Did 1994 limits on predecessor and former-partner liability cancel sales-tax liabilities already due before January 1, 1994?

Plain-English summary

A 50-percent general partner sold his interest to the other partner on June 30, 1989. Neither partner notified the Board until November 1991. The Board audited July 1, 1990 through March 31, 1992, and the former partner received a determination for the audit deficiency on December 23, 1993. The memorandum gives no measure, tax, interest or penalty amount.

The absent March 22 request asked whether newly enacted sections 6071.1 and 6487.2 limited this taxpayer's liability and other liabilities predating the legislation. As quoted, section 6071.1(a) limited a knowledgeable predecessor's liability to the transfer quarter and three later quarters. Section 6487.2(a) imposed a four-year mailing period for specified determinations against a former general partner who failed to report a change, while subdivision (b) limited liability for certain self-assessed amounts becoming due at least three years after the specified quarter-end date.

Assistant Chief Counsel Gary Jugum concluded that sections 6071.1(a) and 6487.2(b) could not cancel liabilities that had become due and payable before January 1, 1994. Citing Estate of Stanford and other cases, he reasoned that the state's right vested when the tax became due. Under historical Regulation 1699(e), a transferor who failed to notify the Board remained liable for the transferee's taxes until notice; historical subdivision (f) supplied a closing-return rule for yearly filers.

Jugum treated transferor liability as accruing with the transferee's sales-tax liability and cited section 6451's quarterly due date. He concluded that statutory cancellation of vested taxes would be a gift of public money under California Constitution article XVI, section 6. The taxes in the December 1993 determination were all due before January 1, 1994, so he said the Board could not cancel any portion on the basis of the new enactments.

The memorandum separately says any determination issued after January 1, 1994 must be issued or mailed within the shortest applicable limitation period directed to that taxpayer's situation. That procedural point matters even though this taxpayer's determination preceded the effective date. The source does not include the March 22 request, transfer agreement, permit and notice records, returns, audit, determination, tax calculation, administrative response or later outcome.

Source posture, citation defect, and current rule

The live 410.0197 annotation retains the vested-rights reasoning and the conclusion that sections 6071.1(a) and 6487.2(b) did not reduce pre-1994 due-and-payable liabilities. It describes section 6487.2's determination period and liability limit together as ineffective for old liabilities, but omits the memorandum's separate instruction that post-January 1 determinations use the shortest applicable limitation period. It also omits the partner's transfer and notice dates, audit period, December 1993 determination, statutory text, historical annual-filer exception, constitutional gift analysis, missing records, absent outcome and defective Spinker citation.

The PDF prints Estate of Spinker (1956) 47 Cal.2d 290. That reporter citation identifies Weddle v. Kirkwood, not the named case. Because the source supplies no correct Spinker citation, this page leaves the printed authority unresolved rather than guessing an intended case. The other named cases resolve: Estate of Stanford at 126 Cal. 112, Allen v. Franchise Tax Board at 39 Cal. 2d 109, and People v. Buckles at 57 Cal. App. 2d 76. The PDF also prints April IS in its Allen summary; that form remains verbatim below.

The source's Regulation 1699(e) contained inactive-permit transfer liability, while its subdivision (f) contained the annual closeout-return rule. Current Regulation 1699 places inactive-permit liability in subdivision (f) and annual closeout returns in subdivision (h). Current paragraph (f)(3) includes later time, penalty and ownership provisions. These are current cross-references, not retroactive resolutions of the 1994 analysis.

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

Business transferors, former partners, and tax professionals

Notify the agency promptly and surrender or update permits when ownership changes. Later substantive limits did not reach these already-due taxes under the memorandum's vested-rights analysis, while procedural limitation periods still depended on when a determination was issued. Use current law rather than the 1994 subdivision numbering.

Common questions

Q: When did the ownership change occur?

A: June 30, 1989, when the 50-percent general partner sold his interest to the other partner.

