Did California pay credit interest on the tax, penalty, and interest portions of a sales-tax refund?

Plain-English summary

An original audit covered December 12, 1983 through June 26, 1988 and was telephone-billed in three parts. The source says the June 1, 1985 through December 14, 1986 segment was billed only after the limitations period had lapsed. The audit, billings, limitations computation, determinations, amounts, and payments are not reproduced.

The claimant accepted a November 8, 1994 reaudit before Board presentation; a July 1995 redetermination followed, then payment and a refund claim. During the refund appeal, claimant documentation substantially reduced the liability through another reaudit dated February 1, 2002. On August 1, the Board redetermined liability under that reaudit and granted a refund to the extent payments exceeded it. The claimant agreed with the reaudit but wanted credit interest calculated on the entire overpayment, including tax, penalty, and interest.

Tax counsel concluded that Revenue and Taxation Code section 6907 authorized credit interest only on an overpayment of tax. Overpaid interest had to be refunded or credited, but without earning credit interest. Although section 6907 did not separately discuss overpaid penalties, its express limitation to tax meant penalty overpayments should be treated the same way as interest overpayments.

The answer assumed a timely, valid refund claim. The September 6 request disclosed no claimant authority for a different result, and the response invited further analysis if such authority was supplied later. Neither the claimed authority nor any response, refund calculation and amount, payment, appeal, or later outcome is supplied.

The live annotation publishes the timely-valid-claim assumption, section 6907 limitation, and equal treatment of penalty and interest. It omits the audit, redetermination, payment, refund and appeal history, section 6901 and Regulation 1703 support, named staff, missing records, and final-outcome gap.

Common questions

Was the penalty or previously charged interest itself refundable?

Potentially, yes. The distinction was that those refunded amounts did not themselves earn credit interest.

What amount earned credit interest?

Only the qualifying overpayment of tax under section 6907.

Citations and references

• California Revenue and Taxation Code section 6901 — partially quoted for credits and refunds of amounts, penalties, and interest paid more than once or erroneously or illegally collected or computed; complete text, definitions, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6907 — partially quoted for interest on overpaid tax and refund or credit of associated interest; complete text, definitions, procedures, amendments, later history, and current law not supplied
• California Code of Regulations, title 18, Regulation 1703(b)(5)(A) — cited in accord with refunding or crediting overpaid interest without credit interest; complete text, definitions, examples, procedures, amendments, later history, and current law not supplied
• September 6, 2002 memorandum to Assistant Chief Counsel Janice Thurston — underlying memorandum beyond the quotation, attachments, calculations, and claimant authority not reproduced
• Original 1983–1988 audit, November 8, 1994 reaudit, July 1995 redetermination, February 1, 2002 reaudit, and August 1, 2002 Board action — underlying reports, billings, determinations, payments, claim, documentation, appeal record, submission, decision, refund amount and calculation, and correspondence not reproduced
• September 18, 2002 Senior Tax Counsel Randy Ferris memorandum — no response, expanded analysis, refund calculation, payment, appeal, or later outcome supplied
• Official Annotation 320.0048's timely-valid-claim assumption, section 6907 limitation, equal penalty-and-interest treatment, and date — omits the section 6901 and Regulation 1703 support, procedural history, named staff, missing authority and records, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/320-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/320-0048.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Robert L. Buntjer
Supervisor, Refund Section (MIC:39)

From:

Randy Ferris
Senior Tax Counsel (MIC:82)

Subject:

320.0048

Date:

September 18, 2002

s- - xx-xxx

Your memorandum to Assistant Chief Counsel Janice Thurston, dated September 6, 2002, has been assigned to me for reply. In your memorandum, you request a legal opinion regarding the proper calculation of credit interest with respect to a refund amount due to the above-referenced taxpayer (hereafter claimant). In relevant part, you state: "[T]his matter involves the audit of [claimant] for the period of December 12, 1983[,] through June 26, 1988. The original audit was telephone billed in three parts because of the limitations of the Board's computer system at the time. The billings for the reporting periods of December 12, 1983 [,] through May 31, 1985, and December 15, 1986, through June 28, 1988[,] were billed timely. However, the billing for the period June 1, 1985[,] though December 14, 1986[,] was not billed until after the statute of limitations had lapsed. "These determinations were previously the subject of a Petition for Redetermination. However, before this matter was presented to the Board as a petition, claimant agreed to the reaudit report dated November 8, 1994. A redetermination was issued in July 1995. Subsequently, claimant paid the audit liability and filed a claim for refund. During the refund appeals process, claimant provided documentation that substantially reduced the previously redetermined liability. Another reaudit was completed and the case was presented to the Board for final action on August 1, 2002. The Board concluded that [the] audit liability should be redetermined in accordance with the Sales and Use Tax Department's reaudit dated February [1], 2002. The claimant concurred with these reaudit results. The Board also concluded that the claim for refund should be granted to the extent that the payments received exceeded the reaudit report dated February 1, 2002. The amount of the refund has been calculated and claimant is now contesting the Board's method of calculating credit interest on the refund. Claimant is requesting that credit interest be calculated on the total amount of overpayment made, inclusive of tax, penalty, and interest."

You ask whether the Board is permitted to pay credit interest on overpayments related to the interest and penalty portions of this liability. Revenue and Taxation Code section (Section) 6901, which authorizes the Board to issue credits and refunds under the Sales and Use Tax Law, distinguishes between the overpayment of a tax amount and the interest and penalties that may be associated with that amount. (Rev. & Tax. Code, § 6901 ["If the board determines that any amount, penalty or interest has been paid more than once or has been erroneously or illegally collected or computed.... "] Section 6907, which pertains to credit interest, acknowledges this distinction and provides, in relevant part, that: "Interest shall be paid upon any overpayment of any amount of tax.... In addition, a refund or credit shall be made of any interest imposed upon the person making the overpayment with respect to the amount being refunded or credited." Thus, assuming that a timely, valid claim is filed, under the plain language of Section 6907, the Board is only authorized to pay credit interest on overpayments of tax amounts, and overpayments of interest are credited or refunded without the payment of credit interest. (Accord Cal. Code Regs, tit. 18, § 1703, subd. (b )(5)(A).) Section 6907 does not mention overpayments related to penalties, but, given that the statute expressly limits the payment of credit interest to refunds or credits arising from the overpayment of tax, overpayments related to penalties should be treated similarly to overpayments of interest (i.e., refunded or credited without payment of credit interest). Your memorandum does not disclose what authority, if any, claimant relies on in support of its request to receive credit interest on overpayments related to penalty and interest. To the extent claimant has provided, or later provides, such authority, if the foregoing discussion is not comprehensive enough, I would be happy to expand my response to analyze that authority. In light of the information presently available to me, I trust that my response adequately addresses your request. Should any questions or concerns remain, please do not hesitate to contact me.

RMF:rmf