Companies argued to California court that they're entitled to refunds for tax penalties
Hotel owners and operators were entitled to refunds for tax penalties since they proved that the employee they hired to handle their taxes was dishonest about paying the taxes and about filing the tax returns, a California court recently held.
The plaintiffs in the case of Gajanan Inc. et al. v. City and County of San Francisco et al. – four hotel owners and three hotel management companies – sued the City and County of San Francisco and its Office of the Treasurer and Tax Collector to seek refunds of around $1.7 million in penalties that the City assessed for failure to pay certain hotel taxes and failure to timely file returns.
The plaintiffs argued that they were entitled to refunds of the penalties under s. 6.17-4 of the San Francisco Business and Tax Regulations Code because, exercising ordinary care, they hired and relied upon an employee to make the payments and to file the returns. After the taxes were past due, they learned that the employee lied and never performed those duties.
The trial court ruled in the plaintiffs’ favor. On appeal, the City argued that reliance on an employee did not amount to ordinary care entitling the plaintiffs to refunds under s. 6.17-4, even if the taxpayer was careful in hiring and supervising the employee and even if the employee was dishonest about paying taxes and filing returns.
Regardless of whether the plaintiffs were entitled to refunds due...
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