Loading (50 kb)...'

(continued)
(h) Buying Companies -General
(1) Definition. For the purpose of this regulation, a buying company is a legal entity that is separate from another legal entity that owns, controls, or is otherwise related to, the buying company and which has been created for the purpose of performing administrative functions, including acquiring goods and services, for the other entity. It is presumed that the buying company is formed for the operational reasons of the entity which owns or controls it or to which it is otherwise related. A buying company formed, however, for the sole purpose of purchasing tangible personal property ex-tax for resale to the entity which owns or controls it or to which it is otherwise related in order to re-direct local sales tax from the location(s) of the vendor(s) to the location of the buying company shall not be recognized as a separate legal entity from the related company on whose behalf it acts for purposes of issuing it a seller's permit. Such a buying company shall not be issued a seller's permit. Sales of tangible personal property to third parties will be regarded as having been made by the entity owning, controlling, or otherwise related to the buying company. A buying company that is not formed for the sole purpose of so re-directing local sales tax shall be recognized as a separate legal entity from the related company on whose behalf it acts for purposes of issuing it a seller's permit. Such a buying company shall be issued a seller's permit and shall be regarded as the seller of tangible personal property it sells or leases.
(2) Elements. A buying company is not formed for the sole purpose of re-directing local sales tax if it has one or more of the following elements:
(A) Adds a markup to its cost of goods sold in an amount sufficient to cover its operating and overhead expenses.
(B) Issues an invoice or otherwise accounts for the transaction.
The absence of any of these elements is not indicative of a sole purpose to redirect local sales tax.
(i) Web Sites. The location of a computer server on which a web site resides may not be issued a seller's permit for sales tax purposes except when the retailer has a proprietary interest in the server and the activities at that location otherwise qualify for a seller's permit under this regulation.

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6066 and 6075, Revenue and Taxation Code.


Appendix A Certification of Permit - Concessionaires
I certify that I operate an independent business at the premises of the following retailer and that I hold a valid seller's permit to operate at this location, as noted below. I further understand that I will be solely responsible for reporting all sales that I make on those premises and remitting all applicable sales and use taxes due to the Board of Equalization:
Name of retailer on whose premises I operate my business: ______
Location of premises: __________________________________________
_______________________________________________________________
I hereby certify that the foregoing information is accurate and true to the best of my knowledge:
Certifier's Signature: ___________________ Date: _______________
Certifier's Printed Name __________ ____________________________
Certifier's Seller's Permit Number: ____________________________
Certifier's Business Name and Address [FNa1] ____________________
______________________________________
______________________________________
______________________________________
______________________________________
Certifier's Telephone Number ___________________________________
[FNa1] Please Note: The certifier must be registered to do business at the location of the retailer upon whose premises he or she is making retail sales.


