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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Court Decisions
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Occidental Life Insurance Co. v. State Board of Equalization … (1982)
Oliver and Williams Elevator Corp. v. State Board of Equalization … (1975)
Online Merchants Guild v. Maduros … (2023)
Ontario Community Foundation, Inc., et al. v. State Board of Equalization … (1984)
Overhead Electric Co. v. State Board of Equalization … (1991)
Owens-Corning Fiberglas Corp. v. State Board of Equalization … (1974)
Occidental Life Insurance Co. v. State Board of Equalization … (1982)
Incidence of the Sales Tax Is on the RetailerTaxpayers were insurance companies who paid sales tax reimbursement on retail purchases of personal property for the years 1973 through 1976. During that time, California Constitution, Article XIII, SS14-4/5 (now Cal. Const. Art. XIII, Sec. 28, subd. (f)) and Revenue and Taxation Code Section 12204 restricted taxation of insurance companies to the imposition of the gross premium tax. Taxpayers brought a refund action and the trial court entered a judgment of dismissal.
The court of appeal affirmed, holding that the legal incidence of the retail sales tax is on the retailer and not the consumer, even though most often the real economic burden of the tax eventually falls on the consumer. Thus, the court concluded that neither the Constitution nor the statute forced the imposition of a sales tax on retail sales of personal property to insurance companies. Occidental Life Insurance Company v. State Board of Equalization (1982) 135 Cal.App.3d 845.
Oliver and Williams Elevator Corp. v. State Board of Equalization … (1975)
Application of Regulation 1521 to Manufacturer and Installer of Elevator Systems Is Not UnreasonablePlaintiff claimed that the application of sales tax to certain elevator components manufactured and installed by it classified as fixtures by the Board in accordance with Regulation 1521 was arbitrary and capricious and had no reasonable or rational basis. Regulation 1521 distinguishes, for purposes of applying sales and use tax, between fixtures and materials used in construction contracts. The trial court agreed with plaintiff. The court of appeal reversed, finding that there was no substantial evidence to show that the Board's ruling was unreasonable, and finding that the trial court had been mistaken in substituting its own policy judgment for that of the Board. Oliver and Williams Elevator Corp. v. State Board of Equalization (1975) 48 Cal.App.3d 890.
Online Merchants Guild v. Maduros … (2023)
The Federal Tax Injunction Act Precludes the Exercise of Federal Jurisdiction Where the Requested Relief Would Stop the Assessment or Collection of TaxPetitioner, a trade association for e-commerce companies that participate in the Fulfilled by Amazon ("FBA") program, alleged CDTFA’s registration and tax collection efforts against its member out-of-state FBA sellers, violated the Due Process, Equal Protection, Privileges and Immunities, and Commerce Clauses of the United States Constitution, as well as the Internet Tax Freedom Act, 47 U.S.C. § 151. The district court granted CDTFA’s motion to dismiss because the claims were barred by the Federal Tax Injunction Act ("TIA") and did not "fall within the exception to the TIA for ‘information gathering’ activity."
The Ninth Circuit Court of Appeals affirmed, holding that the TIA bars federal courts from enjoining the collection of state taxes where the requested relief would "to some degree" stop the assessment or collection of a state tax and an adequate state law remedy exists. Online Merchants Guild v. Maduros (9th Cir. 2022) 52 F.4th 1048, cert. denied (2023) 143 S.Ct. 2642.
Ontario Community Foundation, Inc., et al. v. State Board of Equalization … (1984)
Sale of Hospital Equipment Is a Nontaxable Occasional SaleTaxpayers, two hospitals, each sold in a single sale all of the assets of the hospitals, including equipment used in providing tax-exempt medical and nursing services, and other equipment used in selling meals, supplies, and pharmaceuticals, for which selling activities each hospital held a seller's permit. The Board asserted sales tax on the sale of all the equipment. The trial court ordered the Board to refund taxes paid on the sale of the equipment used in providing medical and nursing services.
The California Supreme Court affirmed, and held that no sales tax was due on the sales of the medical and nursing equipment. That equipment was sold in a nontaxable occasional sale under Revenue and Taxation Code section 6006.5(a) since each hospital was not required to hold a seller's permit in rendering its medical and nursing services. The court held that Board
Regulation 1595(a)(3), which classified each hospital as a unitary business since it was required to hold a seller's permit for some of its activities, was void as in conflict with section 6006.5(a). The regulation imposed a condition on the occasional sale exemption not supported by the statute, namely that if a unitary business held a seller's permit for some of its activities, it could not make an exempt occasional sale of assets used solely in other activities not requiring a seller's permit. Ontario Community Foundation, Inc., et al. v. State Board of Equalization (1984) 35 Cal.3d 811.
Overhead Electric Co. v. State Board of Equalization … (1991)
United States Government Contractors Subject to Use Tax on FixturesTaxpayer, an electrical contractor, entered into a subcontract to furnish and install an emergency standby uninterruptible power system at a U.S. Air Force base. Under Revenue and Taxation Code Sections 6384 and 6007.5, property purchased by a contractor and used in the performance of a contract with the United States for the construction of an improvement to real property is subject to sales or use tax. Section 6381 exempts from such tax the gross receipts from the sale of tangible personal property to the United States Government. Taxpayer contended that the equipment it purchased for the uninterruptible power system it supplied to the United States Government should be classified as machinery or equipment (considered tangible personal property), for which no tax need be paid, rather than as a fixture (considered an improvement to real property) subject to sales or use tax. The court of appeal held in favor of the Board. The system was intended to provide accessory power to the facility in order to maintain full security lighting in case of a power failure, and the court found that a system so crucial to the facility's operations did not fall within the definition of machinery or equipment, but rather was a fixture. In addition, the court found that the system was an essential, integral part of the operation of the facility, and thus must be classified as a taxable fixture. Finally, the court found that taxpayer purchased the system from out-of-state retailers for use in California, and was thus subject to the use tax. Overhead Electric Co. v. State Board of Equalization (1991) 227 Cal.App.3d 1230.
Owens-Corning Fiberglas Corp. v. State Board of Equalization … (1974)
No Refund of Voluntary Payment of Estimated Tax LiabilityTaxpayer sought a refund of amounts voluntarily paid to the Board of Equalization in advance payment of estimated tax liability. Taxpayer made the payments during an extension of time within which a notice of deficiency determination might be mailed. The extension period expired, however, before the Board actually issued a deficiency notice. Taxpayer contended that the Board could not retain the amounts paid because the deficiency notice was not issued within the statutory period of limitations.
The Court of Appeal, in holding that taxpayer was not entitled to a refund, noted that the record showed that at the time the payment was made, taxpayer's tax delinquency was in excess of the sum paid. The court observed that taxpayer's liability to pay the deficiency was a continuing liability and was not created by the issuance of the deficiency notice and that in issuing a deficiency determination the Board had merely determined that, after the payment in question, there still remained a balance due which taxpayer had failed to pay. The court pointed out that the Board had recognized the bar of the statute of limitations as to any amounts due over and above the amount paid. Owens-Corning Fiberglas Corp. v. State Board of Equalization (1974) 39 Cal.App.3d 532.