rachel M. Aragon, Staff Counsel

March 4, 1996
Date