Was a former partner liable under an old permit when he never signed the application, was not named on the permit, and did not know it existed?

Plain-English summary

One person filed a restaurant seller's-permit application on July 24, 1979, listing himself, another person and the eventual petitioner as owners. The petitioner did not sign the application, and the issued permit named the other two people followed by “etal” rather than naming him. An August 1 partnership agreement nevertheless provided that one partner would contribute capital and the petitioner would operate the restaurant.

The petitioner sold all of his partnership interest to the continuing partner on December 31, 1984. The disputed tax accrued from January 1 through August 18, 1986, more than a year later. The Board issued a Notice of Revocation on June 26 for failure to file the first-quarter return. After the continuing partner reported sole ownership on August 18, the Board issued him a new permit and transferred the first- and second-quarter returns to it.

The continuing partner later abandoned the restaurant. The petitioner obtained the lease in June 1988. After the remaining equipment was valued at $4,000, he bought it for $4,000 and applied for a permit for a new restaurant. That application led Board staff to the old account and to an August 15, 1988 determination against him.

The protested-item schedule lists an $86,414 measure. The decision separately says the determination totaled $7,734.20: $5,616.93 tax for January 1 through August 18, 1986, plus $2,117.27 accrued interest. Audit staff argued that the petitioner was liable under historical Regulation 1699(e) because he had not notified the Board when he left the partnership.

The petitioner said he never completed the required permit forms, did not know that the continuing partner had listed him on the application, and was not named on the permit. Audit staff conceded that it had no Form BT 403 signed by him and that his name did not appear on the permit.

The quoted regulation imposed liability for another person's permit use only when that use occurred with the permit holder's actual or constructive knowledge. Hearing Officer Michele F. Hicks found no evidence that the petitioner knew he was a permit holder or that the old permit was being used. She recommended canceling the determination. The source supplies no final Board action, refund, payment or account disposition.

Source posture and current rule

The live 410.0166 annotation retains four findings: no actual or constructive knowledge of permit-holder status or use, no completed permit forms, no name on the permit, and no Board awareness of the former connection until the new application two years after accrual. It omits the partnership and permit timeline, competing arguments, $86,414 measure, $7,734.20 determination and recommendation-versus-final-action posture.

The source quotes the 1990 version of Regulation 1699(e). Current Regulation 1699 places inactive-permit rules in subdivision (f). Current paragraph (f)(2) addresses liability when another person uses a permit with the holder's actual or constructive knowledge, and paragraph (f)(3) adds later time and penalty limits plus an ownership exception. Those are current cross-references, not retroactive findings or missing outcomes for this 1986 liability.

The official four-page PDF has a clean native text layer and no embedded images, so no OCR was required. It prints “become embroiled” and “we do no believe”; those apparent source errors remain verbatim below. Two fresh direct downloads and their default text extractions matched exactly. The original-text section remains byte-identical to its committed version and matches the fresh official extraction after removing only the extractor's terminal newline and form feed.

What this means for you

Former partners and tax professionals

Preserve permit applications, individual-information forms, issued permits, transfer and dissolution agreements, cancellation notices, returns and proof of what each person knew. Historical partnership status and an unsigned application listing did not establish the knowledge element on this record, but the source does not decide other forms of liability or show final Board action.

Common questions

Q: Was the former partner named on the permit?

A: His name appeared on the 1979 application signed by the continuing partner, but not on the issued permit. The permit instead named the other two listed people followed by “etal.”

Q: Did he sign permit forms?

A: The hearing officer found no evidence that he completed any permit forms. Audit staff conceded it had no Form BT 403 signed by him.

Q: What did the hearing officer find about knowledge?

A: No evidence that he had actual or constructive knowledge that he was a permit holder. The officer therefore found no evidence that he knew the old permit was being used.

Q: What was recommended?

A: Cancellation of the $7,734.20 determination. The source does not reproduce the Board's final action.

Q: What was the $86,414 figure?

A: The protested-item schedule labels it as the measure for the dual determination. The decision identifies $7,734.20 as the amount determined, consisting of $5,616.93 tax and $2,117.27 interest.

Q: Did reopening at the same location decide the case?

