California: Taxpayer Cannot Rely on Information Posted on CDTFA Website

The California Office of Tax Appeals (OTA) recently addressed whether a taxpayer was entitled to a refund of sales tax because it relied on information posted on California Department of Tax and Fee Administration’s (CDTFA) website. The taxpayer was a retailer of irrigation equipment and supplies. During the tax period at issue, the taxpayer collected and remitted sales tax on sales of farm equipment; certain sales qualified for the state’s partial tax exemption for farm equipment and machinery. The partial exemption applies only to the state general fund portion of the sales tax.  Unbeknownst to the taxpayer, the partial tax exemption rate had decreased from 5.25 percent to 5.0 percent. In other words, the taxpayer should have subtracted 5.0 percent, rather than 5.25 percent, from the sales tax rate that would normally apply to the sale of farm equipment.

The taxpayer paid additional the amount due and subsequently sought a refund of the 0.25 percent that it had not collected from customers. The taxpayer argued that “it detrimentally relied upon outdated information posted on [CDTFA’s] website indicating that the applicable partial tax exemption rate for the claim period was 5.25 percent” and thus the CDTFA’s failure to update its website deprived the taxpayer the ability to obtain full reimbursement for the tax from its customers. Although the CDTFA conceded that its website was outdated, it had notified all sales and use tax account holders of the change through various means, including a notice on its website. The OTA held that the taxpayer was not entitled to a refund based on its reliance on the outdated information posted on the CDTFA’s website. In the OTA’s view, “regardless of whether [the taxpayer] received any advance notice from [CDTFA] of the rate change, there is simply no legal basis for relieving or refunding the tax under these circumstances.” For more information on In re Waterford Irrigation Supply, Inc., please contact Jim Kuhl.