Q: When was the Board notified?

A: November 1991, according to the absent March 22 request as summarized by counsel.

Q: Why did the 1994 limits not apply?

A: Counsel said the taxes were already due and payable, giving the state vested rights before January 1, 1994, and that canceling them would be a prohibited gift of public money.

Q: What limitations rule applied to later-issued determinations?

A: For a determination issued after January 1, 1994, counsel said to use the shortest applicable statutory period directed to the taxpayer's situation. This taxpayer's determination was issued December 23, 1993.

Q: Does the source identify the tax amount?

A: No. It gives the audit period and determination date but no measure, tax, interest or penalty.

Q: Is the printed Estate of Spinker citation verified?

A: No. 47 Cal.2d 290 identifies Weddle v. Kirkwood, not Estate of Spinker, and the source gives no corrected reporter citation.

Citations and references

• California Revenue and Taxation Code §§ 6071.1(a), 6451, 6487.2(a)-(b), and 6565 — as discussed in the 1994 memorandum
• California Sales and Use Tax Regulation 1699(e)-(f) — historical 1994 numbering
• Current California Sales and Use Tax Regulation 1699(f), (h) — later numbering
• California Constitution article XVI, § 6
• Estate of Stanford, 126 Cal. 112 (1899)
• Estate of Spinker, 47 Cal. 2d 290 (1956) — as printed; the reporter citation identifies Weddle v. Kirkwood, so the named authority remains unresolved
• Allen v. Franchise Tax Board, 39 Cal. 2d 109, 115 (1952)
• People v. Buckles, 57 Cal. App. 2d 76, 79 (1943)
• March 22 request; transfer agreement; permits; ownership-change notice; returns; audit; determination; tax computation; administrative response; and later outcome — described or implicated but not included

Verbatim support

From the official Assistant Chief Counsel memorandum:

Any taxpayer liability that has previously become “due and payable” under provisions of the Revenue and Taxation Code cannot be subject to the new legislation.

It is also our opinion that any determination issued after January 1, 1994 must be issued (or mailed) within the shortest applicable limitations period specified in any Revenue and Taxation Code section which is directed to the taxpayer's situation.

The taxes for which a determination was issued to Mr. X-------------- were all "due and payable" prior to January 1, 1994.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0197
• Original supporting opinion: 410.0197 PDF
• Current cross-reference: Regulation 1699

Original ruling text

State of California

Board of Equalization

Memorandum

410.0197

Mr. X--------------

Date: April 4, 1994

To:

From: Gary Jugum, Assistant Chief Counsel

Legal Division – MIC:82
Subject:

In your memorandum dated March 22, 1994, concerning the above taxpayer, you state that the taxpayer was a 50 percent partner in a general partnership and sold his interest to the other partner on June 30, 1989. Neither partner notified the Board of the change in ownership until November of 1991. The Board conducted an audit of the business for the period of July 1, 1990 through March 31, 1992. On December 23, 1993, the taxpayer received a determination for the audit deficiency. You ask if newly-enacted Revenue and Taxation Code Sections 6071.1 and 6487.2 limit the liability of this taxpayer and that of other taxpayers with liabilities which pre-date this legislation. Revenue and Taxation Code section 6071.1(a) provides: "A permitholder who fails to surrender a seller's permit upon transfer of a business shall be liable for any tax, interest, and penalty incurred by the transferee if the permitholder has actual or constructive knowledge that the transferee is using the permit in any manner. The predecessor's liability shall be limited to the quarter in which the business is transferred, and the three subsequent quarters." Revenue and Taxation Code section 6487.2 provides, in part, “(a) A notice of determination issued pursuant to Section 6486, 6515, or 6536 to an individual who was a general partner, as shown on the board's records, and who, prior to the period covered by the determination, withdrew from the partnership, causing a change in ownership, and failed to notify the board, shall be mailed within four years after the last day of the calendar month following the quarterly period in which the change of ownership occurred. “(b) An individual who was a general partner, as shown on the board's records, who withdraws from a partnership without notifying the board of

