CALIFORNIA INSURANCE COMPANIES SHOULD CONSIDER FILING USE TAX REFUND CLAIMS UNDER A RECENT SAN DIEGO SUPERIOR COURT DECISION
A decision after trial in the case of First American Title Insurance Company v. California Department of Tax and Fee Administration (CDTFA), San Diego County Superior Court Case No. 37-2018-00065184-CU-WM-CTL, may benefit California insurance companies by providing for potential refunds of use taxes paid for leases of equipment or other tangible personal property. The decision is contained in the Final Statement of Decision filed June 16, 2020, issued by Superior Court Judge Ronald F. Frazier. While CDTFA is likely to appeal, insurers should evaluate their potential claims and consider submitting claims for refund at the earliest date to maximize the refund benefit.
The decision focuses on a discrepancy between a regulation of the State Board of Equalization (SBE now CDTFA), Regulation 1620, that sales tax cannot be charged on leases (continuing sales) from out-of-state lessors and a provision of the California Constitution that insurance companies are exempt who pay a gross-premiums tax in lieu of other state and local taxes. In an effort to avoid the Constitutional provision, another SBE regulation, Regulation 1660(c)(1), states that the tax paid by insurance companies (only) on equipment leases will be designated as a sales tax, even when the equipment is provided by an out-of-state supplier which would otherwise be subject to use tax. Judge Frazier’s decision affirmed a SBE ruling in 2017 that the insurance-company exception in Regulation 1660 created an irreconcilable conflict with the California Constitution, provisions of the Revenue and Taxation Code and Regulation 1620, so that the exception would have to be thrown out.
First American Title Insurance Company was represented in the case by Joseph A. Vinatieri, Esq., and Leighton M. Anderson, Esq.
For more information contact:
Joseph A. Vinatieri
Leighton M. Anderson
Bewley, Lassleben & Miller, LLP