A: No. The source says the petitioner later leased the property, bought $4,000 of equipment and applied for a new permit, but the analysis and recommendation turn on knowledge of the old permit.

Citations and references

• California Sales and Use Tax Regulation 1699(e) — historical text quoted in the 1990 decision
• Current California Sales and Use Tax Regulation 1699(f)(2)-(3) — live cross-reference, not a substitute for the historical text
• Form BT 403; 1979 permit application; partnership agreement; dissolution agreement; revocation notice; returns; account-adjustment notice; determination; audit records; and final Board action — described or implicated but not included

Verbatim support

From the official hearing decision and recommendation:

The audit staff concedes that it does not have a Form BT 403 signed by Mr. B--- and that his name did not appear on the seller's permit.

We conclude that there is no evidence that Mr. B--- ever had actual or constructive knowledge that he was a permit holder under account S- -- XX-XXXX69.

Recommendation
Cancel the determination.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0166
• Original supporting opinion: 410.0166 PDF
• Current cross-reference: Regulation 1699

Original ruling text

STATE OF CALIFORNIA

410.0166

BOARD OF EQUALIZATION
APPEALS DIVISION

In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law of:
P--- R--- B---

Petitioner

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HEARING
DECISION AND RECOMMENDATION

No. S- -- XX-XXXXXX-210

The above-referenced matter came on regularly for hearing before Hearing Officer Michele F. Hicks on August 23, 1990 in Salinas, California.

Appearing for Petitioner:

Mr. P--- R--- Be--Ms. K--- B---

Appearing for the
Department of Business Taxes:

Mr. Frank E. Coryell
--- --Branch Office Supervisor

Protested Item
The protested tax liability for the period January 1, 1986 through August 18, 1986 is measured by:

Item

State, Local
and County

Dual determination issued
against former partner.

$86,414
Petitioner’s Contention

Petitioner was not a partner in the business during the period that the tax liability accrued and he had no actual or constructive knowledge that he was a permit holder.

P--- R--- B--S- -- XX-XXXXXX-210

-2-

November 9, 1990
410.0166

Summary
This appeal concerns sales taxes due from the operation of the B--- S--- C--- located in
[city], California.
On July 24, 1979, G--- H--- filed an application for a seller’s permit to operate a restaurant called the B--- S--- C---. The owners were listed as G--- H---, W--- H---, and P--- B--. Permit number S- -- XX-XXXX69 was issued to “G--- J. & W--- N. H---, etal”. On August 1, 1979, G--- H--- and P--- B--- entered into a “General Partnership Agreement for B--- S--- C---”. The agreement provided that Mr. H--- would contribute capital to the partnership and Mr. B--- would operate the restaurant. On December 31, 1984, Mr. H--- and Mr. B--- entered into an “Agreement of Sale and Dissolution of Partnership” whereby Mr. B--- sold to Mr. H--- all of his interest in the partnership. The tax liability which is the subject of this appeal accrued between January 1, 1986 and August 18, 1986, more than one year after Mr. B--- sold his interest in the B--- S--- C---. On June 26, 1986, the Board of Equalization issued a Notice of Revocation for failure to file a return for first quarter 1986, against permit number S- -- XX-XXXX69 issued to G--- J. & W--- N. H--, et al. On August 18, 1986, G--- H--- advised the [board] office that he was the sole proprietor of the business. On September 12, 1986, the Board issued to G--- H--- seller’s permit S- -- XX-XXXX63. Returns for the first and second quarter 1986, which were filed under S- -- XXXXXX69, were transferred to the new permit account S- --- XX-XXXX63 by Tax Return and/or Account Adjustment Notice dated September 15, 1986. Mr. H--- become embroiled in increasing financial difficulties and by May 23, 1988, the B--- S--- C--- had ceased doing business. On May 24, 1988, the landlord served Mr. H--- a notice of termination of the lease for the B--- S--- C---. At the hearing, Mr. B--- stated that after Mr. H--- went out of business, Mr. S---, his former landlord, contacted Mr. B--- and offered Mr. B--- the lease for the property. Negotiations were completed and Mr. B--- was given access to the property on June 1, 1988. Mr. H--- had not removed all of his equipment after abandoning his business. On June 21, 1988, an estimated value of the equipment was made at $4,000 by T--- R--- S---. On June 23, 1988, Mr. B--- purchased the equipment from Mr. H--- for $4,000.

