Could a retailer rely automatically on a late section 6247 statement to avoid liability for uncollected California use tax?

Plain-English summary

An internal timeliness question prompted Supervising Tax Counsel David H. Levine's memorandum to Audit Evaluation and Planning recipient Leila Khabbaz. It addressed no identified taxpayer or transaction and ordered that the opinion be annotated.

Section 6247, as described, presumed California use when property was delivered outside California to a purchaser the retailer knew was a California resident. Quoted Annotation 220.0241 said the retailer had to collect unless it accepted an outside-use statement in good faith. Section 6203 generally placed collection at the time of sale, so the memorandum said the retailer generally had to take the statement then or collect tax.

A late statement did not automatically overcome the presumption or protect against the debt for uncollected tax. Like an xyz letter offered to prove resale, it remained factual evidence: if the Board accepted its claims as accurate and sufficient, it could find no California-use purchase; otherwise the retailer needed more proof.

The author had drafted Regulation 1620(b)(3) to distinguish retailer collection liability from purchaser use-tax liability but had omitted timeliness and good faith because he considered them unquestioned. He said the omission did not justify amendment because the Board historically administered the statute that way, but supplies no drafting or administration records.

The phrase “retained by the vendor” supported taking the statement first and retaining it, rather than obtaining it whenever convenient. Regulation 1667 required timely, complete, good-faith sales-tax exemption certificates. Although it did not itself cover use tax, the memorandum applied the same guidelines by analogy unless law supplied an exception, identifying Regulation 1667(b)(2)'s reference to Regulation 1621(c)(2).

Good faith also mattered even though section 6247 did not say so expressly. A retailer could not knowingly accept a false statement and escape collection. The current annotation publishes the late-statement and factual-proof rules but omits this good-faith analysis, the drafting history, certificate analogy and exception.

Common questions

When was the retailer generally supposed to take the statement?

At the time of sale, when it otherwise was responsible to collect use tax under the memorandum's analysis.

Did a late statement automatically protect the retailer?

No. After the collection time passed, it no longer supplied automatic protection against the retailer's collection debt.

Could a late statement still matter?

Yes as evidence. The Board could accept accurate, sufficient facts showing the property was not bought for California use, or require additional proof.

Why did the phrase “retained by the vendor” matter?

Counsel read it to mean the vendor first had to take the statement and then retain it, not obtain it at any later time merely for presentation.

Was good faith required even though section 6247 omitted those words?

Yes according to the memorandum. A retailer knowingly accepting a false statement could not avoid collection.

Did Regulation 1667 directly govern use tax?

No. The source says it covered sales-tax transactions, but staff applied its timely, complete and good-faith certificate principles by analogy.

Did this memorandum decide an audit?

No. It gives general administrative guidance without any taxpayer, sale, statement, tax amount or later proceeding.

Citations and references

• Revenue and Taxation Code sections 6247 and 6203 — cited for the presumption, retained statement and collection timing; complete current law absent
• Regulations 1620(b)(3), 1667, 1667(b)(2) and 1621(c)(2) — discussed for liability, certificate rules and an exception; full provisions and current law absent
• Annotation 220.0241 (March 21, 1986) — quoted for known-resident sales and good-faith statements; underlying record absent
• September 12 memorandum — general guidance, drafting history and annotation direction without a transaction or outcome
• Official Annotation 325.0574 — preserves the late-statement rule but omits good faith, drafting provenance and evidentiary limits

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0574
• Original supporting opinion: 325.0574 PDF

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum
325.0574
Ms. Leila Khabbaz
Audit Evaluation and Planning

To :

David H. Levine
Supervising Tax Counsel

From :

Subject:

Date:

