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By Saabir Kapoor and Pilar Mata
The California Court of Appeal reversed the trial court’s decision in favor of the State Board of Equalization (BOE), holding that a taxpayer’s evidence of communications with the BOE presented triable issues of material fact as to whether the BOE should be equitably estopped from relying on administrative exhaustion requirements. The taxpayer, D.R. Systems, Inc., argued that it filed a valid sales tax refund claim with the BOE when it wrote a letter, pursuant to the specific instructions of a BOE agent, explaining the taxpayer was owed a “large credit balance” that it had uncovered while performing a self-audit of prior year revenues. In order for a sales tax refund claim to be valid, California requires that the claim be in writing and state the specific grounds upon which the claim is founded. The BOE argued that the taxpayer’s letter was not a valid refund claim because it did not specify grounds for a refund, and thus had not exhausted its administrative remedies before filing suit. Although the court agreed with the BOE that the taxpayer’s communications did not constitute a valid refund claim, the court nevertheless found that the doctrine of equitable estoppel may be appropriately invoked to prevent an injustice to the taxpayer for failure to comply with a procedural requirement. Specifically, if the taxpayer could show at trial that its reliance on the BOE agent’s statements was reasonable, the BOE should be estopped from raising the taxpayer’s failure to exhaust administrative requirements as a defense. D.R. Systems, Inc. v. Cal. State Bd. of Equalization, Cal. Ct. App., Dkt. No. D060856 (March 7, 2013) (unpublished).