When did a retailer overpay tax after mistakenly charging reimbursement on a resale and later refunding the customer?

Plain-English summary

The retailer's overpayment belonged to the second quarter of 1992, when it reported and remitted sales tax on a transaction later substantiated as a sale for resale.

Refunding or crediting the erroneous tax reimbursement to the customer in the third quarter of 1996 did not shift the overpayment to that later period. Sales tax was imposed on the retailer, so the relevant event was the retailer's erroneous payment to the state.

The source memorandum says the taxpayer had filed a timely petition for redetermination but had not yet filed a Claim for Refund as of January 31, 1997.

Common questions

Did repaying the customer create the overpayment in 1996?

No. The overpayment was attributable to the original 1992 return period.

Why did the retailer's payment date control?

Because section 6051 imposed sales tax on the retailer, not the customer.

Does the source say a refund claim had already been filed?

No. The memorandum says no Claim for Refund had been filed, despite different wording in the official annotation text.

Citations and references

• California Revenue and Taxation Code section 6051 — retailer incidence of sales tax applied

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/465-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/465-0117.pdf

Original ruling text

State of California

Board of Equalization
Legal Division Mic 82

465.0117

Memorandum
To:

Mr. J. W. Cornelius, Supervisor
Audit Evaluation and Planning Section

From:

Sharon Jarvis
Senior Tax Counsel

Subject:

U---, Inc.
Account No. S- -- XX-XXXXXX-010

Date:

January 31, 1997

This responds to your memorandum dated December 20, 1996 to Assistant Chief Counsel Gary J. Jugum concerning the above taxpayer. You state that in May 1992 U--- made a sale to a customer on which it erroneously charged, and the customer paid to U---, sales tax reimbursement. In fact, the transaction was a sale for resale and sales tax reimbursement should neither have been charged nor paid. However, at the time of the transaction neither of the parties was aware of the error. U--- was later audited for the period January 1, 1992 through June 30, 1995. The error was not discovered by the auditor. A Notice of Determination was issued on June 27, 1996. U-- filed a timely Petition for Redetermination for various audit items, including the transaction in question. That petition is still active and being held in abeyance pending this response. As to the transaction in question, U--- now has submitted documentation to support that the transaction was a sale for resale. U--- has also established that it returned the excess tax reimbursement to its customer in August 1996. To date, U--- has not filed a Claim for Refund. You ask whether the overpayment of tax should be recognized as occurring in the second quarter of 1992, when U--- made the sale, or in the third quarter of 1996, when U--- issued a credit or refund to its customer. The sales tax is imposed on retailers for the privilege of selling tangible personal property at retail in this state. (Rev. & Tax. Code § 6051.) It is a tax imposed on the retailer, not on the retailer’s customer. Thus, in the situation which you describe, when the retailer erroneously remitted overpayment of sales tax to the State and reported that tax on the sales tax return for the period in which the sale was made, it is that period which should be recognized as the period when the overpayment was made, and not (as the district staff suggests) the period when the retailer refunded or credited the excess tax reimbursement to its customer. In other words, the overpayment by U--- is attributable to the second quarter 1992, not the third quarter 1996.

Mr. J. W. Cornelius

2

January 31, 1997
465.0117

I hope this answers your question. Please let us know if we may be of further assistance.

SJ:rz

cc:

Mr. Dennis Fox - MIC: 92
Mr. Vic Anderson - MIC: 38
Mr. Robert L. Buntjer - MIC: 39