Deadline for New California Use Tax Registration and Filing Requirement is Quickly Approaching

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In their continued efforts to resolve the California budget crisis, the state legislature has enacted strict new Use Tax registration and filing requirements for businesses with gross income of $100,000 or more.  We want to make sure you are aware of these new requirements and some of the details of the rules and regulations.

Back in the fall of last year you may have received a letter from the California State Board of Equalization (BOE) requesting contact information so you could be registered as a use tax payer.  The letter also requested that taxpayers file returns and pay use tax that had not been paid for 2007, 2008 and 2009.  Whether taxpayers provided that information or not, the BOE registered all businesses it believes meets the $100,000 requirement, based on information they collected from the IRS.

What is and is not subject to sales and use tax can be complicated. There are numerous exceptions to the rules, but here are some common ways that people make out-of-state purchases that are subject to use tax:

· Internet purchases;

· Certain foreign purchases;

· Shopping channel purchases;

· Mail-order purchases; and

· Phone-ordered purchases.

These are some common examples of items subject to use tax:

· Machinery and equipment;

· Computers, printers and other electronic equipment;

· Office furniture and supplies;

· Computer programs shipped on a disc; and

· CDs and books.

Items that are exempt from sales tax are also exempt from use tax. Here are a few examples:

· Software that is transferred over the Internet and nothing is mailed to you;

· Newspapers, magazines, and other periodicals; and

· Purchases where the seller added California sales tax to your purchase.

If you were required to pay, and did pay, another state’s sales tax on the purchase, you may take a credit against the California use tax due.  In addition, purchases of teleproduction equipment, farm equipment, diesel fuel used in farming and food production, timber harvesting equipment and racehorse breeding stock may be exempted from use tax.

It is important to note that each business entity, of any form, meeting the $100,000 gross receipts threshold must register.  Gross receipts include among other things, gross rental income, personal service income, exempt organizations, trusts and worldwide income.

In the last month, you may have received another letter stating that the returns for 2007, 2008 and 2009 are due by April 15, 2010.  If you have not received this registration notification letter and you qualify, you must still register using Form BOE-404-A.  Under most conditions, the returns must be filed electronically on the BOE website at http://boe.ca.gov/elecsrv/efiling/sutd.htm.  Additionally, we would be happy to file your 2007, 2008 and 2009 returns for you. 

The BOE has indicated that if you are registered and do not file, they will estimate your use tax liability and send a bill after the filing deadline.  The BOE has also indicated that, although there is an eight year statute of limitations for use tax, if taxpayers file currently for 2007 and 2008, they will not go back to pursue years prior to 2007.  If you file and pay your 2009 use tax by the April 15, 2010 deadline, you will not be subject to penalties and interest, however, the BOE has stated that it will assess penalties and interest on the 2007 and 2008 returns.  As part of preparing your returns, we will also prepare and file on your behalf a request for penalty abatement on any past due use tax.

If you would like our firm to prepare your returns and penalty abatement request for you, please contact us immediately, as the April 15, 2010 deadline is quickly approaching. 

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