Could California charge a full month's interest when a tax payment was only about one week late?

Plain-English summary

An unidentified company paid $25,634 of tax about one week late and was charged $235 of interest. It calculated that amount as a full month at an 11-percent annual rate and questioned why a one-week delay produced a month's charge. The request, tax period, due and payment dates, return, extension status, annual-rate source, assessment, and calculation are not reproduced.

The cited statutes used the modified adjusted rate per month “or fraction thereof.” Section 6591.5(b) defined the monthly rate as the annual rate divided by twelve. Tax counsel therefore concluded that any portion of a monthly period during which tax remained unpaid triggered the full monthly rate. No recomputation, payment, abatement request, refund claim, appeal, or later outcome is supplied.

The live annotation publishes only the monthly-rate and fraction-of-month conclusions. It omits the figures, annual-rate assertion, statutes, request provenance, named staff, missing account records, and outcome gap.

Common questions

Was the interest prorated by the number of late days?

No. The letter applied the statutory monthly rate to a month or any fraction of one.

Did the same fraction-of-a-month language apply to an extension?

Yes. The letter quoted section 6459 as using the same monthly-rate formulation for an approved filing or payment extension.

Citations and references

• California Revenue and Taxation Code section 6459 — partially quoted for extensions and monthly or fractional-month interest; complete text, requirements, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6591 — partially quoted for penalty and monthly or fractional-month interest on late tax; complete text, exceptions, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6591.5(b) — described for the monthly-rate definition; complete text, annual-rate source and adjustment, rounding, amendments, later history, and current law not supplied
• April 19 request and June 18, 1993 response — no request, account and return records, rate source, assessment calculation, requester reply, recomputation, payment, claim, appeal, or later outcome supplied
• Official Annotation 320.0131's monthly-rate and fraction-of-month conclusions and date — omits the figures, annual-rate assertion, statutes, provenance, named staff, missing records, later outcome, and reliance status and supplies no additional account 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/320-0131.pdf

Original ruling text

320.0131

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
June 18, 1993
Re:
Interest Applicable to Late Tax Payment
Dear,
Your letter dated April 19, 1993 and addressed to Michelle Sommer of the State Board, was forwarded to this office for response. You state in your letter that a tax payment by your company of $25,634 was approximately one week late. The interest assessed by the State Board of Equalization (SBE) for the late payment was $235.00. You calculate that to be one full months interest at an 11% annual rate. You question whether your company should be assessed a full month's interest. California Revenue and Taxation Code section 6459 permits the Board to extend the time for the filing of a return or the payment of tax not to exceed one month. Any person to whom such an extension is granted "shall pay, in addition to the tax, interest at the modified adjusted rate per month, or fraction thereof, established pursuant to section 6591.5, from the date on which the tax would have been due without the extension until the date of payment." Revenue and Taxation Code section 6591 provides that if any person fails to pay any tax, except amounts of certain determinations, within the time required, a penalty "plus interest at the modified adjusted rate per month, or fraction thereof, established pursuant to section 6591.5, from the date on which the tax or the amount of tax required to be collected became due and payable to the state until the date of payment" shall be paid. Revenue and Taxation Code section 6591.5 (b) defines the term "modified adjusted rate per month, or fraction thereof" as the modified adjusted rate per annum divided by 12. It is our opinion that interest for the late payment of tax accrues at a monthly rate and if any payment of tax is late, the full monthly rate is applicable for any portion of a monthly period for which the tax has not been paid. I hope this explanation is helpful to you. Very truly yours, Thomas Cooke Tax Counsel