A Brief Lesson on the California Use Tax Law.

July 19, 2011 at 2:34 am | Posted in Uncategorized | Leave a comment

Listen Up.

So many of my clients have received a notice from the California State Board of Equalization (SBE) indicating they are a “qualified purchaser”, further stating that tax returns are now due. What is this?  Am I really a “qualified purchaser”?  Do I owe any taxes, interest, or penalty on this? Here’s what you need to know:

Assembly Bill x4-18 was enacted as part of the 2009-2010 California State Budget and added Section 6225 to the California Revenue and Taxation Code. Section 6225 now requires that “qualified purchasers” register with the State Board of Equalization, report, and pay the use tax.

In effect,Californiais requiring purchasers of a certain size to go on record by filing a tax return for use tax.  This providesCaliforniaa population of returns to further audit if warranted.

The State ofCaliforniahas always required individuals and businesses to pay aCaliforniause tax. This is only for those who have made purchases outside ofCaliforniawhere no sales tax was charged on the transaction.  The use tax is basically a sales tax on items where sales tax was not charged.

There are 2 main reasons for this law:

1)  To paying field with purchases in-state.

2)  To dissuade the motivation to avoid paying sales tax by making purchases out of state.

As almost all people (and a substantial majority of businesses) can attest that enforcement of this law has been unsuccessful. This is because not many people are actually aware of this law, and those who are aware don’t always choose to follow it. I have never had a client file a use tax return if they were not obligated to do so.