Could California require a retailer to pass refund interest to the customer along with returned tax reimbursement?

Plain-English summary

California's legal staff concluded that the Board could condition payment of the tax portion of a refund on the retailer returning the corresponding tax reimbursement to the customer. But it could not also require the retailer to pass the refund interest to that customer.

The memorandum relied on Decorative Carpets, Inc. v. State Board of Equalization for the customer-repayment condition on the tax itself. Because that decision said nothing about interest, the staff found no basis to condition the refund on paying interest to the customer or to insist on such payment.

The source also noted a practical allocation problem: retailers paid the Board on an accrual basis, while customers might pay retailers in installments.

Common questions

Could the Board require the refunded tax to reach the customer?

Yes, under the cited decision.

Could it require the retailer to give the customer the refund interest too?

No.

Why did the source reject an interest pass-through requirement?

The cited case did not address interest, and installment customer payments would create allocation problems.

Citations and references

• Decorative Carpets, Inc. v. State Board of Equalization, 58 Cal. 2d 252

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/460-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/460-0022.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum
460.0022

To:

Business Tax Attorneys
Hearing Officers

From:

Donald J. Hennessy

Subject:

Interest on Refunds

Date:

June 4, 1981

The reoccurring question of who is entitled to the interest on sales and use tax refunds was discussed by the legal staff on May 29, 1981. The discussion assumed that sales or use tax must be refunded to the person who paid such tax to the Board and that the Board can condition such refund of tax on the person receiving the refund paying it over to the customer who paid tax reimbursement. The conclusion reached was that the Board cannot condition payment of the refund of tax on the paying of the interest over to the customer. Likewise, the Board cannot insist on the interest being paid over to the customer. While the Board can rely on Decorative Carpets, Inc. v. State Board of Equalization, 58 Cal.2d 252 for conditioning the payment of a tax refund on the refund being paid over to the customer, Decorative Carpets makes absolutely no mention of interest. Particularly after January 1, 1979, to insist that interest be paid to the retailer’s customer would further erode our position that tax reimbursement is solely a matter of contract. To so insist would also force the Board to allocate the interest between the retailer and the customer since the tax is paid to the Board by the retailer on an accrual basis while payments by the customer to the retailer are often on an installment basis.

DJH:po
cc:

J. D. Dotson
R. Nunes
D. F. Brady
D. Holmes - Refunds