
The Board of Equalization is the California public organization that administers the state sales and use tax law and regulations. The BOE also conducts audits, collects unpaid California state sales and use taxes, and administers the state property tax.
There are presumptions of the tax code that the BOE follows in its operation and decision-making process. The BOE presumes:
In exchange for being allowed to retail tangible personal property, retailers must pay a sales tax, which is generally passed along to the buyer as part of the purchase price. The amount of sales tax due is measured by the gross receipts from total retail sales.
If someone in California purchases tangible personal property from outside the state and the seller does not charge state sales tax, the buyer owes something called “use tax.” Use tax is levied at the same rate as sales tax.
Use taxes are also levied on goods that make a stop in California in the course of being shipped from the vendor to the buyer, even if the goods did not originate there, were not purchased for use there, or if the buyer or eventual place of use is not in California.
When taxes are involved, there will be tax issues, either through ignorance or through deliberate efforts to keep from paying the tax.
Generally, sales tax problems arise when you are trying to determine whether you need to pay sales or use tax. You might also think of it as whether you need to pay in-state versus out-of-state sales tax.
Confusion about when to pay sales tax often occurs when a retailer purchases items from an out-of-state vendor. The question is whether the retailer owes taxes on those purchases.
The answer is no, if the purchases are made for items that are for resale and the reseller holds a valid resale certificate. In other words, if the retailer was purchasing inventory that would then be resold to someone else it is tax exempt.
However, if the retailer takes an item out of inventory for his or her own use, sales tax is due on that item, regardless of whether it is to be used as a give-away, personal use by the retailer, or anything other than resale.
Other sales tax problems the BOE encounters are often found during an audit or examination of records. The auditor may find a difference between recorded sales and reported taxable sales. The reported sales may be lower than expected based on a mark-up for purchases.
Audits have also uncovered errors in compiling the tax return as well as differences between taxes accrued and taxes paid. Some retailers have maintained inadequate records, which resulted in unreported sales. In some cases, unsupported sales in interstate commerce were delivered to an in-state customer.
The proper calculation of estimated use taxes can be a problem. A use tax table is available that provides an estimated use tax liability, as calculated by the BOE, which an individual may use to report their use tax liability. It is available as an online tool.
Use taxes apply to the use, storage, or other consumption of items purchased outside the state and for which sales tax was not collected. It also applies to shipping goods that are delivered into the state for shipment elsewhere. The key here is the “ship to” address. If the address is within the state, no matter how long the goods were in California, a use tax is due.
When you obtain your seller's permit, you will also be instructed to file your tax return on a periodic basis that is based on your reported sales tax or anticipated taxable sales at the time of registration. You may be required to file returns on a monthly, quarterly, or annual basis.
The return is due after the close of each reporting period, so if your period closes on June 30, your tax return and payment are due on July 31, the last day of the following month.
Payment and filing are required by the due date whether you e-file, mail, or hand deliver the return. Even you do not receive a return or a reminder from the BOE you are responsible for filing on time. If you cannot pay in full, you may be eligible for a payment plan; the payment plan will reduce or eliminate any penalties or fees that would arise from late payment otherwise.
The preference is that the balance is paid off within six months.
You must be able to produce supporting documents for your return and potential audit. Here is a listing of some common documents and statements the BOE requires you to retain:
Whenever you sell an item to be resold by someone else, obtain the appropriate documentation from the purchaser such as a resale certificate. Retain any old certificates as well; maintain and update your records periodically.
Required records:
Keep track of your sales by comparing your recorded and reported taxable sales. If you find a difference, you must be able to resolve it or justify it. Bad debt, returned merchandise, and taxes paid on purchases resold before use can all cause a disparity.
Compare, also, tax accrued to tax paid to ensure no further issues.
If you receive notification of an audit, you will also receive a list of required documents to be prepared beforehand. The list typically includes account books, original supporting documents, and any certificates you require for business purposes such as your resale certificate and exemption certificate.
If you challenge the outcome of the audit and cannot come to an agreement with the auditor, the audit supervisor, and the BOE District Principle Auditor, you will receive a Notice of Determination from the BOE. Anytime in this process, you can access the Taxpayers’ Rights Advocate Office. You should receive assistance in determining contacts and required filings.
The BOE can be very aggressive in its audit and collection activities. If you receive notice of an audit or if you are challenging the outcome of an audit, you should call an experienced California tax attorney to help you navigate the system. You should also know you have access to a Taxpayers’ Rights Advocate.
A tax attorney can assist you with claims disputes, setting up payment agreements, and ensuring you understand your rights. You particularly need a tax attorney if you must file bankruptcy. It's possible your bad tax debt may not be discharged in this circumstance, and a tax attorney can help you with any waivers you are eligible to have.
"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."
-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist
Last updated: May 27, 2023
Our best stuff: secrets, tax saving tools, and tax defense strategies from the braintrust at Brotman Law.
These ten big ideas will change the way you think about your taxes and your business.
Find the articles and videos you need to make the right tax decisions in the learning center.
It is not just about what we do, but who we are, why we do it, and how that benefits you.
Meet with us to outline your strategy. No further obligation, 100% money-back guarantee.
Benjamin Franklin once said, “Our new Constitution is now established, everything seems to promise...
13 min read
If you haven’t had to pay any state taxes for the past few years but now face a liability, you...
18 min read
In California, state income taxes are generally among the highest in the country, but the burden is...
9 min read
We'll answer your most pressing tax law questions in 15 minutes. Please choose a time below that works best for you.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, I must inform you that any U.S. federal tax advice contained in this website is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter contained in this website.
COMMENTS