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California Personal Income, Sales and Use Taxes: Tax Imposed on Support Service Providers
Legislation is enacted that imposes California sales tax on providers of support services and excludes from gross income, for purposes of personal income tax, any supplementary payment received by a provider of in-home supportive services, as provided.
Providers of Support Services
California sales tax is imposed on providers of support services at retail measured by the gross receipts from the sale of those services. The tax is operative provided specified federal approval requests for matching funds are granted. The tax is imposed at the rate of 7.25% (6.25% on and after July 1, 2011), according to the Bill Analysis. Sellers that are actively engaged in arranging for the retail sale of support services are required to register with the California State Board of Equalization (BOE), collect tax from the provider, and report and pay the tax to the BOE. Sales tax prepayments are inapplicable to sellers until no later than three months after the date that federal approval is obtained.
"Support services," for purposes of the tax, are:
-- domestic services and services related to domestic services;
-- heavy cleaning;
-- personal care services, as defined;
-- accompaniment when needed during necessary travel to health-related appointments or to alternative resource sites;
-- yard hazard abatement;
-- protective supervision;
-- teaching and demonstration directed at reducing the need for other supportive services; and
-- paramedical services that make it possible for the recipient to establish and maintain an independent living arrangement, including necessary paramedical services ordered by a licensed health care professional, as provided.
"Provider" is defined as a natural person who is authorized by law to provide all such support services and who makes a retail sale. Moreover, the term includes nongovernmental persons that arrange for the retail sale of all support services.
"Seller" is defined to include:
-- the California Department of Social Services in its capacity as the state agency that oversees the In-Home Supportive Services (IHSS) program;
-- a county in which county staff serve as homemakers, as provided;
-- a county that contracts with a nongovernmental contractor to arrange for the retail sale of support services; or
-- any other nongovernmental person that arranges for the retail sale of support services.
In addition, the Director of the Department of Health Care Services is required to seek federal approval from the federal Centers for Medicare and Medicaid Services to implement these provisions and to notify the BOE within 10 days of receipt of that approval.
Supplementary Payment Excluded From Gross Income
Gross income, for California personal income tax purposes, does not include any supplementary payment received by a provider of in-home supportive services, as specified. That supplementary payment must be equal to a percentage of the gross receipts of the provider for the sale of the services, plus an amount that is equal to any additional payroll withholding required for federal income tax purposes and for purposes of taxation for the Social Security and Medicare programs, as provided, due to the supplementary payment.
California State Board of Equalization sales and use tax audits, sales and use tax settlements, sales and use tax installment agreements, Los Angeles BOE audit, Orange County BOE audit, San Bernardino BOE Audit, Riverside BOE Audit, Wholesale BOE sales tax audit problem.
The CA Sales & Use tax audit help line 1-877-788-2937
CALIFORNIA FRANCHISE TAX BOARD
RESIDENCY LAWS, TERMS, AND RESIDENCY CONCEPTS
DEFINITION OF RESIDENT
R&TC Section 17014(a) defines "resident" as:
- Every individual who is in this state for other than a temporary or transitory purpose;
- Every individual domiciled in this state who is outside the state for a temporary or transitory purpose.
Under this definition, an individual may be a resident of California although not domiciled in California, and, conversely, may be domiciled in California without being a resident of California. Residency determines what income is taxable by California (CCR Section 17014).
The theory behind California residency law is to define the class of individuals who should contribute to the support of this state (CCR Section 17014).
R&TC Section 17014(b) provides a special rule for certain United States Government
officials and their spouses. If those individuals have a California domicile, we will consider their absences from this state as temporary or transitory. They remain California residents.
This rule applies to the following persons:
- Any elected U.S. official.
- Anyone on the staff of a member of the U.S. Congress.
- Any presidential appointee, subject to Senate confirmation, other than military and Foreign Service career appointees.
R&TC Section 17014(c) provides that any individual who is a resident of California remains a resident even though temporarily absent.
TEMPORARY OR TRANSITORY PURPOSE
CCR Section 17014(b) provides a detailed discussion of the meaning of "temporary or
transitory purpose." According to this regulation, the determination of whether or not an
individual is in this state for temporary or transitory purposes depends to a large extent upon the facts and circumstances of each particular case. Generally, we consider an individual to be in California for a temporary or transitory purpose, and therefore a nonresident of California, if he or she is:
- Simply passing through this state.
- Here for a brief rest.