s 1699.5. Direct Payment Permits.
(a) Definition. As used in this regulation, "direct payment permit" means a permit issued by the board which allows the holder to purchase tangible personal property for use without paying tax or tax reimbursement to the retailer from whom the purchase is made, and which relieves that retailer from liability for tax on the transaction provided that the retailer obtains an exemption certificate as provided herein from the purchaser.
(b) Requirements for Permit. A direct payment permit will be issued only if all of the following conditions are met:
(1) The applicant holds a valid seller's permit.
(2) The applicant agrees to report and pay directly to the board all tax liabilities which are transferred from retailers to the applicant as a result of exemption certificates issued in accordance with this regulation.
(3) The board determines that issuance of the direct payment permit will facilitate the collection of the tax. This requirement will be met only if the applicant has sufficient information processing resources to accurately and timely account for and report the tax liabilities assumed as a result of the direct payment permit (separately from other tax liabilities) and allocate the local tax portion of such liabilities to all of the cities, counties, redevelopment agencies, and districts involved.
(4) The board determines that issuance of the direct payment permit is to the mutual convenience of the board, the applicant, and the retailers whose tax liability will be reported and paid by the applicant. Issuance of the permit will not be deemed to be to the convenience of the board if the applicant is a government entity or if the applicant has had gross receipts from sales of tangible personal property of less than $75,000,000 and purchases of tangible personal property subject to sales or use tax of less than $75,000,000 in any calendar quarter during the twelve months immediately preceding the application for the permit.
(5) The applicant has a record of timely payment of tax liabilities and is in such financial condition that issuance of the direct payment permit will not result in a tax loss to the state.
(c)(1) Application for Permit. An application for a direct payment permit must be in writing and provide information which supports the claim that the applicant meets the requirements for a permit. The application must include a certified financial statement and a detailed description of the information processing system which will be used to account for the tax liabilities assumed and allocate the local taxes involved.
(2) Within 30 days of receipt of an application for a direct payment permit the board shall inform the applicant in writing either that the application is complete and has been accepted or that the application is deficient and what additional specific information is required to make the application complete. Within 60 days of acceptance of a complete application the board shall approve or deny the issuance of a direct payment permit and notify the applicant in writing of its decision.
(d) Revocation of Permit. Any direct payment permit issued pursuant to this regulation shall be revoked if the board determines that the holder no longer meets the requirements for the permit.
(e) Returns. On or before the last day of the month following each quarterly period, a holder of a direct payment permit shall file a return with the board in such form as the board may prescribe. The person required to file the return shall deliver it together with a remittance for the amount of tax due to the office of the board. The return shall show the aggregate gross receipts of retailers during the reporting period with respect to which the person filing the return has assumed responsibility for payment of the retailers' tax liabilities, the amount of such liabilities, and such other information as the board may require. This return shall be separate from and in addition to any returns required to be filed by the person to report his or her own sales and use tax liabilities.
(f) Prepayments. A holder of a direct payment permit shall make prepayments of the tax liabilities assumed in accordance with this regulation as prescribed in Section 6471 of the Revenue and Taxation Code. The prepayments shall be made as prescribed in Section 6472 of the Revenue and Taxation Code, except that the due dates of these prepayments shall be five days earlier than the due dates prescribed in that section. These prepayments shall be made separately from any prepayments of the person's own sales and use tax liabilities.
(g) Allocation of Local Tax. Every holder of a direct payment permit must include with each direct payment tax return a schedule approved by the board allocating all local sales and use taxes and district transactions and use taxes to the cities, counties, redevelopment agencies, and districts to which the tax would have been allocated if it had been reported and paid by the retailers involved. The allocation shall be based on the place of sale as provided in Regulation 1802 and Regulation 1822. The board may require that the schedule be provided on computer tape in a format prescribed by the Board. If the local and district taxes are misallocated due to negligence or intentional disregard of the law, a penalty of 10 percent of the amount misallocated may be imposed.
(h) Exemption Certificates. A holder of a direct payment permit may issue a direct payment exemption certificate to any retailer. The certificate shall be in substantially the following form and shall be valid only with respect to the calendar year for which it is issued.
DIRECT PAYMENT EXEMPTION CERTIFICATE

______________________________________________________________
(Name of Purchaser)
______________________________________________________________
(Address of Purchaser)
I certify that I hold direct payment permit No. _______________
issued pursuant to the California Sales and Use Tax Law and that I am authorized to report and pay directly to the State the applicable sales or use tax with respect to the property described herein which I shall purchase from _________________________________________________
during the calendar year ________. In the event that I fail to timely report and pay the applicable tax to the State, I understand that in addition to the tax liability, I will be subject to applicable interest and penalties. Description of property to be purchased:
______________________________________________________________
______________________________________________________________
Date: ____________
__________________________________________
(Signature of Purchaser or Agent)
__________________________________________
(Title)
(i)(1) Effect of Certificate. A party who issues a direct payment of exemption certificate to a retailer shall be liable for the tax with respect to sales made pursuant to the certificate in the same manner as if the party were the retailer making the sale. The liability assumed by issuing the certificate must be included on the return filed for the period in which the sale was made rather than on the return for the period in which the property was used by the purchaser. The party who issued the exemption certificate is liable for the tax on the sale even if the property is lost, destroyed, removed from this state, or otherwise never used or consumed in this state.
(2) A direct payment exemption certificate shall not be substituted for a resale certificate because the tax consequences are different. Resale certificates shall only be issued with respect to property which the purchaser intends to resell and direct payment exemption certificates shall be issued only for property purchased for use or other consumption.
(3) A retailer who timely takes a direct payment exemption certificate in good faith from a person who holds a direct payment permit is relieved from liability for the sales tax and responsibility for collecting the use tax with respect to retail sales to the person who issued the certificate during the period covered by the certificate. A certificate will be considered timely if it is given at any time before the seller bills the purchaser for the property, or at any time within the seller's normal billing and payment cycle, or at any time at or prior to delivery of the property to the purchaser. The invoice or other evidence of sale issued by the retailer must clearly state that the sale was made pursuant to a direct payment exemption certificate in order to support a deduction on the retailer's sales tax return. If a retailer makes sales under both a direct payment exemption certificate and a resale certificate to the same customer, care must be exercised to identify which property is sold pursuant to each certificate. The retailer must segregate in his or her records, and on his or her sales tax return, sales made pursuant to a direct payment exemption certificate from sales for resale.
(j) Interest and Penalties. All provisions of the Sales and Use Tax Law relating to interest and penalties apply to tax liabilities incurred under the provisions of this regulation in the same manner as to other sales and use tax liabilities. (See Section 1703 of Title 18 of the California Code of Regulations.)

