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Hibernia Bank v. State Board of Equalization … (1985)

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California Constitution Does Not Prohibit Sales Tax on Sales to State Banks

Taxpayer sold tangible property to a state-chartered bank and collected sales tax reimbursement from the bank. Both taxpayer and the bank filed suits for refund of the sales taxes on the sales. Although for federal purposes the legal incidence of the sales tax fell on a national bank meaning that sales to national banks were immune from sales tax prior to 1969 federal legislation, the Court of Appeal held that for state purposes the legal incidence of the sales tax falls on the retailer, not the state bank, even though the economic burden is borne by the bank. The court also held that the California Constitution, Article Xlll, former Section 16 (now net income tax), does not prohibit sales taxes levied on retailers' sales to state banks, even though sales to national banks were not similarly taxed. Hibernia Bank v. State Board of Equalization (1985) 166 Cal.App.3d 393.