Deficiency Determinations

Article 2 of Chapter 5 of Part 1 of Division 2 of the Revenue and Taxation Code deals with deficiency determinations under the California Sales and Use Tax Laws.

Section 6481 provides that, if the board is not satisfied with the return or returns of the tax or the amount of tax, or other amount, required to be paid to the state by any person, it may compute and determine the amount required to be paid upon the basis of the facts contained in the return or returns or upon the basis of any information within its possession or that may come into its possession.

One or more deficiency determinations may be made of the amount due for one or for more than one period. When a business is discontinued, a determination may be made at any time thereafter, within the periods specified, as to liability arising out of that business, irrespective of whether the determination is issued prior to the due date of the liability.

Section 6482 provides that the amount of the determination, exclusive of penalties, is required to bear interest at the modified adjusted rate per month, or fraction thereof, from the last day of the month following the quarterly period for which the amount or any portion thereof should have been returned until the date of payment.

Section 6483 states that, in making a determination the board may offset overpayments for a period or periods, together with interest on the overpayments, against underpayments for another period or periods, against penalties, and against the interest on the underpayments. The interest on underpayments and overpayments is computed in the manner set forth in law.

Section 6484 states that, if any part of the deficiency for which a deficiency determination is made is due to negligence or intentional disregard of this part or authorized rules and regulations, a penalty of 10 per cent of the amount of the determination is added.

Section 6485 says that, if any part of the deficiency for which a deficiency determination is made is due to fraud or an intent to evade this part or authorized rules and regulations, a penalty of 25 percent of the amount of the determination is added.

Section 6485.1 provides that any purchaser of a vehicle, vessel, or aircraft who registers it outside the State of California for the purpose of evading the payment of taxes due under this part is liable for a penalty of 50 percent of any tax determined to be due on the sales price of the vehicle, vessel, or aircraft.

Section 6486 requires the department to give to the retailer or person storing, using, or consuming tangible personal property written notice of its determination. The notice is to be served in one of the three specified manners.

Section 6487 states that, except in the case of fraud, intent to evade this part or authorized rules and regulations, or failure to make a return, every notice of a deficiency determination can be served within three years after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined or within three years after the return is filed, whichever period expires the later.

In the case of failure to make a return, every notice of determination must be served within eight years after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined. For taxpayers filing returns on an annual basis, except in the case of fraud, intent to evade this part or authorized rules and regulations, or failure to make a return, every notice of a deficiency determination must be served within three years after the last day of the calendar month following the one-year period for which the amount is proposed to be determined.

Section 6487.05 explains that the period during which a deficiency determination may be served to a qualifying retailer is limited to three years after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined. The term “qualifying retailer” is defined.

Section 6487.06 provides that the period during which a deficiency determination may be served to a qualifying purchaser is limited to three years after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined. The term “qualifying purchaser” is defined.

If the department makes a determination that the purchaser’s failure to timely report or remit the taxes imposed by this part is due to reasonable cause or due to circumstances beyond the purchaser’s control, the purchaser may be relieved of any penalties imposed by this part. Any purchaser seeking relief from penalties imposed by this part is required to file a statement, signed under penalty of perjury, setting forth the facts that form the basis for the claim for relief.

Section 6487.07 allows a deficiency determination to be issued to a qualifying retailer only for those liabilities arising under this part for sales made. The term “qualifying retailer” is defined.

Section 6487.1 provides, in the case of a deficiency arising under this part during the lifetime of a decedent, a notice of deficiency determination is required to be served within four months after written request therefor, in the form required by the department, by the fiduciary of the estate or trust or by any other person liable for the tax or any portion thereof.

Section 6487.2 states that a notice of determination issued to an individual who was a general partner, as shown on the department’s records, and who, prior to the period covered by the determination, withdrew from the partnership, causing a change in ownership, and failed to notify the department, is to be served within four years after the last day of the calendar month following the quarterly period in which the change of ownership occurred.

An individual who was a general partner, as shown on the department’s records, who withdraws from a partnership without notifying the department of the change in ownership, is not liable for any unpaid, self-assessed liability of the partnership that becomes due at least three years after the last day of the calendar month following the quarterly period in which the change in ownership occurred.

Section 6487.3 provides that, for persons that elect to report qualified use tax, except in the case of fraud, intent to avoid this part or authorized rules and regulations issued by the department, or the gross understatement of qualified use taxes, every notice of a deficiency determination with respect to the qualified use tax must be served within three years after the last day for which an acceptable tax return is due or filed, whichever occurs later.

In the case of a gross understatement of qualified use tax, every notice of a deficiency determination with respect to the qualified use tax must be served within six years after the last day for which an acceptable tax return is due or filed, whichever occurs later. The term “gross understatement of qualified use tax” is defined.

Section 6488 provides that, if before the expiration of the time prescribed for serving a notice of deficiency determination the taxpayer has consented in writing to service of the notice after such time, the notice may be served at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.