Note: Authority cited: Sections 7051 and 7051.1, Revenue and Taxation Code. Reference: Sections 7051.1 and 7051.2, Revenue and Taxation Code.


s 1699.6. Use Tax Direct Payment Permits.
(a) Forward. "Use tax direct payment permit" means a permit issued by the board that allows a use tax direct payment permit holder to self-assess and pay state, local, and district use taxes under Part 1 (commencing with Section 6001), Part 1.5 (commencing with Section 7200), and, if applicable, Part 1.6 (commencing with Section 7251) directly to the board. The provisions of this regulation apply only to transactions subject to use tax.
(b)(1) Application for Permit. Persons seeking to pay use taxes directly to the board shall file an application for a use tax direct payment permit. An application for a use tax direct payment permit shall be made on Board of Equalization Form BOE-400-DP (no revision date). The application shall be signed by the owner, if a natural person; in the case of an association or partnership, by a member or partner; and in the case of a corporation, by an executive officer or some person specifically authorized by the corporation to sign the application.
(2) Within 30 days of receipt of an application for a direct payment permit the board shall inform the applicant in writing either that the application is complete and has been accepted or that the application is deficient and what additional specific information is required to make the application complete. Within 60 days of acceptance of a complete application the board shall approve or deny the issuance of a direct payment permit and notify the applicant in writing of its decision.
(c) Requirements for Permit. Pursuant to an application, a use tax direct payment permit shall be issued to any person who meets all of the following conditions:
(1) The applicant agrees to self-assess and pay directly to the board any use tax liability incurred under this regulation.
(2) The applicant certifies to the board either of the following:
(A) The applicant is the purchaser for its own use or is the lessee of tangible personal property subject to the use tax at a cost of five hundred thousand dollars ($500,000) or more in the aggregate, during the calendar year immediately preceding the application for the permit. Tangible personal property purchased for own use includes both property subject to use tax and property exempt from use tax except that it does not include property purchased for resale; or
(B) The applicant is a county, city, city and county, or redevelopment agency.
(d) Reporting of Local Use Tax. Any person who holds a valid use tax direct payment permit shall self-assess and pay directly to the board with each return the use taxes due under Division 2, Part 1 (commencing with Section 6001), Part 1.5 (commencing with Section 7200), and, if applicable, Part 1.6 (commencing with Section 7251), for all purchases subject to use tax for which a use tax direct payment exemption certificate was issued, and shall report the local use tax component to the jurisdiction in which the property is located at the time the state imposed use tax must be reported. Temporary storage for the purpose of reporting local tax shall be disregarded. Any tax so reported may be redistributed in accordance with law.
(e) Returns. On or before the last day of the month following each quarterly period, a holder of a direct payment permit shall file a return with the board. The person required to file the return shall deliver it together with a remittance for the amount of tax due to the board. The return shall show the aggregate sales price of tangible personal property purchased during the reporting period with respect to which the person filing the return has issued a use tax direct payment exemption certificate relieving the retailer of liability for reporting and paying use tax, and such other information as the board may require.
(f) Exemption Certificates. The board shall allow any holder of a use tax direct payment permit to issue a use tax direct payment certificate to any registered retailer or seller subject to all of the following:
(1) The use tax direct payment exemption certificate shall be in a form prescribed by the board, and shall be signed by, and bear the name, address, and permit number of, the holder of the use tax direct payment permit.
(2) Once a use tax direct payment exemption certificate has been issued by a holder of a use tax direct payment permit, it shall remain effective until revised or withdrawn by the holder of the permit or until the retailer or seller has received written notice that the permit has been revoked by the board.
(3) A use tax direct payment certificate relieves a person selling property from the duty of collecting use tax only if taken timely and in good faith from a person who holds a use tax direct payment permit. A certificate will be considered timely if it is taken at any time before the seller bills the purchaser for the property, or any time within the seller's normal billing and payment cycle, or any time at or prior to delivery of the property to the purchaser.
(4) A purchaser who issues a use tax direct payment certificate that is accepted in good faith by a seller or retailer of tangible personal property shall be the sole person liable for any sales tax and related interest and penalties with respect to any transaction that is subsequently determined by the board to be subject to sales tax and not use tax. The local sales tax portion so determined shall be allocated to the city, county, city and county, or redevelopment agency to which the tax would have been allocated if it had been reported and paid by the retailer in accordance with Part 1.5 (commencing with Section 7200). Such allocation shall be based on the place of sale as provided in Regulation 1802 and Regulation 1822.
(5) Any person who holds a use tax direct payment permit and gives a use tax direct payment certificate to a seller or retailer shall, in addition to any applicable use tax liabilities, be subject to the same penalty provisions that apply to a seller or retailer.
(g) Resale Transactions. A use tax direct payment exemption certificate shall not be substituted for a resale certificate, because the tax consequences are different. Resale certificates shall only be issued with respect to property which the purchaser intends to resell, and use tax direct payment exemption certificates shall be issued for property purchased for use or other consumption. If a retailer makes sales under both a use tax direct payment exemption certificate and a resale certificate to the same customer, an audit trail must be maintained to identify which property is sold pursuant to each certificate.
(h) Revocation of Permit. The board may revoke the use tax direct payment of any person who fails to purchase tangible personal property for own use of at least $500,000 per year. The permit shall remain valid for all transactions taking place prior to the date the permit is revoked.
(i) Successor Entities. A successor entity to a use tax direct payment permit holder shall qualify to obtain a use tax direct payment permit if the predecessor entity so qualified in the calendar year in which the succession occurred but must obtain its own permit.
(j) Operative Date. The provisions of this regulation apply only to purchases that occur on or after January 1, 1998.

