Brotman Law Presents

The Ultimate Guide to California Department of Tax and Fee Administration (CDTFA) Collections

Introduction

If you live in the Golden State, you may already know that it has the highest statewide sales tax rate at 7.25 percent.

This includes an add-on tax which is distributed to local governments so it might be then said that California’s sales tax rate is really 6.5 percent. This would be in line with Massachusetts and Illinois, both ranking 13th on the same state sales tax rates chart.

In any case, I doubt we will ever add “Home of Tax-Free Shopping,” to our Welcome to California signs, posted on our state inroads like “first state” Delaware does.

Indeed, some of California’s wealthier constituents have been known to grumble about high taxes creating an exodus of people leaving California, as “it’s just too expensive to do business here.”

Whether you live in our fair, sunny and populous state or live out of state but do business here, I’ve written about what its sales and use tax structure looks like and how it works. Let’s take a look at the CDTFA.

 

Welcome to California

The entity administrating the sales and use tax for the state is The California Department of Tax and Fee Administration also known as the CDTFA. Sales tax is imposed on individuals and businesses in exchange for the privilege of selling goods in California.

It is measured by subtracting non-taxable sales from the business’s gross receipts. In general, sales tax is passed along to the consumer.

A “use tax” is paid by the purchaser on an item obtained for use inside the state from an out-of-state retailer.

One thing to note as a business owner, you may have become used to dealing with the Board of Equalization (BOE). The Taxpayer Transparency and Fairness Act of 2017, dispersed the responsibilities of the BOE to three different entities, one of them being the newly-established CDTFA.

The BOE still exists as an independent entity but does not deal with the assessment and collection of sales tax. Those activities now fall under the purview of the CDTFA.

 

Sales Tax and Owing the CDTFA

Sales taxes are imposed on individuals and businesses who sell goods or services in California.

The amount of the tax is calculated by determining the gross receipts of a business, minus any exempt (non-taxable) sales. The sales and use tax rates are the same and are subject to change.

In addition to the state sales tax rate, various local jurisdictions add additional municipal sales tax rates. These district rates increase the total sales tax owed by a business and must be remitted to the CDTFA along with the basic California rate.

You can see an updated list of the state and district sales tax rates on the CDTFA website.

Taxable retail sales in California include “tangible personal property,” which covers a huge range of items: clothing, furniture, toys, housewares and much more, including digital goods such as the finished artwork for a website.

Service and labor costs can also be taxable if they “result in the creation of tangible personal property.”

Use tax is the other side of sales tax, and it refers to the purchase of items from out-of-state retailers for use in California. This means that if your business is outside California, you are still required to collect use tax on any items you sell in California, and then remit the funds to the CDTFA.

There is a wide variety of items which are exempt from sales tax in California, including certain foodstuffs intended for human consumption, prescription drugs, and sales to the U.S. Government.

The rules and regulations surrounding exempt sales are complex, and this is a frequent point of trouble for businesses who do not understand what items are exempt and how to document exempt sales properly. A helpful guide to exempt sales is available from the CDTFA. 

Businesses are allowed to collect sales and use tax from their customers at the time of sale, but to do so they must list the amount of sale tax reimbursement separately on receipts or invoices, or state on a posted sign, price tags and/or other printed material for the customer that sales tax is added to all prices.

If you are dealing with a sales or purchase agreement, that agreement must specifically call for the addition of sales tax to the purchase. It is important to note that while you can charge your customers sales tax, failing to do so does not absolve you from paying sales tax to the CDTFA.

The responsibility for paying sales tax rests only on the business owner.

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Power of Attorney

Power of Attorney is a document giving the written authorization and power to represent or act in someone else’s behalf in their affairs. 

In California, you may be represented to the taxing authorities by legal counsel, a CPA, or by someone you’ve given power of attorney to. Giving someone power of attorney may be done on the CDTFA-392 form or by any other legally executed power of attorney document. 

Power of attorney documents must include the following information from the taxpayer: name, phone number, taxpayer ID number, account numbers, and mailing address.

The document must include the following information about the representative: name, address including email, telephone, and fax number. 

The document must also describe the tax matters the representative is authorized to represent the taxpayer in, for how long the representation lasts, a statement that revokes all prior power of attorneys, and to be signed by all affected taxpayers.

You may give verbal authorization to discuss their case with an authorized representative to CDTFA staff over the telephone or in person. In either situation, proper identification must be furnished by the taxpayer to the CDTFA.

If the authorization is by telephone, the CDTFA staff must first verify the identity of the taxpayer by matching a driver’s license or social security number to information in the system.

If the authorization is in person, staff must ask for identification, such as a driver’s license, an identification card, or any other document which establishes his or her identity. This authorization will only last for 30 days.

As a taxpayer, it is still your responsibility to monitor your representative.

You may still communicate with the CDTFA and other tax agencies, albeit they will deal primarily with your representative. Your personal representative is entitled to your confidential information.

For your knowledge, all but the following information is considered confidential taxpayer information: account number, business name, names of general partners, business address, ownership designation, start and close-out dates, and status of permit (i.e., active/ inactive). This information is generally available to the public.

Be vigilant in knowing who your personal representatives are as well as who is requesting your information from the CDTFA. Ultimately, your representative is acting in your name.

Chapters

In the remaining chapters of this section, we will delve into:

1

Consequences of Not Paying Sales Tax

You cannot simply ignore any type of notice from the CDTFA. Burying your head in the sand will not make the problem go away and could seriously harm your business. You could lose your liquor or contractor’s license or have other permits yanked. This chapter will also tell you what you need to do to get your permits reinstated.

2

CDTFA Assessments and Collections

Find out how the CDTFA determines how much tax you owe. We will also discuss collections, including write-off collections and field collections — which is when the local sheriff can show up at your place of business to demand payment or seize assets on the spot. We will also review bankruptcy in detail and whether or not your tax debt can be discharged.

3

CDTFA Tax Liens

This chapter serves as an introduction to tax liens. You will learn how the process works and what your options are. We will also talk about nominee liens and third-party claims.  We will also talk about how to purchase or sell a property that has a lien attached.

4

Liabilities and Determinations

In Chapter 4, we talk about how buyers and particularly, sellers, can be “double taxes” in the sales and purchase of a business. We will also talk about corporate liabilities that include stakeholders.

5

Releasing the Lien

If the CDTFA has placed a lien against your property, how do you get rid of it? There are options including payments plans and the Offer in Compromise. In this chapter, you can learn how to qualify and how each process works. You can decide which option works best for your circumstances.

6

Why You Need a Sales Tax Attorney

While this book was developed to serve as a self-help guide, there are circumstances when it is NOT the best decision to face the CDTFA on your own. Brotman Law is here to answer your questions and if necessary, serve as your advocate when going head-to-head with the CDTFA.

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Chapters