Who received a refund when a retailer collected too much California use tax from customers and remitted it to the state?

Plain-English summary

A retailer collected use tax on equipment rentals and remitted it to the Board. An investigation later treated the transactions as sales at inception, assessed sales tax, and credited the use tax, leaving an excess.

The 1987 memorandum concluded that the customers were the persons entitled to the excess use-tax refund under section 6901, including credit interest. Paying the retailer created a risk that customers who did not receive the interest would file their own claims and the Board would pay twice before trying to recover from the retailer.

The memorandum therefore recommended paying the lessees directly despite bookkeeping difficulties. In 1996, the Legal Division reviewed and agreed with that conclusion.

Common questions

Who received the excess use-tax refund?

The customers who had paid the use tax.

Who received credit interest?

Those customers as well.

Why not refund the retailer and require it to pass everything through?

The memorandum said the Board could not require the retailer to pass the credit interest to the customers.

Did Legal approve the audit memorandum's result?

Yes, in 1996.

Citations and references

• California Revenue and Taxation Code section 6901 — customer entitlement to the overpayment discussed

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/175-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/175-0145-800.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

175.0145.800

To:

J. E. Speed
San Francisco – District Principal Auditor

From:

Glenn A. Bystrom
Principal Tax Auditor

Subject:

[B]

Date:

December 17, 1987

Your memorandum of September 25, 1987, asked if it is administratively possible to issue a refund to [B] for use tax erroneously collected from their customers and remitted to the Board. The tax would the be redistributed by [B] to their customers. This procedure is commonly used where sales tax is involved, but is questionable with respect to use tax transactions. I believe that the tax originally collected was intended to be a use tax, based on the intent of the parties involved and the written evidence on the invoices. Consequently, the Board is liable to
[B]’S customers for any overpayment of tax in accordance with Section 6901. Any credit interest allowed is also owed to [B]’s customers. As I understand the situation, [B] was leasing various equipment and charging use tax on the rental receipts. The district investigation determined these transactions to be sales at inception and assessed sales tax against [B]. [B] was given a credit for the use tax paid on these transactions, however, the use taxes paid exceeded the sales tax liability, and therefore, a refund is appropriate. The question is, should the tax and credit interest be refunded to [B] or directly to the lessees? If the use tax, plus credit interest, is refunded to [B], the Board cannot require [B] to remit the credit interest to their lessees. Therefore, if any lessees who do not receive credit interest from
[B] files a claim for credit interest with the Board, we would be obligated to refund this amount to the lessees, and I suppose, attempt to recover the same amount from [B].

J. E. Speed

-2-

Dec. 17, 1987
175.0145.800

It is my understanding that [B] is reluctant to refund the credit interest, and the significance of the amount involved will almost certainly generate claims for refund from lessees for payment of the credit interest. Therefore, I believe that the excess tax, plus credit interest, should be refunded directly to [B]’s lessees, notwithstanding the bookkeeping problems this may cause us, or [B]. If you need any further information, please let me know.

GAB/smt
Cc:

R. Nunes
Gary Jugum
Don Hennessey
W. D. Dunn
Audit Review and Refunds

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum

To:

Mr. Glenn Bystrom

From:

Gary Jugum

Subject:

Non-Attorney Opinions

175.0145.800

Date:

July 10, 1996

I have reviewed your memorandum of December 17, 1987 to J. E. Speed. We are in agreement with his conclusion, as follows:

Refunds. Where a retailer engaged in business in this state collects more use tax from its customers than is due and remits the tax to the state, refunds of the excess plus interest will be paid to the customers rather than to the retailer. 12/17/87.

Gary Jugum
By MB