Posts Tagged ‘UseTax’

Speaking of California’s Use Tax…

Thursday, July 28th, 2011

A couple posts ago, I reported on the Board of Equalization having a Use Tax Table available for next year’s filing season. An article in today’s Orange County Register reminded me how California regulations hurt small businesses and bring in far fewer revenues than projected.

Back in 2009, the legislature passed a law that said that any business that would otherwise not have to file sales tax returns that had $100,000 or more of gross receipts would have to file Use Tax returns. Once you register for the program, you must file returns until your business closes. The law was projected to bring in $81 million in its first year, eventually rising to $651 million.

So how much has the new law brought in? A total of $56 million for all three years…at a cost of $23 million.

For small businesses, the cost to comply with the regulation continues forever (or until your business stops or leaves California).

Welcome to the Bronze State….

BOE Approves Use Tax Table for Indviduals

Thursday, July 28th, 2011

The Board of Equalization approved a tax table that individuals can use (if they wish) to report Use Tax for their 2011 tax returns (filed in 2012). Use Tax is owed by individuals and businesses when they buy products where sales tax is not charged but would be charged if they purchased it in a local store.

The table is only for non-business purchases of $1,000 or less; businesses cannot use the table and must report their actual expenses. The table is:

Adjusted Gross Income Use Tax
Less than $20,000 $7
$20,000 – $39,999 $21
$40,000 – $59,999 $35
$60,000 – $79,999 $49
$80,000 – $99,999 $63
$100,000 – $149,999 $88
$150,000 – $199,999 $123
More than $199,999 AGI times 0.07% (0.0007)

Again, businesses must use actual expenses to calculate Use Tax.

Most individuals ignore Use Tax so it’s likely having the table will increase compliance with the law.

North Carolina Has a Use for Amazon

Wednesday, April 21st, 2010

Via the Volokh Conspiracy comes the news that North Carolina is seeking the names of everyone who has bought anything from since 2003. Now, why in the world would the North Carolina Department of Revenue want to know what everyone in North Carolina has purchased from Amazon?

Use Tax.

When you buy something from an out-of-state merchant that has no physical presence in the state, you are supposed to pay Use Tax. Use Tax laws have, for the most part, been on the books for years (California’s law dates back to the 1930s). North Carolina tax authorities figure that if they sent an administrative summons to Amazon maybe they could find $16 million or so of easy money.

In December, North Carolina sent the first request to Amazon. Amazon sent a list of what North Carolinians purchased from Amazon by product, city, and ZIP Code, but left off the customer names and addresses. There’s no question that Amazon isn’t subject to collecting sales tax in North Carolina–they have no offices, employees, or any physical ties to the state. So the “audit” of Amazon’s sales tax collections in North Carolina would seem to be just a grab for the names of state residents who hadn’t paid Use Tax.

And that was basically confirmed. North Carolina wasn’t satisfied with the initial data that Amazon sent:

By letter hand delivered on March 19, 2010, to Amazon in Seattle, Washington (the “March Information Request”), the DOR stated that Amazon’s initial response to Question 16 of the December Information Request omitted the “Bill to Name; Bill to Address (Street, City, State, and Zip); Ship to Name; Ship to Address (Street); Product/item code or description” (the “Customer Data”). The DOR demanded that Amazon provide this information “for examination” on or before April 19, 2010.

That comes from the request for Declaratory Relief filed by Amazon in federal court in Seattle. “Amazon respectfully asks this Court for … [a] declaration that, to the extent the March Information Request demands that Amazon disclose its customers’ names, addresses or any other personal information, it violates the First Amendment and 18 U.S.C. § 2710 .”

If North Carolina is successful, expect every state to come calling on every online merchant demanding sales information. I might even get summonsed by Florida, a state where there’s sales tax on services (I do have clients in Florida). This will be a very important battle that will likely shape sales and use tax law for some time.

