Facts and Background
In a significant victory for taxpayers selling multistate from California, the Sacramento County Superior Court recently ruled in favor of Body Wise International LLC, rejecting the California Department of Tax and Fee Administration’s (“CDTFA” formerly known as the Board of Equalization) attempt to characterize out-of-state tax collections as California “excess tax reimbursement.” (Body Wise International LLC vs. California Department of Tax and Fee Administration, Case No. 34-2023-00333398.)
The case arises from an audit covering the period April 2010 through June 2013, during which Body Wise—a retailer of nutritional supplements—shipped products to customers throughout the United States and Canada. CDTFA asserted that Body Wise failed to remit some of the tax that had been collected from out-of-state customers and demanded payment of those amounts. Body Wise paid the amount under protest and initiated a refund action.
Although the underlying issue was narrow, the procedural history was not. The dispute stretched over more than a decade, beginning with audit determinations, proceeding through administrative appeals before the Board of Equalization and the Office of Tax Appeals (“OTA”), and culminating in a trial before the Superior Court in November 2025, with the court ultimately resolving the matter on straightforward statutory grounds.
The alleged liability arose from a systemic error affecting a relatively limited number of jurisdictions into which Body Wise sold products. The taxes at issue were otherwise properly calculated and charged to customers based on destination rules and rates, using Vertex software. CDTFA did not dispute that the tax rates applied were correct, nor did it assert liability for any amounts that were actually remitted to the appropriate jurisdictions.
Body Wise was represented by Jesse W. McClellan serving as lead tax counsel, alongside Daniel V. Kohls who served as lead litigator.
The Governing Law: Revenue and Taxation Code Section 6901.5
The case turned entirely on the proper interpretation of Revenue and Taxation Code section 6901.5. As the court explained, for an amount to qualify as “excess tax reimbursement,” two elements must be satisfied:
- The amount must be represented to the customer as California sales or use tax, and
- The amount must be computed on a non-taxable amount or in excess of the taxable amount.
Absent one element, the statute does not apply.
CDTFA’s Shifting Theories
A notable aspect of the case was CDTFA’s evolving—and ultimately untenable—positions.
Initially, CDTFA’s claim was based purely on the fact that certain out-of-state taxes had not been remitted to the destination jurisdiction. It did not contend that the taxes were represented as California tax or incorrectly computed. Indeed, CDTFA admitted that Body Wise did not apply California tax rates to out-of-state shipments and presented no evidence that any customer had been overcharged.
Over time, however, CDTFA altered its theory. It began to argue that even if the taxes were correctly calculated for destination jurisdictions, they somehow “became” California excess tax reimbursement when not remitted. Eventually, CDTFA advanced the position that the taxes were California excess tax all along—based on the speculative possibility that an out-of-state customer might have inferred, from the presence of a California address on the invoice, that the tax was California tax. Such a theory could invoke an excess tax reimbursement claim by California on virtually any sale with a California origin.
The Court’s Findings
The Superior Court rejected CDTFA’s arguments in their entirety.
First, the court found that the taxes were not represented as California tax. While acknowledging that some customers could have been confused, the court held that the only actual representations made by Body Wise were that the taxes reflected obligations imposed by destination jurisdictions.
Second, the court found that the taxes were accurately computed and that CDTFA presented no evidence of any inaccuracies or overcharges.
Because neither statutory requirement was satisfied, the court concluded that the amounts at issue were not excess tax reimbursement under section 6901.5.
The court ordered CDTFA to refund the full amount at issue, together with statutory interest, and awarded costs to Body Wise as the prevailing party.
The Superior Court’s decision provides important clarity on the limits of section 6901.5 and confirms that taxes properly calculated for out-of-state jurisdictions do not become “California excess tax reimbursement” merely because they originate from California.