the change of ownership, shall not be liable for any unpaid, self-assessed liability of the partnership that becomes due at least three years after the last day of the calendar month following the quarterly period in which the change in ownership occurred.” Any taxpayer liability that has previously become “due and payable” under provisions of the Revenue and Taxation Code cannot be subject to the new legislation. In Estate of Stanford (1899) 126 Cal. 112, the court held that the Legislature was barred from retroactively reducing taxes where the right to those taxes had vested in the state (i.e., when those taxes became "due and payable" to the state). See also Estate of Spinker (1956) 47 Cal.2d 290. In Allen v. Franchise Tax Board (1952) 39 Cal.2d 109, the Legislature amended a tax statute with an effective date of February 4, 1941 that was to have application to taxable years beginning with January 1, 1940. The court addressed a provision of the statute that reduced the tax otherwise returnable by the taxpayer in 1940. The court held that the right of the state to income tax does not vest until April IS, following the close of the preceding year. The court also held that that date was the time when the tax was "due and payable" and that the retroactive application of the act did not impair the state's right to payment of delinquent taxes. The court stated that the statute became effective prior to the time when the "state's right to receive or collect the tax accrued." (39 Cal.2d at 115.) Prior to 1994, Sales and Use Tax Regulation 1699(e) was fully operative and provided, in part, that – "[u]nless 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 ... incurred by his transferee who with the permit holder's actual or constructive knowledge uses the permit in any way .... The liability shall continue and include all liability incurred up to the time the board receives notice of the transfer." Regulation 1699(f) provided that – "[w]here a person authorized to file tax returns on a yearly basis transfers the business to another person or discontinues it before the end of the yearly period, a closing return shall be filed with the Board on or before the last day of the month following the close of the calendar quarter in which the business was transferred or discontinued." It is our opinion that the liability of a transferor pursuant to Regulation 1699(e) accrued, except as provided in Regulation 1699(f), at the same time as the liability of the transferee of the business for sales conducted by the transferee. Revenue and Taxation Code section 6451 provides that taxes on sales are due and payable quarterly on or before the last day of the month next succeeding each quarterly period.

In People v. Buckles (1943) 57 Cal.App.2d 76, 79, it was stated: "If a retailer withholds any portion of said sales tax, it remains 'unpaid' and in the primary sense of the word 'due' .... It remains due to the state until it is paid …. it is true that section 20 [now Revenue and Taxation Code § 6565] does provide that all assessments 'shall become due and payable' at the time they become final, but this does not justify a holding that such taxes were not 'due and unpaid' when the sale of the business to appellant was consummated, because as a matter of plain fact they were taxes which the vendor had theretofore failed to pay but which he became obligated to pay under the act when the taxable sales were made." Until December 31, 1993, the state had a "vested right" to taxes from a permit holder who transferred a business without notice to the Board. The permitholder was liable for all taxes incurred by the transferee until the Board received notice of the transfer. It is our opinion that any discharge or cancellation of any part of those taxes by statute would constitute a "gift, of public money ... to any individual within the meaning of Article 16, section 6 of the California Constitution. It is our opinion that Revenue and Taxation Code sections 6071.1(a) and 6487.2(b) cannot be applicable to tax liabilities that were "due and payable" within the meaning of Revenue and Taxation Code section 6451 prior to January 1, 1994. It is also our opinion that any determination issued after January 1, 1994 must be issued (or mailed) within the shortest applicable limitations period specified in any Revenue and Taxation Code section which is directed to the taxpayer's situation. The taxes for which a determination was issued to Mr. X-------------- were all "due and payable" prior to January 1, 1994. It is our opinion that the Board is now prohibited from canceling any part of his liability on the basis of the enactments which became effective on January 1, 1994.

TJC:plh