BOE Case Highlight: Terravant Wine Company LLC.

Occasionally, cases come before the Board of Equalization and require the Members of the Board to determine if a regulation conforms to the present day realities of business and industry. Sometimes these decisions have a broader significance for taxpayers in other industries. It is often the case that the law can be slow to keep up with California’s dynamic marketplace. Laws governing the telecommunications industry are a prime example of this phenomenon.

At the first BOE hearing this year, the board considered the appeal of Terravant Wine Company LLC. In this case, my staff and I closely examined all available evidence and concluded the petitioner had carefully followed the letter of the law.

The California Taxpayers Association (CalTax) summarized the case as follows:

In a 3-2 decision, with Vice Chair Runner, Ms. Harkey and Ms. Ma voting in favor, the board granted the Appeal of Terravant Wine Company LLC, involving use tax on winemaking equipment. The taxpayer operates a winery with a tasting room, and also provides winemaking services to other winemakers. Under one type of agreement, the taxpayer makes space and equipment available to other winemakers, and its employees operate the equipment.

The taxpayer testified that under the agreements with other winemakers, the other winemakers had ultimate authority over the use of the equipment, and that while the taxpayer’s employees operated the expensive and complicated machinery, the outside vintners called all the shots, with specific written work orders.

BOE staff said the taxpayer purchased specified equipment without paying sales or use tax, had a taxable use of the equipment under the agreements with other vintners, was the consumer of the equipment, and that the equipment therefore was subject to use tax. …In addition to seeking use tax, the BOE staff recommended that the board impose a negligence penalty. No negligence penalty was imposed, as the board granted the taxpayer’s appeal.

This vote is a win for all taxpayers, but especially those who have followed the rules and continue to provide the goods and services that make California a top destination for creative and innovative companies.

This case presents an opportunity to allow for a more business friendly assessment of sales and use tax when wine making equipment is leased. The case cited against the taxpayer by the BOE staff was from 1939 relating to the rental of dump trucks to a public agency (Entremont v. Whitsell). We as state officials should always be exploring ways to adapt outdated regulations to be in harmony with California’s dynamic, entrepreneurial evolution.

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