Did fraud, theft, and embezzlement against a florist qualify as a disaster for sales-tax interest relief?

Plain-English summary

A redacted florist owner said employee and nonemployee fraud, theft, and embezzlement in December 1986 caused severe cash-flow problems and nearly ended the business. The owner sought relief from interest on tax due January 31, 1987 for October through December 1986 and stated under penalty of perjury that the crimes occurred despite ordinary care and no willful neglect. The June 8 letter, sworn statement, crime records, losses, account, return, payment, and interest amount are not reproduced.

The owner argued that a 1981 amendment deleting “natural” before “disaster” meant any disaster could qualify under Revenue and Taxation Code section 6593. The memorandum explained that the change addressed public calamities caused by people, such as an intentionally set fire, so they would be treated like naturally caused fires.

Regulation 1703 defined disaster as fire, flood, storm, tidal wave, earthquake, or a similar public calamity, whether natural or not. The source prints the subdivision first as “(b) (C) (6)” and later as “(b) (c) (6)”; this page does not reconcile those forms from outside material. Fraud, theft, and embezzlement did not fit the quoted definition, so counsel could not recommend interest relief. No Return Review or Board decision, adjustment, payment, claim, appeal, crime result, or later outcome is supplied.

The live annotation publishes only the section 6593 premise and no-disaster conclusion. It omits the regulation, 1981 amendment and arson example, absent request and sworn statement, named staff, missing record, and recommendation-only posture.

Common questions

Did ordinary care and lack of willful neglect establish relief by themselves?

No. The late payment also had to result from a qualifying disaster.

Why did deleting “natural” not cover every serious business crisis?

The memorandum said the change expanded coverage to public calamities such as arson-caused fires, not every event a taxpayer experienced as disastrous.

Citations and references

• California Revenue and Taxation Code section 6591 — described for then-current penalty and interest on late tax; complete text, rate, conditions, exceptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6593 — described for disaster-based interest relief; complete text, procedures, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1703 (b) (C) (6), later printed as 1703 (b) (c) (6) — quoted historical disaster definition; citation forms preserved as printed, and complete regulation, examples, procedures, amendments, later history, and current law not supplied
• Statutes of 1981, chapter 947 and Assembly Bill 357 — enacted text, bill, legislative materials, complete effective-date details, other changes, and later history not supplied
• June 8 request and July 22, 1987 response — no request, sworn statement, crime records, identities, losses, account, return, payment, interest amount, agency or Board decision, adjustment, claim, appeal, crime result, or later outcome supplied
• Official Annotation 320.0123's section 6593 premise, no-disaster conclusion, and date — omits the other authority and explanation, request provenance, named staff, missing records, recommendation posture, printed defects, later outcome, and reliance status and supplies no additional claim 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/320-0123.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Ms. Jean A. McNeill
Return Review

From:

E. L. Sorensen, Jr.
Legal

Subject:

Request for Relief from Interest

320.0123

Date:

July 22, 1987

This is in reply to your inquiry regarding the application of section 6593 of the Revenue and Taxation Code to --- request for relief from interest as iterated in his letter drafted by counsel, --- dated June 8, 1987, addressed to you and Ms. Carter. We are to consider whether --factual circumstances entitle him to such relief. As we understand the facts, --- is the owner of --- a florist shop. In December of 1986, --and his florist shop were victimized by fraud, theft, and embezzlement. The criminal acts were perpetrated by an employee and non-employee. The period for which --- is requesting relief of interest accruing on his account is from that tax which was due on or before January 31, 1987 for the period October through December 1986. Under penalty of perjury, --- has stated that the fraud, theft, and embezzlement created serious cash flow problems which nearly terminated his business. He further stated that the acts occurred notwithstanding his exercise of ordinary care and the absence of willful neglect.
--- contends that the Legislation, by deleting the word “natural” before “disaster” in a 1981 amendment of section 6593, has intended that any taxpayer who experiences a “disaster” should qualify for waiver of interest. --- believes that his circumstances constitute a “disaster” as defined by section 6593 and that any interest accruing on his account should be waived. Section 6591 of the Revenue and Taxation Code provides that in addition to imposing a penalty of 10 percent of the tax or amount of the tax, interest may be applied to the account of a taxpayer if that taxpayer has failed to pay and tax to the State or any amount of tax required to be collected and paid to the State within the time required.
--- has correctly stated that relief from interest may be granted in failure to make a timely return or payment was due to a disaster occurring despite the exercise of ordinary care and the absence of willful neglect (Rev. & Tax. Code § 6593). Further, he correctly states that Stats. 1981, Ch. 947, deleted the word “natural” before the word “disaster” in Section 6593.

Assembly Bill 357 provided the textual change in section 6593. this bill was an annual “clean-up” bill of the State Board of Equalization written to alleviate various administrative problems and inefficiencies. One such inefficiency is characterized by the following example. If a disastrous fire, stated by lightning, causes a taxpayer to make an untimely return or payment and that taxpayer had exercised ordinary care and there was an absence of willful neglect, then that taxpayer would be entitled to waiver of the interest. But if the disastrous fire was the result of an arsonist at work, the taxpayer would be required to pay the interest even though he/she had exercised ordinary care and there was an absence of willful neglect. The determinative factor was the word “natural”. To prevent such injustice, “natural” has been deleted. Regulation 1703 (b) (C) (6) provides: “[N]atural disaster” means fire, flood, storm, tidal wave, earthquake or similar public calamity resulting from natural causes, “disaster” means fire, flood, storm, tidal wave, earthquake or similar public calamity, whether or not resulting from natural causes. Although we can empathize with --- we are statutorily unable to recommend that the Board relieve him of the interest accruing on his account. Section 6593 applies to “disasters” as defined by Regulation 1703 (b) (c) (6). Clearly, --- “disaster” is not within the ambit and meaning which the legislative intent. If you have further questions, feel free to write again.

ELS:md