FUBAR Update: The Use Tax Letters Begin to Arrive

Wednesday, March 10th, 2010

Yesterday, my first client received his Use Tax Enrollment Letter. At least this client managed to ask me if they had to do anything with it. The letter, dated March 1st, arrived on March 9th. The deadline for filing 2007 and 2008 Use Tax returns as noted in the letter is January 31, 2008 and January 31, 2009. The letter notes that penalties will apply but that you can request a penalty abatement.

I just can’t wait for some of my gambling clients in California to get this letter and tell me about it in March…2011.

Bill Leonard, the former member of the Board of Equalization, was going to ask the BOE for a one month-delay. It does not appear that will be going anywhere. (Mr. Leonard resigned from the BOE yesterday.) Spidell was pushing the Legislature for a six-month delay. With State Senator Calderon noting the legislation is working perfectly (a perfect FUBAR?) there’s no possibility of that happening.

Even better is the fact that businesses who aren’t notified by the BOE still must register with the BOE if they meet the criteria.

I hope no one wonders why California’s tax system is now ranked as the worst in the country.

The Use Tax Mess in California

Tuesday, February 16th, 2010

I’ve often wondered, how do you make the Franchise Tax Board (California’s income tax agency) look good? Well, I and other California tax professionals have discovered the answer: Have the Board of Equalization implement a program that had such a poor design that the FTB looks good in comparison. That program is the mandatory Use Tax registration for California businesses.

Use Tax is the equivalent of sales tax for products where sales tax isn’t collected. Let’s say you buy a $10 book from Amazon won’t collect sales tax in California (they do not have a nexus in California); you are supposed to remit the $0.88 in sales tax yourself. Most individuals don’t, of course.

The California legislature decided to force more businesses to comply with the law. Mandatory registration was enacted for any business entity (Schedule C, Schedule E, LLC, LLP, S-Corporation, Corporation, Trust, and Tax Exempt Organization) with $100,000 or more in revenues in 2007, 2008, or any year ongoing that has not had to register with the BOE (generally, businesses that had no sales tax collection requirement). The BOE sent out letters in September and October to businesses they found ordering them to register and file Use Tax Returns for 2007, 2008 and all future years.

To say the BOE was unprepared for this would be kind. At tonight’s Orange County Enrolled Agents meeting, one practitioner noted that she duly registered last October, filed her 2007 and 2008 Use Tax Returns and paid $36 in use tax, only to receive, “The nastiest letter I’ve ever received from any tax agency in my career. It threatened me, my business; I’m surprised they didn’t threaten to take my first born!” After a few back and forth letters, her situation was resolved.

However, most entities impacted by this haven’t bothered to do anything. Adding to the misery for tax professionals are the deadlines. The forms are due on April 15th. Now can we think of anything else that might be due on April 15th?

The BOE will on March 1st send out log-in codes and usernames to a web site where the returns can be filed. As Lynn Freer (the head of Spidell) said tonight, “Option A, the client will throw the letter away. Option B, they’ll bring it to you next year. Option C, they’ll tell you about it in August. Option D, they’ll bring it to you to do with their tax returns.”

Even better are those businesses who reach the $100,000 threshold in 2009. They must register in March, and likely wait six weeks to file their returns (that’s how long the BOE is taking to process the registration forms). Or they can go to their local BOE office except that those office personnel haven’t been trained yet.

Another joy is the penalty situation. You can get penalties abated (primarily for 2007 and 2008) automatically…except you must mail the request to the BOE.

There’s only one way to describe this: FUBAR. Lynn Freer and Spidell are spearheading an attempt to delay the due date until October 15th. (Here’s a link to a Word document explaining why this is a good idea.) Hopefully this won’t be as big a mess as I think it will be.

Finally, my compliments to State Senator Ron Calderon (D-Montebello). When asked by Lynn Freer about the legislation his office said it was wonderful as designed and the due date doesn’t need to be changed. If Senator Calderon spoke to his tax professional he’d learn how wrong he really is.