Delinquent Sales Tax Consequences

The consequences of neglecting to pay taxes either by the filing date or through an installment plan could be catastrophic. The California Department of Tax and Fee Administration is allowed to do the following:

• Encumber California property
• Place bank levies and seize other assets
• Intercept your state tax refund
• Issue a civil warrant (’till-tap’ or “keeper” warrant) allowing the California Highway Patrol or local sheriff to enter your business and collect the gross receipts or contents of the cash register (till-tap). A keeper warrant allows a representative to remain at the business for one to 10 days to continue to collect proceeds.
• Notice to Withhold – At first, you might think this means withholding of wages. Form CDTFA-465, Notice of Withhold, prevents the transfer of a taxpayer’s assets that are held by an outside party. Any person who receives a Notice to Withhold and subsequently transfers or disposes of the taxpayer’s assets during the effective period of the notice, must first first receive consent from the CDTFA prior to doing so. Otherwise, they may be held personally liable up to the value of the assets transferred.

LOSS OF LIQUOR LICENSE

The CDTFA can suspend your Department of Alcoholic Beverage Control Liquor License for failure to pay taxes. Automatic suspension of your license can occur for three reasons:

1. The taxpayer fails to pay taxes or penalties due under the Sales and Use tax laws and the liability arises from use of that license.
2. The taxpayer fails to pay taxes or penalties due under the Alcoholic Beverage tax laws.
3. The taxpayer is at least three months delinquent in the payment of either the Sales and Use or the Alcoholic Beverage taxes or penalties listed above.

In fact, even the IRS can seize and sell your state liquor license for delinquencies in federal taxes. In extreme cases, your liquor license can be sold to satisfy tax debts.

Once you pay off your tax delinquencies, you can seek to have your license reinstated. Oftentimes if you find yourself in this situation, you can work with the CDTFA to create a payment plan. Taxpayers who have entered into approved payment plans are not candidates for suspension of their liquor license.

LOSS OF CONTRACTOR LICENSE

The CDTFA may request that the Contractors State License Board (CSLB) either deny or suspend a taxpayer’s contractor license or application thereof, when the taxpayer has outstanding final tax or fee liabilities.

Before taking this final action, CDTFA must first make sure that every possible avenue of collections has been exhausted, such as issuing levies, sending notices to withhold; issuing wage garnishments, issuing liens, and utilizing offsets, have been exhausted before contacting the CSLB to request the license be denied or suspended.

If the taxpayer has entered into a payment plan with the CDTFA and is in compliance, staff shall not make a request to CSLB to deny or suspend the license.

If the taxpayer’s license has been suspended and they enter into a payment plan for an outstanding final liability or pays the liability in full, CDFTA will contact the CLSB to reinstate the contractor license.

REVOCATION OF PERMITS

The CDTFA can revoke permits for failure to pay taxes, an outstanding balance, required security, keep proper records, surrender cancelled permits, or any other legal reason. When a taxpayer fails to file a return, revocation automatically occurs.

As a taxpayer, you will be given a hearing. Taxpayers will be served a notice that the permit or license may be cancelled and a request for the taxpayer to appear for a “hearing” in a CDTFA office at a specified date and time to address the citation of its permit or license. If the taxpayer clears the cause of the citation prior to the hearing date, the hearing is no longer necessary.

If the taxpayer does not clear the cause of the citation on or before the date specified, or fails to appear for the hearing, the permit or license is revoked 60 days after notice is given.

Upon service of the revocation notice in person or by mail, all of the rights or privileges granted under a particular law are revoked or suspended until the license or permit is properly reinstated.

Operation of the business after revocation of the permit or license is a misdemeanor. You may be subject to prosecution and other taxes or fees (CDTFA 751.070). Further, other permits may be refused to be granted to you if an outstanding tax liability (RTC 6070.5).

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REINSTATEMENT

To reinstate a revoked account, the taxpayer must do ONE of the following:

1. File all delinquent returns and paying the taxes/fees, penalty, interest, and Collection Cost Recovery Fees (CRF) due.
2. Pay all delinquent balances due according to the records of the CDTFA, or entering into a payment plan (see CPPM section 751.115).
3. Post required or additional security. Arrangements to post the security deposit in installments may be accepted in lieu of requiring full payment of the security, at the responsible office’s discretion.
4. Pay the applicable amount of the reinstatement fee and complete all required forms.
5. Clear any other causes for revocation of the permit or license.

The taxpayer may be requested to comply with any other provisions of the laws or regulations such as keeping adequate records or reporting tax liability according to prescribed rules.