Did corporate checks and resale certificates notify California that a partnership had incorporated and stop predecessor liability?

Plain-English summary

A retail partnership incorporated, and the partners continued the business through the successor corporation. They allowed the corporation to display and use the partnership's permit throughout an audit period that the source does not date. The corporation was later adjudicated bankrupt under Chapter 7, but the source identifies no court, docket, filing date, estate recovery or disposition.

The Board issued a dual determination against the partners for the successor corporation's liability, using a $231,542 measure. The record gives no tax, interest or penalty amount. The partners argued that the Board received notice because corporate checks paid liabilities reported on returns and corporate resale certificates showed the new entity's name.

No petitioner appeared at the March 12, 1987 hearing; an audit supervisor appeared for the Board. The petitioners also challenged the underlying corporate deficiency, which consisted primarily of disallowed sales for resale, but supplied no additional exemption evidence.

Hearing Officer W. E. Burkett rejected both notice theories. Checks were mass-processed by clerical staff, the different entity was unlikely to be noticed, and the mailing circumstances were not calculated to disclose a business-form change. Resale certificates served another purpose, went to other retailers and might never be examined by Board staff.

Because the corporation used the partnership permit with the partners' knowledge and no acceptable notice or permit surrender occurred, Burkett concluded that historical Regulation 1699 kept the partners liable. He signed a July 8, 1987 recommendation to redetermine without adjustment. The petition, checks, returns, resale certificates, permit, audit evidence and final Board action are not reproduced.

Source posture and current rule

The live 410.0193 annotation retains the incorporation, Chapter 7 bankruptcy, check and resale-certificate arguments, insufficient-notice conclusion and continuing partner liability. It uses the March 12 hearing date rather than the signed July 8 recommendation date. It omits the absent petitioner appearance, $231,542 measure, disallowed resale claims, missing exemption evidence, full-audit-period permit use, recommendation posture, missing tax amount and absent final action.

The PDF's page 2 and 3 headers print July 8, 19887 and Annotation 410.0180; its cover and signed recommendation establish this source as Annotation 410.0193 with a July 8, 1987 recommendation date. The original-text section preserves the header errors verbatim.

Current Regulation 1699 places inactive-permit notice and liability rules in subdivision (f), including later time, penalty and ownership provisions in paragraphs (2) and (3). Those current provisions are cross-references, not retroactive findings about the unidentified audit period here.

The official three-page PDF has a clean native text layer and no embedded images, so no OCR was required. Both fresh direct PDF downloads and both live-annotation downloads were byte-identical, and the duplicate default PDF text extractions matched. 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

Incorporating partnerships, successor entities, and tax professionals

Give direct, provable notice to the tax agency and surrender or replace the old permit. An entity name incidentally appearing on mass-processed checks or third-party resale documents did not communicate the transfer here. Keep evidence supporting any separate resale-exemption claim.

Common questions

Q: Did corporate checks provide notice?

A: No. Clerical staff processed them in mass, and their mailing circumstances were not calculated to disclose the entity change.

Q: Did corporate resale certificates provide notice?

A: No. They went to other retailers for another purpose and might never reach Board staff.

Q: What did the hearing officer recommend?

A: Redetermination without adjustment on the $231,542 measure. The source gives no tax amount or final Board action.

Q: Did the petitioners support their resale-exemption challenge?

A: No. The source says they supplied no additional evidence for exemption, while the corporate measure consisted primarily of disallowed sales for resale.

Q: Which date controls this supporting decision?

A: July 8, 1987, the hearing officer's signed recommendation date. March 12 was the hearing date used by the live annotation.

Citations and references

• California Sales and Use Tax Regulation 1699 — historical text quoted in the decision
• Current California Sales and Use Tax Regulation 1699(f)(2)-(3) — later cross-reference
• Petition; corporation and incorporation records; partnership permit; audit periods and workpapers; checks and returns; resale certificates and resale evidence; Chapter 7 case; tax computation; and final Board action — described or implicated but not included

Verbatim support

From the official hearing decision and recommendation:

It is our considered conclusion that the payment of liability with a corporation check does not constitute the type of notice contemplated as a basis for relief from liability.

Similarly, the listing of a corporate name on resale cards cannot be reasonably construed as giving notice to the Board.

It is recommended that the taxes be redetermined without adjustment.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0193
• Original supporting opinion: 410.0193 PDF
• Current cross-reference: Regulation 1699

Original ruling text

STATE OF CALIFORNIA

410.0193

BOARD OF EQUALIZATION

In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Law
A--- & S---,
A Partnership
Petitioners

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DECISION AND RECOMMENDATION

No. S- -- XX-XXXXXX-010

The above entitled matter came on regularly for hearing on March 12, 1987, in Van Nuys, California, before W. E. Burkett, Hearing Officer. Appearing for Petitioners:

No Appearances

Appearing for the Board:

Jack Infranca
Audit Supervisor

Protested Item

Measure

Dual determination for liability of successor
Corporation, A--- & S--- Inc.

$231,542

Contentions of Petitioners
1.

The Board received notice that the corporation was conducting business.

2.

The tax determined against the corporation was excessive. Summary of Petition

The petitioners were a partnership that operated a retail business. The partnership was succeeded by a corporation formed by the partners and continued to operate in corporate form until the corporation was adjudicated to be bankrupt under Chapter 7 of the Federal Bankruptcy Act. A dual determination has been issued against the partners on the basis that they allowed the partnership permit to be used by the corporation resulting in liability under the provisions of Sales and Use Tax Regulation 1699. The petitioners contend that the Board was supplied with notice by the issuance of corporate checks for the payment of returns and by the issuance of resale certificates by the corporation.

A--- & S---

-2-

July 8, 19887
410.0180

The petitioners have also contended the merits of the tax deficiency determined against the corporation but have failed to provide any additional evidence to support exemption. The measure of tax deficiency determined against the corporation consisted primarily of disallowed sales for resale. Analysis and Conclusions The application of the tax to the predecessor partnership is governed by the provisions of Sales and Use Tax Regulation 1699 which reads in pertinent part as follows: “(3) 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. 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.”

A--- & S---

-3-

July 8, 19887
410.0180

The petitioners allowed the corporation to display and use the partnership’s permit in the operation of the corporations’ business during the entire audit period. The partners are therefore liable under the above quoted provisions of Regulation 1699 unless appropriate notice of the discontinuance of the partnership was given. It is our considered conclusion that the payment of liability with a corporation check does not constitute the type of notice contemplated as a basis for relief from liability. These checks are processed in mass by clerical personnel, and it is unlikely that the different entity on the check would be noticed. Further circumstances of the mailing also were not calculated to give notice of the change in business form. Similarly, the listing of a corporate name on resale cards cannot be reasonably construed as giving notice to the Board. These resale cards are directed to other retailers for another purpose and may not even be examined by a representative of the Board. Recommendation It is recommended that the taxes be redetermined without adjustment.

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W. E. Burkett, Hearing Officer

7-8-87
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Date