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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Court Decisions
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Riley B's, Inc. v. State Board of Equalization … (1976)
Board Has Authority to Assert Tax Based on Information Other than Books and Records of Taxpayer, and Taxpayer then Has Burden of Proof to Show that Board's Audit Is Incorrect
Plaintiff was engaged in business as a tavern keeper and timely filed sales and use tax returns with the Board. The Board conducted an audit of plaintiff on the basis that of the liquor purchased by plaintiff, certain amounts were used in drinks that were sold and certain amounts were wasted or consumed without being sold. The Board thus computed taxable sales in excess of those shown in plaintiff's books and records. Plaintiff paid the tax asserted and sued for refund on the basis that it maintained all the books and records required by law and that they were in agreement with each other.
The court of appeal held that the Board was not required to accept as conclusive evidence the taxpayer's books and records, even though these were in agreement with each other, where the Board, using recognized and standard accounting procedures, established in an audit that the books and records did not disclose the correct amount of tax liability. The court further held that where the Board has established a deficiency, the burden of proof is upon the taxpayer to explain the disparity between the taxpayer's books and records and the results of the Board's audit. Riley B's, Inc. v. State Board of Equalization (1976) 61 Cal.App.3d 610.