P--- R--- B--S- -- XX-XXXXXX-210

-3-

November 9, 1990
410.0166

On June 23, 1988, Mr. B--- applied for a seller’s permit for his new restaurant “B--- S--”. At that time, Board personnel found the outstanding tax liability against “B--- S--- C---”. A Notice of Determination was issued against Mr. B--- on August 15, 1988. The amount determined was for $7,734.20 which was comprised of $5,616.93 in tax due from January 1, 1986 until August 18, 1986, the date that Mr. H--- informed the Board that he operated B--- S--C--- as a sole proprietor. The determination included interest of $2,117.27 which had accrued on the unpaid tax. The audit staff contends that Mr. B--- is liable for the unpaid tax under Sales and Use Tax Regulation 1699(e) because he failed to notify the Board that he was no longer a partner in B--S--- C---. Mr. B--- contends that he is not liable under Regulation 1699(e) because his name was never on the seller’s permit and he never filled out any forms, including form BT 403, pertaining to securing the seller’s permit. Analysis and Conclusions Sales and Use Tax Regulation 1699(e) provides: “INACTIVE PERMITS. A permit shall be held only by persons actively engaging in or conducting business as a seller of tangible personal property. Any person not so engaged shall forthwith surrender his permit to the board for cancellation. The board may revoke the permit of a person found to be not actively engaged in or conducting a business as a seller of tangible personal property. “Upon discontinuing or transferring a business, a permit holder shall promptly notify the board and deliver his permit to the board for cancellation. To be acceptable, the notice of transfer or discontinuance of a business must be received in one of the following ways: “(1) Oral or written statement to a board office or authorized representative, accompanied by delivery of the permit, or followed by delivery of the permit upon actual cessation of the business. The permit need not be delivered to the board, if lost, destroyed or is unavailable for some other acceptable reason, but notice of cessation of business must be given. “(2) Receipt of the transferee or business successor’s application for a seller’s permit may serve to put the board on notice of the transferor’s cessation of business. “Notice to another state agency of a transfer or cessation of business does not in itself constitute notice to the board.

P--- R--- B--S- -- XX-XXXXXX-210

-4-

November 9, 1990
410.0166

“Unless the permit holder who transfers the business notifies the board of the transfer, or delivers the permit to the board for cancellation, he will be liable for taxes, interest and penalties (excluding penalties for fraud and intent to evade the tax) incurred by his transferee who with the permit holder’s actual or constructive knowledge uses the permit in any way; e.g., by displaying the permit in transferee’s place of business, issuing resale certificate showing the number of the permit thereon, or filing returns in the name of the permit holder or his business name and under his permit number. The liability shall continue and include all liability incurred up to the time the board receives notice of the transfer.” Therefore, a permit holder is not liable for tax incurred by his transferee unless his permit is used “with the permit holder’s actual or constructive knowledge”. Mr. B--- contends that he had no “actual or constructive knowledge” that “his” permit was being used because he did not know that permit S- -- XX-XXXX69 was issued to him. He contends that he never filled out any forms necessary to secure a seller’s permit, including Form BT 403, which is individual information required for all persons named on the application. Further, the application was filled out and signed by G--- H---. Mr. B--- contends that he did not know Mr. H--- listed his name on the application. Mr. B--- points out that G--- H--- also listed W--- H---’s name on the application and W--- H--- never had any interest in the B--- S--- C---. The audit staff concedes that it does not have a Form BT 403 signed by Mr. B--- and that his name did not appear on the seller’s permit. We conclude that there is no evidence that Mr. B--- ever had actual or constructive knowledge that he was a permit holder under account S- -- XX-XXXX69. There is no evidence that he completed any forms necessary to obtain the permit. His name is not listed on the permit. There is no evidence that the Board staff was even aware of his former connection to B--- S--C--- until he came into apply for a permit for his new business in June 1988, two years after the tax liability accrued. Accordingly, we do no believe that Mr. B--- is liable for the tax under Regulation 1699(e). Recommendation Cancel the determination.

MICHELE F. HICKS, HEARING OFFICER

11/9/90
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Date