Why could California hold a liquor-license transfer after the former owner regained the store through foreclosure?

Plain-English summary

A taxpayer sold a liquor store and its license, then regained both by foreclosing on the purchaser. California would not release its hold on transferring the license back until the purchaser's tax debt was paid, and the taxpayer sought a refund after paying it.

The memorandum said the hold was proper, assuming reasonable collection efforts against the person who incurred the debt. The legal basis was not successor liability under Regulation 1702. It was Business and Professions Code section 24049, which permitted the Department of Alcoholic Beverage Control to refuse a license transfer when the owner owed taxes arising wholly or partly from exercising the license privilege.

What this means for you

Liquor-store owners, secured creditors, and tax advisers

Analyze the liquor-license statutes separately from ordinary successor-liability rules. Foreclosure may not remove a transfer hold tied directly to delinquent taxes from use of the license.

Common questions

Q: Was the hold based on Regulation 1702 successor liability?

A: No.

Q: What authorized the hold?

A: Business and Professions Code section 24049.

Q: Did the opinion rely on a collection assumption?

A: Yes. Counsel assumed reasonable efforts had been made to collect from the person who incurred the liability.

Citations and references

• California Business and Professions Code § 24049
• California Sales and Use Tax Regulation 1702

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 535.0070
• Original supporting opinion: 535.0070 PDF

Original ruling text

State of California

Board of Equalization

Legal Division (MIC:82)

535.0070

Memorandum
To:

From:

Subject:

Mr. Michael P. Kitchen
Audit Refund Unit

Date:

January 18, 1991

John L. Waid
Senior Tax Counsel
REDACTED TEXT
This is in response to your memorandum received by us on Dcember 19, 1990. Taxpayer sold a liquor store with a liquor license. He later foreclosed on the purchaser and regained ownership of the store and the license. We did not release our hold against transfer of the license back to taxpayer until the previous owner’s tax debt to us was paid. Taxpayer paid the tax liability and has now filed a claim for refund based on his contention that he had no successor liability under Regulaiton 1702 because he acquired the business and license by foreclosure. I assume that we made all reasonable efforts to collect the subject tax liability from the person actually incurring that liability, as is our policy. That being the case, the refusal to release our hold against transfer of the license until payment of the subject tax liability was proper. Our hold on transfer of the license was not due to successor liability pursuant to Regulation 1702. Rather, it is based upon Busines and Professions Code section 24049, which provides that the Department of Alcoholic Beverage Control may refuse to transfer a license when the owner is delinquent in payment of any taxes due under the Sales and Use Tax Law and under other tax laws when those liabilities arise in whole or in part out of exercise of the privilege of the license. If you have further questions, feel free to write again.

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