Who was liable when a good-faith seller accepted a facially regular resale certificate containing false buyer information?

Plain-English summary

A purchaser that issued a resale certificate appearing complete but containing false information could be assessed use tax under section 6244. The purchaser could not deny the technical validity of the certificate it used to obtain tax-free property.

The seller was not assessed when it accepted the facially regular certificate in good faith. Because California imposed either sales or use tax on the sale-consumption transaction, not both, a dual determination was inappropriate on those facts.

Common questions

What kinds of false information were contemplated?

Closed, fictitious, borrowed, or prior-business permit numbers and an incorrect purchaser name.

Was the seller always protected?

No. Protection was limited to good-faith acceptance.

Could both seller and purchaser be assessed in the described case?

No.

Citations and references

• Cal. Rev. & Tax. Code § 6244 — purchaser use-tax liability discussed in the memorandum
• Cal. Rev. & Tax. Code § 6390 — no dual sales-and-use-tax imposition on the same sale-consumption transaction
• Cal. Code Regs. tit. 18, § 1668(b) — facial certificate elements referenced

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/475-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/475-0045.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Glenn Bystrom

From:

Gary J. Jugum

Subject:

Resale Certificates

475.0045
Date:

September 24, 1986

This is to confirm our advice to you of September 24, 1986, in regard to the application of Revenue and Taxation Code section 6244. A question has arisen as to whether use tax may be asserted against a purchaser who does not hold a valid California seller’s permit but who has issued a resale certificate to his vendor which is regular on its face. By “regular on its face” we mean that the resale certificate contains the five elements described in paragraph (b) of Regulation 1668, except that one (particularly the permit number) or more (in some cases, the name of the purchaser) are false. The permit number may be invalid because the permit may have been closed out since the resale certificate was issued, or the purchaser may have changed its business form (incorporated) since the certificate was issued to the seller, or the number may be wholly fictitious. The name of the purchaser may be incorrect because an employee, acting for his own account, may be utilizing the permit of his employer, or the number may otherwise be “borrowed”. In cases of the type in question, we are of the opinion that use tax may be asserted against the purchaser pursuant to Revenue and Taxation Code section 6244. The theory for imposition is either that the property was purchased “for the purpose of resale” or that the property was purchased under a resale certificate, the technical validity of which the purchaser would be estopped to deny. We are further of the view that in the specific cases under consideration it would be improper to issue a determination to the seller. In these cases a dual determination would be inappropriate. Sales and Use Tax Law provides that either a sales or use tax applies to each saleconsumption transaction, but not both. See Rev. & Tax Code section 6390. Our conclusion with respect to the liability of the seller is, of course, limited to the circumstance where the resale certificate was taken by the seller in good faith.

GJJ:sr
cc:

Mr. Donald J. Hennessy
Mr. William E. Burkett
Mr E. Leslie Sorensen, Jr.