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6007, 6070 and 7051.3, Revenue and Taxation Code.


s 1700. Reimbursement for Sales Tax.
(a) Reimbursement for Sales Tax.
(1) Addition of Sales Tax Reimbursement. Whether a retailer may add sales tax reimbursement to the sales price of the tangible personal property sold at retail to a purchaser depends solely upon the terms of the agreement of sale.
(2) Presumptions. Certain presumptions concerning the addition of sales tax reimbursement are created by Civil Code Section 1656.1. It shall be presumed that the parties agreed to the addition of sales tax reimbursement to the sales price of tangible personal property sold at retail to a purchaser if:
(A) The agreement of sale expressly provides for such addition of sales tax reimbursement;
(B) Sales tax reimbursement is shown on the sales check or other proof of sale; or
(C) The retailer posts in his or her premises in a location visible to purchasers, or includes on a price tag or in an advertisement or other printed material directed to purchasers, a notice to the effect that reimbursement for sales tax will be added to the sales price of all items or certain items, whichever is applicable.
It shall be presumed that the property, the gross receipts from the sale of which is subject to the sales tax, is sold at a price which includes tax reimbursement if the retailer posts in his or her premises, or includes on a price tag or in an advertisement (whichever is applicable) one of the following notices:
1. "All prices of taxable items include sales tax reimbursement computed to the nearest mill."
2. "The price of this item includes sales tax reimbursement computed to the nearest mill."
(3) Reimbursement Schedules. Each retailer who adds to the sales price of tangible personal property sold at retail an amount from a consumer in reimbursement of the sales tax upon gross receipts shall compute the amount of reimbursement by reference to schedules prepared by the board pursuant to Civil Code Section 1656.1 or by mathematical computation as described below. Schedules are available from the local district board offices for the various applicable rates. Reimbursement on sales prices in excess of those shown in the schedules provided by the board may be computed by applying the applicable tax rate to the sales price, rounded off to the nearest cent by eliminating any fraction less than one-half cent and increasing any fraction of one-half cent or over to the next higher cent.
(b) Excess Tax Reimbursement.
(1) Definition. When an amount represented by a person to a customer as constituting reimbursement for sales tax is computed upon an amount that is not taxable or is in excess of the taxable amount and is actually paid by the customer to the person, the amount so paid is excess tax reimbursement. Excess tax reimbursement is charged when reimbursement is computed on a transaction which is not subject to tax, when reimbursement is computed on an amount in excess of the amount subject to tax, when reimbursement is computed using a tax rate higher than the rate imposed by law, and when mathematical or clerical errors result in an overstatement of the reimbursement on a billing.
(2) Procedure upon Ascertainment of Excess Tax Reimbursement. Whenever the board ascertains that a person has collected excess tax reimbursement, the person will be afforded an opportunity to refund the excess collections to the customers from whom they were collected. In the event of failure or refusal of the person to make such refunds, the board will make a determination against the person for the amount of the excess tax reimbursement collected and not previously paid to the state, plus applicable interest and penalty.
(3) Evidence Sufficient to Establish that Excess Amounts have been or will be Returned to Customer.
(A) If a person already has refunded to each customer amounts collected as reimbursement for tax in excess of the tax due, this may be evidenced by any type of record which can be verified by audit such as:
1. Receipts or cancelled checks.
2. Books of account showing that credit has been allowed the customer as an offset against an existing indebtedness owed by the customer to the person.
(B) If a person has not already made sales tax reimbursement refunds to each customer but desires to do so rather than incur an obligation to the state, the person must:
1. Inform in writing each customer from whom an excess amount was collected that the excess amount collected will be refunded to the customer or that, at the customer's option, the customer will be credited with such amount, and
2. The person must obtain and retain for verification by the board an acknowledgement from the customer that the customer has received notice of the amount of indebtedness of the person to the customer.
(4) Offsets. If a person who has collected excess tax reimbursement on a transaction fails or refuses to refund it to the customer from whom it was collected, the excess tax reimbursement shall be offset against any tax liability of the taxpayer on the same transaction. Any excess tax reimbursement remaining after the offset must be refunded to the customer or paid to the state. The offset can be made when returns are filed, when a determination is issued, or when a refund is claimed. Such offsets can be made only on a transaction by transaction basis. Tax reimbursement collected on a specific transaction can be used only to satisfy a tax liability arising from the same transaction. The "same transaction" means all activities involved in the acquisition and disposition of the same property. The "same transaction" may involve several persons, such as a vendor, a subcontractor, a prime contractor, and the final customer; or a vendor, a lessor, and a series of sublessors. Tax reimbursement can be offset against the tax liability of the taxpayer whether the liability was satisfied by paying sales tax reimbursement to a vendor, paying use tax to a vendor, or paying use tax to the state.
