What is a qualified purchaser?

July 19, 2011 at 2:38 am | Posted in Uncategorized | Leave a comment

A qualified purchaser is defined as a person that meets the following conditions:

  • the person is not already required to be registered with the SBE
  • the person is not a holder of a use tax direct payment permit
  • the person receives at least $100,000 in gross receipts from business operations per calendar year (gross receipts being the total of all receipts from both in-state and out-of-state business operations)
  • the person is not otherwise registered with the SBE to report use tax

Section 6005 of the Revenue and Taxation Code defines a “person” to include, among other things, an individual, firm, partnership, joint venture, limited liability company, corporation or trust.

The third bullet-point here is what ensnares many, many small businesses and individuals. Anyone with gross receipts in excess of $100,000, regardless of gross margin on those receipts, and with no consideration of the type of business- be it a brick and mortar reseller, a manufacturer, or any type of professional service business, a reporting requirement now exists.

What if I don’t have $100,000 in gross receipts in the current year?

File form BOE-345-QP with the SBE updating your registration and informing them of your status change.

The SBE is reviewing records from the Franchise Tax Board to find those companies that have gross receipts in excess of $100,000 and that are not otherwise registered with the SBE. The SBE is now contacting qualified purchasers to file returns for 2007, 2008, 2009, and 2010.

What do I do if I receive a similar letter from the SBE requesting tax returns?

If the SBE is requesting that you register with them, complete Form 404A (Use Tax Registration) and send it back to them. The SBE then will determine if they are going to audit you or your company to see if you are use tax compliant. Alternatively, if you have not voluntarily reported your use tax obligation, you can be proactive and take steps to correct your errors.

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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.

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