California Sales and Use tax non-compliance
Each year, the California Board of Equalization (BOE) identifies certain areas of the Sales and Use Tax Law with the highest taxpayer noncompliance, generally, based on information that its auditors collect in the process of auditing taxpayers. For the period ended June 30, 2014, the following areas were identified as most non-compliant:
- Untaxed purchases from out of state suppliers. This was by far the most costly and most frequent category of non-compliance, comprising about 20% of all net sales and use tax.
- Unsupported sales for resale; not obtaining a resale certificate from their customers,
- Additional sales based on mark-up of cost. Note. Example, depending on handling the “tips” by the taxpayer, they may be taxable. Generally, mandatory tips on the bill or ticket is taxable (an example would be a restaurant charging tips for group of 10 or more), unless not reported by the taxpayer. Voluntary tips, even if suggested by a business on the side of ticket is not taxable (15%, or 18% or 20%),
- Estimated sales due to inadequate record keeping. This is also big area of noncompliance for small business that cannot afford to acquire professionals services and sophisticated equipment,
- Recorded sales compared to reported sales to BOE or FTB (IRS schedule C),
- Resale certificate deficiencies,
- Maintenance contracts,
- Errors in compiling sales tax returns. Some taxpayers do it themselves without knowing the consequences of their act. Even some highly skilled professionals may not know to properly file sales tax return. They are advised to acquire the required BOE knowledge before filing,
- Discrepancies between accrued and paid sales tax,
- Sale of take-out feed disallowed,
- Withdrawal from resale inventory, and;
- Cost of tax-paid purchase re-sold.
Audited taxpayers who lose, have a right to appeal their case timely to the BOE, and may be able to settle their taxes and penalties for much less than the audit report.
Zaher Fallahi, California Tax Attorney, CPA, assists taxpayers with their Sale Tax Audit, IRS audit, IRS Offshore Voluntary Disclosure Program (OVDP), Report of Foreign Bank and Financial Accounts (FBAR), Foreign Account Tax Compliance Act (FATCA), Foreign Trust and Offer-in-Compromise. About 2% of the US lawyers are also CPAs, and we are proudly one of them. Zaher Fallahi was named a top attorney in September 2015 http://www.ocbar.org/AllNews/NewsView/tabid/66/ArticleId/1631/Coast-Magazine-Names-OCBA-Members-Top-Attorneys.aspx Telephones: (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), e-mail [email protected]