An offset of a taxpayer's own tax liability against tax reimbursement collected from a customer can be made only with respect to transactions in which possession of the property upon which the taxpayer's tax liability is based is transferred, either permanently or temporarily, to the customer, as in the case of construction contracts or leases. A taxpayer such as a repairman or printer who uses shop supplies or printing aids in performing a job for a customer cannot offset the tax liability arising from the use of the supplies or aids against tax reimbursement collected from the customer.
A person who claims that a tax liability on a transaction should be offset against tax reimbursement paid to the state by another person has the burden of proving that tax reimbursement was in fact paid to the state on the same transaction by the other person. In the absence of such proof no offset will be allowed.
The offset allowances explained above are procedural changes mandated by statute and apply to all proceedings pending before the board on and after September 7, 1982.
(5) Particular Applications. (Examples at 6 percent tax rate.)
(A) Discounts and trading stamps.
1. Discounts. A retailer who allows discounts on sales prices but charges customers tax reimbursement computed upon the prices before the discount is deducted is collecting excess reimbursement.
For example, a sale is made for $100 plus $6 as tax reimbursement. Upon payment for the item the purchaser is allowed a discount of 20 percent of the sales price of $100 but the $6 tax reimbursement is excluded from the computation. Since the retailer is deducting the amount of the discount, $20, from taxable gross receipts, the retailer is actually paying a tax of only $4.80, i.e., 6 percent of $80, and has retained excessive tax reimbursement of $1.20.
2. Trading Stamps. A retailer who issues trading stamps or similar evidences of patronage may deduct as cash discounts the cost to the retailer of the stamps or other indicia (hereinafter called "stamps") issued in connection with taxable retail sales. A retailer who deducts the cost of stamps as a cash discount in computing the tax payable to the state, but who charges tax reimbursement on the full sales price of the goods, collects more tax reimbursement than the retailer pays to the state. The following illustration shows why this is true: If a retailer collects sales tax reimbursement of $6 on a $100 sale but gives the customer trading stamps which cost the retailer $2 and then deducts the $2 as a cash discount when reporting taxable receipts, the retailer will pay a tax of only $5.88 (6 percent of $98).
The retailer must follow one of the three following procedures:
a. Adjust the price upon which tax reimbursement is computed so it will correspond to the price upon which the retailer computes the tax paid by the retailer to the state.
b. Consider the price which determines the number of stamps to be given a customer as the total amount paid by the customer, inclusive of that portion charged as reimbursement for sales tax.
c. Take no deduction from gross receipts in computing tax to be paid to the state on account of the cost of stamps given to customers.
(B) Construction Contractors. (See Regulation 1521 (18 CCR 1521) for application of tax to construction contractors generally) A contractor furnishes and installs materials under a lump sum construction contract for the improvement of real property and collects tax reimbursement on the total contract price. As the contractor is the consumer of materials furnished and installed in the performance of the lump sum contract, the tax reimbursement collected on the total contract price constitutes excess tax reimbursement. Such excess tax reimbursement must be returned to the customer or paid to the state. However, offsets will be allowed as explained in (b)(4).
Under a lump sum contract to improve real property, a subcontractor furnishes and installs materials which were acquired without the payment of sales or use tax. The prime contractor collects tax reimbursement from the prime contractor's customer on the total contract price and pays all of the tax reimbursement collected to the state. The subcontractor's use tax liability on the materials consumed in performing the contract will be offset against the tax reimbursement paid to the state by the prime contractor, and the subcontractor has no further tax liability on the transaction. The tax reimbursement paid to the state by the prime contractor in excess of the use tax liability of the subcontractor will be refunded to the prime contractor only if it is returned to the customer.
(C) Lessors of Mobile Transportation Equipment. A lessor of mobile transportation equipment purchases such equipment under a resale certificate and collects tax reimbursement on the rental receipts, but pays no tax to the state. The lessor must pay tax on the purchase price of the equipment since a timely election to measure the tax by fair rental value was not made. The tax reimbursement collected on rental receipts is excess tax reimbursement. Such excess tax reimbursement must be returned to the lessee or paid to the state. However, offsets will be allowed as explained in (b)(4). (See Regulation 1661 (18 CCR 1661) for application of tax to leases of mobile transportation equipment)
(D) Other Lessors of Tangible Personal Property. A lessor purchases property and pays sales tax reimbursement to the vendor. The property is leased in the same form as acquired and tax reimbursement is collected on the rental receipts. Tax reimbursement collected on rental receipts must be returned to the lessee or paid to the state to the extent that it exceeds the tax liability measured by the purchase price. (See Regulation 1660 (18 CCR 1660) for application of tax to leases, generally)
(6) Rights of Customers. The provisions of this regulation with respect to offsets do not necessarily limit the rights of customers to pursue refunds from persons who collected tax reimbursement from them in excess of the amount due.

