California Use Tax Registration Requirement – How to Make a Bad Situation Worse!
By Ron Cohen, CPA, MST
Partner
Greenstein, Rogoff, Olsen & Co., LLP
- Remember to File by April 15
California imposes “Use” tax on the purchase of tangible personal (non-real estate) property purchased in another state and transported into California for “use”…hence the “Use” Tax name. While taxpayers play various games to avoid sales tax, the biggest problem comes from internet purchases, where the seller charges no California sales tax when it is obvious tangible personal property is being sold and shipped to a California purchaser.
For the complete story on the Use Tax see my blog at:
http://community.groco.com/cs/blogs/tax_expert/archive/2010/01/07/32504.aspx
The BOE (State Board of Equalization – the Sales/Use tax authority) is currently sending requests for use tax returns to 180,000 California businesses and will send account and login information during the tax season.
Although the BOE states that only about 1% of the businesses have requested the required immediate registration (as discussed below), those who have - and have filed use tax returns - are receiving threatening letters from the BOE demanding returns and payment.
The BOE's computers automatically respond to any appropriate and timely use tax registration with a demand for returns and payment, threatening of penalties as if the taxpayer has automatically done something wrong. How ironic, and normal for our dysfunctional California tax authorities!
If you have registered and have any problems now, we suggest you contact the BOE's Ms. Ana Paulos at (916) 323-4240 Or, you can e-mail: ana.paulos@boe.ca.gov
I checked the phone number. Ms. Paulos actually answered the phone!
The Original Problem – The Registration Requirement
The original problem arose in September, 2009 with this BOE Notice:
http://www.boe.ca.gov/news/pdf/l232.pdf and many taxpayers responded by registering.
In early March 2010, the BOE will mail account number and express login information to all individuals and businesses that reported more than $100,000 in gross receipts (not net or taxable income) from a business or rental property on their 2007 federal return.
Under law, our friends at the Internal Revenue Service share this information with the BOE.
These taxpayers will have a use tax account and must electronically file their 2009 use tax return by April 15. The taxpayer must also file 2007 and 2008 returns, which may also be filed electronically.
A return is required even if there is no use tax due. If no use tax is due, file the return with zeros. Because the penalty for failure to file is based on 10% of the tax liability, there will be no penalty for failure to file if there is no tax liability. However, taxpayers who do not file will continue to receive notices from the BOE.
Beware: The BOE will estimate a use tax liability for anyone who fails to file a return!
If no return is filed, the BOE will make an estimate - based on available information - of the total purchases subject to use tax, "based on income." The BOE will then add a penalty equal to 10% of estimated tax. So, to do nothing and not file will just add to your problems.
The BOE will also automatically impose a late-payment penalty for the 2007 and 2008 tax returns. After you file any late 2007 and 2008 returns, you should immediately file with the BOE Form BOE-735, Request for Relief of Penalty…as if you had nothing better to do with your time, Aye? We have been told that the BOE will normally abate penalties for taxpayers who voluntarily come forth to file and pay the tax for the 2007 and 2008 years.
Here’s the link to Form BOE-735 for your enjoyment.
http://www.boe.ca.gov/pdf/boe735.pdf
Due Dates
The 2009 use tax return is due April 15, 2010, for the 2009 tax year. The April 15 due date applies to both calendar and fiscal year taxpayers. While not mandatory, the BOE will provide information on how to e-file to all registered taxpayers by mid-March 2010.
The BOE is working with software providers to enable businesses to e-file use tax returns for multiple accounts at once (currently, you may e-file one taxpayer at a time).
No Contact Letters
Businesses that are required to register but did not receive an initial contact letter must register to pay use tax.
Taxpayers may register by calling the BOE at: (915) 323-7654
Taxpayers may also register by downloading Form BOE-404-A, Use Tax Registration, and mailing it to BOE. The form is available at: www.boe.ca.gov/pdf/boe404a.pdf
BOE Bills to Filers
For those 1,800 taxpayers who already responded to the BOE's initial contact letter, the BOE assigned account numbers and mailed use tax forms to file 2007 and 2008 returns.
Almost immediately thereafter, the BOE began sending letters demanding returns and threatening to assess tax, penalties, and interest for any year that no return was filed.
Unfortunately, the BOE sent the threats prior to processing returns and cashing checks.
Paying the tax
You may pay use tax by check, credit card, or Electronic Funds Transfer.
Here’s info on the BOEs Electronic Funds Transfer program.
http://www.boe.ca.gov/elecsrv/eft.htm
To participate in the Sales and Use Tax EFT Program, complete Form BOE-555-EFT, http://www.boe.ca.gov/pdf/boe555st.pdf Authorization Agreement for Electronic Funds Transfer. After your completed form has been received, the BOE will confirm your EFT start date.
Mail or fax the completed form to:
Attn: EFT Group
State Board of Equalization
P.O. Box 942879
Sacramento, CA 94279-0035
Fax: (916) 322-8457
We hope you find this information helpful, and can survive this additional burden placed on honest taxpayers who, by no fault of their own, unfortunately do business in the State of California.
We can be reached for questions or comments at GROCO at (510) 797 8661.
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