Could a successor corporation silently continue buying under its predecessor partnership's resale certificates?

Plain-English summary

The partnership's resale certificates did not automatically protect sales to the successor corporation because the purchaser was now a different legal person.

The successor had to affirmatively tell vendors not to rely on the old certificates. If it silently allowed continued reliance and then consumed the property, it could be treated as adopting its predecessor's certificates and owe tax measured by purchase price.

Actual resale without use could still independently establish that a vendor's sale was for resale.

Common questions

Did using nearly the same business name preserve the old certificates?

No.

Who had to notify vendors?

The successor corporation.

What if the property was actually resold without use?

The vendor could prove resale independently.

Citations and references

• Decorative Carpets, Inc. v. State Board of Equalization, 58 Cal.2d 252 (1962) — tax-law integrity principle cited in the letter

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/475-0175.pdf

Original ruling text

475.0175

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

February 6, 1990

A--- G---, President
--- --- --- --- Inc.
--- Building
XXXX --- Road, Suite XXX
---, California XXXXX
Dear Mr. G---:
This is in response to your letter dated January 16, 1990 in which you ask our opinion regarding the following circumstances: “A number of people form a partnership known as XYZ Company to sell tangible personal property. The partnership obtains a seller’s permit from the Board of Equalization. The partnership issues timely resale certificates, that meet the requirements of Revenue and Taxation Code Section 6093 and Sales and Use Tax Regulation 1668, to their vendors to acquire merchandise ex-tax. “After operating the company for a period of time, the partners decide to incorporate the business and also decide to name the corporation XYZ Company, Inc. The partnership timely informs the Board of its dissolution. The Board cancels its seller’s permit and simultaneously the corporation obtains a new seller’s permit from the Board. “It is our opinion, based on the above facts, that the resale certificates issued by the partnership become null and void at the point in time that the partnership’s seller’s permit is cancelled by the Board. As such it is also our opinion that the vendors cannot rely upon the partnership’s resale certificates to support sales for resale to the corporation.” Obviously, if XYZ resold the purchased property without use and if the vendors could establish this, the vendors would not owe sales tax on their sales to XYZ. I assume this question arises because the vendors sell property to XYZ ex tax in reliance on the resale certificates issued by the partnership, and XYZ thereafter uses that property. These circumstances would raise two questions: are the vendors relieved of sales tax liability by virtue of their reliance on the

Mr. A--- G---

-2-

February 6, 1990
475.0175

partnership’s resale certificates; and does XYZ owe use tax by virtue of its use of the property purchased ex tax. Since the resale certificates were issued to the vendors by a person other than the current purchaser, those resale certificates would not necessarily relieve the seller of liability for sales tax. However, depending on the actual facts, the purchaser will be primarily liable for the tax if the purchaser thereafter consumes the property. Presumably, XYZ allowed the vendors to rely on the now invalid resale certificates and allowed the vendors to believe they were making sales for resale. Unless the vendors had knowledge that the XYZ Company that had issued the resale certificates was not the same person as the XYZ Company thereafter making purchases (at retail) ex tax pursuant to those resale certificates, under these circumstances the integrity of the Sales and Use Tax Law requires XYZ to affirmatively notify the vendors that they may not rely on those resale certificates when making sales to XYZ. (Cf. Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 2252, 255.) Otherwise, XYZ will be regarded as having adopted the resale certificates issued by its predecessor and, as specified in those certificates, in the event any of the purchased property is used for any purpose other than retention, demonstration, or display while holding it for sale in the regular course of business, XYZ will owe tax measured by the purchase price of such property. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Tax Counsel

DHL:wak