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6901.5, Revenue and Taxation Code; and Section 1656.1, Civil Code. Leases, see also regulation 1660; Meals, tips and other charges as tax-included amounts, see regulation 1603; "Free meals," charging reimbursement on, see regulation 1670; Trading stamps generally, see regulation 1671; Trade-ins generally, see regulation 1654.


s 1701. "Tax-Paid Purchases Resold."
(a) Procedure in General. A retailer who resells tangible personal property before making any use thereof (other than retention, demonstration or display while holding it for sale in the regular course of business) may take a deduction of the purchase price of the property if, with respect to its purchase, he has reimbursed his vendor for the sales tax or has paid the use tax. If such a deduction is taken by the retailer, no refund or credit will be allowed to his vendor with respect to the sale of the property.
The deduction under the caption "Tax-paid purchases resold" must be taken on the retailer's return in which his sale of the property is included. If the deduction is not taken in the proper quarter, a claim for refund of tax must be filed.
(b) Circumstances Warranting Use. This procedure should be used in any of the following circumstances:
(1) The retailer when making the purchase intends to use the property rather than resell it, but later resells it before making any use thereof.
(2) The particular property is of a kind not ordinarily sold or stocked by the retailer, and not customarily covered by resale certificates given to his vendors and is the subject of an unusual sale, such as a sale for the accommodation of a customer, employee, etc.
(3) The particular property is generally for the use of the retailer, but a small portion is incidentally resold.
(4) Through error, sales tax reimbursement or use tax is paid by the retailer with respect to the purchase price of property purchased for resale in the regular course of business.
(c) Particular Application. "Standby Service." Property purchased "tax paid" by a retailer and placed in "Standby Service," located at the place of intended use and committed to that use, is considered used sufficiently to preclude a tax-paid purchase deduction when sold, even though never physically used there and ultimately removed and sold.

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6012(a), Revenue and Taxation Code.


