Board of Equalization Collections
In a previous article titled “The Long Arm of the Board of Equalization” we discussed the fact that a person does not have to live in California to be assessed California sales and use tax. We also touched on the fact that the California State Board of Equalization (Board) has many ways of collecting tax from people even if they do not live in California. This article will expand on the Board’s collection procedures.
Any person who purchases an aircraft or vessel in California is subject to either sales tax or use tax, whichever applies. Additionally, any person who purchases an aircraft or vessel outside the State of California and uses that aircraft or vessel in California within 90 days after its purchase is presumed to have purchased it for use in California and is therefore subject to use tax. In order to avoid paying the sales or use tax the person must prove to the Board that he/she has met the requirements of an exemption from said tax.
In order to avoid paying sales or use tax on an aircraft or vessel purchase, a person must file a Consumer Use Tax Return with the Board claiming the exemption from tax. He/she must also provide the Board supporting documents to prove the requirements of the exemption have been met. In the event a person does not file a timely return, the Board will issue a Notice of Determination (Notice) for the tax. The person must then pay the tax or timely file a Petition for Redetermination (Petition). If the tax is not paid and a Petition is not timely filed, the Notice will go final. Once a Notice has gone final the person must pay the tax. If he/she wishes to have a opportunity to prove the aircraft or vessel is exempt, he/she will have to first pay the tax and then file a claim for refund.
A Notice which has gone final and is not paid will be sent to the Board’s collection section. This where it gets scary. The Board has the ability to levy accounts and place liens on accounts and property in order to collect tax which is due. California Sales and Use Tax Law sections 6703 and 6738 state as follows:
“6703. Notice of levy. (a) Subject to the limitations in subdivisions (b)and (c), the board may by notice of levy, served personally or by first-class mail, require all persons having in their possession, or under their control, any credits or other personal property belonging to a retailer or other person liable for any amount under this part to withhold from such credits or other personal property the amount of any tax, interest, or penalties due from such retailer or other person, or the amount of any liability incurred by them under this part, and to transmit the amount withheld to the board at such times as it may designate. The notice of levy shall have the same effect as a levy pursuant to a writ of execution.”
“6738. Abstract of judgment; lien. An abstract of the judgment or a copy of such judgment may be filed for record with the county recorder of any county. From the time of the filing the amount required to be paid together with interest and penalty set forth constitutes a lien upon all the real property in the county owned by the person liable or afterward and before the lien expires acquired by him. The lien has the force, effect, and priority of a judgment lien and shall continue for 10 years from the date of the judgment so entered by the county clerk unless sooner released or otherwise discharged. The lien may within 10 years from the date of the judgment or within 10 years from the date of the last extension of the lien in the manner herein provided, be extended by filing for record in the office of the county recorder of any county an abstract or copy of the judgment and from the time of such filing the lien shall be extended to the property in such county for 10 years unless sooner released or otherwise discharged.”
We will provide the following examples of real cases to illustrate our point. Because of confidentiality, any data that might reveal the true identity of the taxpayer will be omitted.
A few months ago we were contacted by a young woman who had just had her bank accounts levied by the Board. Apparently, she and her ex-husband had purchased a vessel before they separated. At the time they had put the vessel in the woman’s name because the husband had bad credit. Because the financing was in only the woman’s name, all of the other paperwork, including the Coast Guard registration, also listed only the woman’s name.
Upon separation the couple agreed that the husband would take the vessel and he would continue to make the monthly payments on it. Each time the woman received documents in the mail which pertained to the vessel, she put them in an envelope and mailed them to her ex-husband since he had retained possession of the vessel.
Unfortunately, although the ex-husband was making the monthly payments on the vessel, he did not pay the use tax owed on the vessel and was ignoring the notices from the Board. Since neither the woman or her ex-husband responded to the Boards requests, the account was sent to collections. The vessel was registered in the woman’s name only and therefore she was responsible for the tax. The Board levied her bank accounts. To make matters worse, most of the money the Board levied did not actually belong to woman. She had added her name to her elderly mother’s account and the Board levied that account because it had the most money in it. That account contained the elderly mother’s retirement savings.
Not only does the Board have the ability to levy California bank accounts, it also has the ability to file a lien with all the national brokerage firms. They merely send a notice with the taxpayer’s name to firms like Schwab, Morgan Stanley, and every other national firm.
To make this point we will provide the following example of an actual case. A few years ago a taxpayer who was not a resident of California purchased an aircraft in Van Nuys, California. He flew the aircraft from Van Nuys to Palm Springs where he and his wife spent the weekend. He then flew to his home state of Texas and promptly paid the use tax to Texas. Subsequently, the taxpayer was notified by the California Board that he owed tax in California. When he contacted the California agency he informed them he was only a resident of Texas, he intended to only use the aircraft in Texas, and that he had paid his use tax directly to Texas.
The Board informed him that because he took possession of the aircraft inside California, made first functional use of the aircraft inside California and did not purchase the aircraft from a California retailer of aircraft, the transaction was subject to use tax in California. The taxpayer then attempted to get a refund of the Texas use tax and discovered that because the tax in California had not been paid prior to the entry of the aircraft into Texas, his payment to Texas was not subject to a credit for tax paid in another state.
The taxpayer then contacted the California Board and told them he would not pay the tax twice, and felt that since he owned no property inside California the Board had no lien rights. Unfortunately for the Texas resident, he had money with a national brokerage firm and the Board placed a lien on that account.
As you can see, ignoring the Board or refusing to pay the tax is not a viable option. The Board is very creative in ways of collecting what is owed them, and is very aggressive in its collection efforts. |
Audit Division