September 12, 1997

Telephone: (916) 445-5550

CalNet 485-5550

Section 6247

A question has arisen regarding whether a statement under section 6247 must be taken timely. The answer is, of course, obvious. Such a statement not taken timely is no different than, for example, an xyz letter taken in connection with claimed sales for resale. A section 6247 statement that is not taken timely does not automatically overcome the section 6247 presumption that the retailer sold the property for use in California. Similar to an xyz letter, if the Board believes that the facts claimed in the statement are accurate, then the Board’s conclusion would be that the property was not, in fact, purchased for use in California. On the other hand, if the Board did not believe the claims in the statement, or felt that such claims were insufficient to establish that the property was not purchased for use in California, the retailer would not have overcome the section 6247 presumption and would have to present additional evidence to overcome it. It appears that this fact is so obvious that no one has raised the issue since it does not appear that we have anything squarely on point. I must confess that I am partly to blame. When I drafted changes to Regulation 1620, I included language in subdivision (b)(3) to clarify that the section 6247 statement is relevant only to the retailer’s potential liability for use tax collection and not to the purchaser’s potential liability for use tax. I should have also included a reference to the timeliness and good faith requirements. Since I was not aware that anyone had questioned that a section 6247 statement must be timely to have the desired prophylactic effect, I did not notice that the regulation did not make this clear. Nevertheless, this omission is not significant and does not warrant amending the regulation since we have always administered the statute in this manner and this is consistent with the requirements for the other prophylactic certificates and statements that retailers may accept. We should, however, at least have an annotation on point. Perhaps the annotation that most closely addresses this is Annotation 220.0241 (3/21/86). It includes the following statement:

Ms. Leila Khabbaz

-2-

September 12, 1997
325.0574

“Section 6247 provides that tangible personal property delivered outside California, to a purchaser known by the retailer to be a resident of this state, will be presumed to have been purchased for use in California. Since the bidders submit their successful bids in California, it would be self-evident that the sellers should be aware that some, if not most, of these purchasers are California residents. In those cases where the sellers know, or should be aware, that a purchaser is a California resident, the sellers will be responsible to collect the use tax unless they in good faith accept a statement from the purchaser to the effect that the property has been purchased for use outside California.” Thus, if a retailer does not take a section 6247 statement, it is responsible to collect the use tax. The retailer is generally responsible to collect the use tax at the time the sale is made. (Rev. & Tax. Code § 6203.) This means that the retailer must generally take a section 6247 when the sale is made or it must collect the tax. Once the time for the retailer to have collected the use tax has passed, the section 6247 statement can no longer be considered timely and will not protect the retailer from its debt for having failed to collect and remit use tax unless the Board concludes that the claim that the item was not purchased for use in California is accurate. That is, such a late statement is equivalent to an xyz letter trying to establish a sale was for resale. I note that the wording of section 6247 also confirms this interpretation. It says that the statement must be “retained by the vendor.” That is, the vendor must take it, and then retain it. There would be no reason for this language if the vendor could take it anytime. Rather, the language would be to “present” the statement, that is, take it whenever you want as long as you present it to the Board when so required. Finally, I note that Regulation 1667 is further support for this view. When there is no specific exemption certificate specified for a particular exemption, we advise vendors to take exemption certificates under the guidance of Regulation 1667. That regulation provides that such exemption certificates are valid only if taken timely and in good faith. However, the regulation does not actually cover transactions subject to use tax, only those subject to sales tax. Nevertheless, we apply the same guidelines: the certificate must include the necessary information, must be taken in good faith, and must be timely. All such certificates or statements that would serve to relieve a seller from liability for sales tax or for use tax collection without the need to otherwise prove that tax does not apply must be taken timely, unless the law or regulations specifically provide otherwise. For example, subdivision (b)(2) of Regulation 1667 provides a specific exception to this rule, referencing subdivision (c)(2) of Regulation 1621. But for these provisions, the exemption certificates they cover would not be valid unless taken timely. Section 6247 also lacks a reference to “good faith.” However, no one would argue that a retailer who takes a section 6247 statement knowing it to be false is excused from the duty to collect use tax. That is, good faith is obviously required for any statement or certificate that serves to relieve a retailer from tax or tax collection without the need to establish that the transaction is actually not subject to tax. That such a statement or certificate must be timely to

Ms. Leila Khabbaz

-3-

September 12, 1997
325.0574

have the desired effect is equally obvious. Please annotate this opinion that a section 6247 statement must be taken timely and in good faith to have the desired effect. DHL/cmm cc:

Mr. Jim Speed (MIC:43)
Mr. Dennis Fox (MIC:92)
Mr. Vic Anderson (MIC:40)