s 1702. Successor's Liability.
(a) When Duty to Withhold Purchase Price Arises. The requirement that a successor or purchaser of a business or stock of goods withhold sufficient of the purchase price to cover the tax liability of the seller, arises only in the case of the purchase and sale of a business or stock of goods under a contract, providing for the payment to the seller or person designated by him of a purchase price in money or property or providing for the assumption of liabilities and only to the extent thereof, and does not arise in connection with other transfers of a business such as assignments for the benefit of creditors, foreclosures of mortgages, or sales by trustees in bankruptcy.
(b) Amounts to Which Liability Extends. The liability of the successor or purchaser of a business or stock of goods extends to amounts incurred with reference to the operation of the business by the predecessor or any former owner, including the sale thereof, even though not then determined against him or her, which include taxes, interest thereon to the date of payment of the taxes, and penalties including penalties for nonpayment of taxes. Liability also extends to penalties determined and unpaid at the time of sale for negligence or intentional disregard of the Sales and Use Tax Law or authorized rules and regulations, and fraud or intent to evade the Sales and Use Tax Law or authorized rules and regulations.
(c) Release from Obligation. The purchaser of the business or stock of goods will be released from further obligation to withhold the purchase price if he obtains a certificate from the board stating that no taxes, interest, or penalties are due from a predecessor. He will also be released if he makes a written request to the board for a certificate and if the board does not issue the certificate or mail to the purchaser a notice of the amount of the tax, interest, and penalties that must be paid as a condition of issuing the certificate within 60 days after the latest of the following dates:
(1) The date the board receives a written request from the purchaser for a certificate.
(2) The date of the sale of the business or stock of goods.
(3) The date the former owner's records are made available for audit.
The certificate may be issued after the payment of all amounts due under the Sales and Use Tax Law, according to the records of the board as of the date of the certificate, or after the payment of the amounts, including amounts not yet ascertained, is secured to the satisfaction of the board. Such security is not subject to the limitations contained in section 6701 of the Revenue and Taxation Code.
(d) Enforcement of Obligation.
(1) The liability is enforced by service of a notice of successor liability not later than three years after the date the board receives written notice of the purchase of the business or stock of goods. The successor may petition the Board for reconsideration of the liability within 30 days after service. The liability becomes final, and the amount due and payable, in the same manner as determinations and redeterminations of other sales and use tax liability.
(2) On or after January 1, 1990, a successor shall be relieved of any penalty originally imposed upon the predecessor included in the notice of successor liability regardless of when the notice was issued where there is no relationship between the successor and predecessor. A relationship exists between the successor and predecessor if there is any common ownership or if the successor was a responsible person as defined in Sales and Use Tax Regulation 1702.5(b)(1) in the predecessor entity. A successor seeking relief of a penalty must file a written statement with the board under penalty of perjury stating the facts upon which he or she bases the claim for relief.
(e) Separate Business Locations.
Where one person operates several business establishments, each at a separate location, each establishment is a separate "business" and has a separate "stock of goods" for purposes of determining the liability of a successor. A purchaser of the business or stock of goods of any such establishment is subject to liability as a successor with respect to that establishment even if he does not purchase the business or stock of goods of all the establishments.
(f) Purchase of a Portion of a Business.
A person who purchases a portion of a business or stock of goods may become liable as a successor as, for example, where he purchases substantially all of the business or stock of goods or where the business or stock of goods is purchased by two or more persons. In cases of doubt as to possible liability, the purchaser should obtain a certificate as provided in subdivision (c) above.

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Sections 6592, 6701, 6811, 6812, 6813 and 6814, Revenue and Taxation Code.


s 1702.5. Responsible Person Liability.
(a) General. Any responsible person who willfully fails to pay or to cause to be paid, under circumstances set forth below, any taxes due from a domestic or foreign corporation or limited liability company pursuant to Part 1, Division 2, of the Revenue and Taxation Code shall be personally liable for any unpaid taxes and interest and penalties on those taxes not so paid upon termination, dissolution, or abandonment of the corporate or limited liability company business.
Personal liability shall apply if the board establishes that while the person was a responsible person, the corporation or limited liability company:
1. sold tangible personal property in the conduct of its business and collected sales tax reimbursement on the selling price (whether separately itemized or included in the selling price) and failed to remit such tax when due; or
2. consumed tangible personal property and failed to pay the applicable tax to the seller or the board; or
3. issued a receipt for use tax and failed to report and pay the tax.
(b) Definition of Terms.
(1) Responsible Person. As used herein, the term "responsible person" means any officer, member, manager, employee, director, shareholder, or other person having control or supervision of, or who is charged with the responsibility for, the filing of returns or the payment of tax or who has a duty to act for the corporation or limited liability company in complying with any provision of the Sales and Use Tax Law. The term "responsible person" does not include any person who would otherwise qualify but is serving in that capacity as an unpaid volunteer for a non-profit organization.
(2) Willful. As used herein, the term "willful" means voluntary, conscious and intentional. A failure to pay or to cause to be paid may be willful even though such failure was not done with a bad purpose or evil motive.
(3) Termination. As used herein, "termination" of a domestic or foreign corporate or limited liability company business includes discontinuance or cessation of business activities.
(c) Collection. The board may issue a Notice of Determination, in the manner provided in Chapter 5 of the Sales and Use Tax Law, for the amount of the personal liability of the responsible person, and penalties and interest shall be added to the amount due as applicable. The board may collect the amounts due from the responsible person in the manner provided by Chapter 6 of the Sales and Use Tax Law for the collection of sales and use taxes.
1. New section filed 1-9-97; operative 2-8-97 (Register 97, No. 2).

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6829, Revenue and Taxation Code.


s 1702.6. Suspended Corporations.
(a) General. A corporate officer or shareholder with control over operations or management of a closely held corporation during a time in which the corporation's powers, rights, and privileges are suspended or any responsible person who fails to pay or to cause to be paid any taxes due from a closely held corporation during a time in which the corporation's powers, rights, and privileges are suspended shall be personally liable under the circumstances set forth below for any unpaid sales or use tax liability of that suspended corporation incurred during the period of that suspension. The corporate officer, shareholder, or responsible person shall be liable for the unpaid tax, and interest and penalties on those taxes not so paid, regardless of the basis for the suspension of the corporation's powers, rights, and privileges.
Personal liability under this regulation applies only when the Board establishes that, during the period of suspension, the corporation:
(1) Sold tangible personal property in the conduct of its business and collected sales tax reimbursement on the selling price (whether separately itemized or included in the selling price) and failed to remit such tax when due; or
(2) Collected use tax and failed to report and pay the tax; or
(3) Consumed tangible personal property and failed to pay the applicable tax to the seller or the Board.
(b) Definitions of Terms.
(1) Responsible Person. For the purposes of this regulation, the term "responsible person" means any officer or shareholder who is charged with the responsibility for the filing of returns or the payment of tax or who has a duty to act for the closely held corporation in complying with any provision of the Sales and Use Tax Law, and who derives a direct financial benefit from the failure to pay the tax liability.
(2) Closely Held. For the purposes of this regulation, the term "closely held" corporation means one in which ownership is concentrated in one individual, one family, or a small number of individuals and the majority stockholders manage the business.
(3) Control over Operations or Management. For the purposes of this regulation, the term "control over operations or management" means the power to manage or affect day to day operations of the business. For the purposes of this regulation, it is rebuttably presumed that a corporate officer has control over operations and management of the closely held corporation.
(c) Determination and Collection. The Board shall determine and collect the liability established under this regulation in the manner provided in Chapter 5 (commencing with section 6451) and Chapter 6 (commencing with section 6701) of Part 1, Division 2, of the Revenue and Taxation Code.
(d) Liability of the Corporation. A suspended corporation shall remain liable for the unpaid tax, interest, and penalties incurred during the period in which its corporate powers, rights, and privileges were suspended without regard to any personal liability determined under subdivision (a) of this regulation. Payments made pursuant to subdivision (a) shall be applied to the liability of the corporation.

Note: Authority cited: Section 7051, Revenue and Taxation Code. Reference: Section 6066, Revenue and Taxation Code.


s 1703. Interest and Penalties.
(a) Statutory Provisions. Interest and penalties are prescribed in various sections of the Sales and Use Tax Law as follows:
Subject Interest Penalties
Failure to pay tax within 6480.4, 6480.8 6476, 6477,
required time (except 6480.19, 6591 6478, 6479.3
determinations) 6480.4, 6480.8,
6480.19, 6591,
7051.2
Failure to file a timely return 6591, 6479.3
Deficiency determinations 6482 6484
(negligence)
6485 (fraud)
7051.2
Determination -failure to 6513 6511, 7051.2
make return 6514 (fraud)
Jeopardy determinations 6537 6537, 7051.2
Extensions of time 6459
Determinations -Nonpayment of 6565, 7051.2
Offsets 6512 6512
Refunds and credits 6901, 6907
6908 6901
Suits for refund 6936
Disposition of interest and
penalties 7101 7101
Criminal Penalties 6073, 6094.5,
6422.1, 7152,
7153, 7153.5
Failure to make timely application
for registration of motor vehicle,
mobilehome, aircraft or
undocumented vessel 6291-6294 6291-6294
Registration of vehicle, vessel
or aircraft out of state 6485.1, 6514.1
(intent to evade)
Advertising that use tax
will be absorbed 6207
Any violation of Sales and
Use Tax Law 7153, 7153.5
Failure to collect use tax 6207
Failure to display use tax
separately 6207
Failure to furnish return or
other data 6452, 6455
Improper use of resale
certificates 6072 6094.5, 6072
Making false return 7152
Misuse of vehicle use tax
exemption certificates 6422.1
Operating as seller without
permit 6071, 6077
Failure to obtain valid permit 6077, 7155
Relief from interest or penalty 6593, 6596 6592, 6596
Modified adjusted rate 6591.5
Failure to obtain evidence that
operator of catering
truck holds valid permit 6074
Improper allocation of local tax by
direct payment permitholder 7051.2
Managed Audit program 7076.5
Failure to pay tax due to an error
or delay by an employee of the
Board or Department of Motor
Vehicles 6593.5
Erroneous refund 6964
Tax Amnesty Program (Reporting
Periods Beginning Before
January 1, 2003) 7073, 7074

(b) Interest.
(1) Interest Rates.
(A) In General. Interest is computed at the modified adjusted rate per month, or fraction thereof. "Modified adjusted rate per month, or fraction thereof" means the modified adjusted rate per annum divided by 12. (continued)