- Here for a vacation.
- Here for a short period to complete a particular transaction, perform a particular contract, or perform a particular engagement.
James and Janice are domiciled in Minnesota where they have maintained their family home for seven years. James works for a state agency in Minnesota. In October 2005, James took a six-month leave of absence to become a temporary consultant for a California company. James and Janice moved to Los Angeles, CA in October 2005, where they rented an apartment and opened a checking account. Their home in Minnesota was left vacant and they retained their Minnesota bank accounts. They stayed in California from October 2005, to April 2006, and returned to Minnesota in April 2006.
James and Janice were in California for a short period in order for James to complete a
particular engagement as a temporary consultant. James and Janice are nonresidents of
California because they were in California for a temporary or transitory purpose.
An individual will be considered to be in California for other than temporary or transitory
purposes, and therefore a California resident, if he or she is in this state:
- To recuperate from injury or illness for a relatively long or indefinite period.
- For a business purpose which will require a long or indefinite period to accomplish.
- For employment in a position that may last permanently or indefinitely.
- For retirement with no definite intention of leaving shortly.
Bob is domiciled in Ohio and has lived there for 50 years. Two years ago Bob developed a serious medical condition. His doctor told him to live in California until he recovers. The illness may last for several years. Bob took his doctor's advice and moved to California two years ago.
Bob is in California for an indefinite period in order to recuperate from an illness. He is a
California resident because his stay in California is not for a temporary or transitory purpose.
CCR Section 17014(b) provides that the state with which a person has the closest
connections during the taxable year is the person's state of residence. In the Appeal of
Richard L. and Kathleen K. Hardman, 1975-SBE-052, August 19, 1975, the Board of
Equalization held that the connections which a taxpayer maintains in this and other states are important objective indications of whether presence in or absence from California is for a temporary or transitory purpose.
In the Appeal of Stephen D. Bragg 2003-SBE-002, May 28, 2003, the Board of Equalization included the following list of factors which, while not exhaustive, inform taxpayers of the type and nature of connections the Board of Equalization and the Franchise Tax Board find informative when determining residency:
- The location of all of the taxpayer's residential real property, and the approximate sizes and values of each of the residences.
- The state wherein the taxpayer's spouse and children reside.
- The state wherein the taxpayer's children attend school.
- The state wherein the taxpayer claims the homeowner's property tax exemption on a residence.
- The taxpayer's telephone records (i.e., the origination point of taxpayer's telephone calls).
- The number of days the taxpayer spends in California versus the number of days the
- taxpayer spends in other states, and the general purpose of such days (i.e., vacation, business, etc.).
- The location where the taxpayer files his tax returns, both federal and state, and the state of residence claimed by the taxpayer on such returns.
- The location of the taxpayer's bank and savings accounts.
- The origination point of the taxpayer's checking account transactions and credit card transactions.
- The state wherein the taxpayer maintains memberships in social, religious, and professional organizations.
- The state wherein the taxpayer registers his automobiles.
- The state wherein the taxpayer maintains a driver's license.
- The state wherein the taxpayer maintains voter registration and the taxpayer's voting participation history.
- The state wherein the taxpayer obtains professional services, such as doctors, dentists, accountants, and attorneys.
- The state wherein the taxpayer is employed.
- The state wherein the taxpayer maintains or owns business interests.
- The state wherein the taxpayer holds a professional license or licenses.
- The state wherein the taxpayer owns investment real property.
- The indications in affidavits from various individuals discussing the taxpayer's residency.
It is particularly relevant to determine whether the taxpayer substantially severed his or her California connections upon departure and took steps to establish significant connections with the new place of abode. It is also necessary to determine whether the connections in California were maintained in readiness for his or her return. See the Appeal of Richard L. and Kathleen K. Hardman, supra.
Whether a person was in California for other than a temporary or transitory purpose must be determined by examining all of the facts. Mere formalisms such as changing voting registration to another state or statements to the effect that the taxpayer intended to be a resident of another state are not controlling. See the Appeal of Tyrus R. Cobb, 1959-SBE-014, March 26, 1959.
Note that retention of some contacts such as bank accounts and a driver's license may only be a reflection of the taxpayer's past and may not be inconsistent with an absence for other than temporary or transitory purposes. See the Appeal of Richard L. and Kathleen K. Hardman, supra.
SEASONAL VISITORS, TOURISTS, AND GUESTS
CCR Section 17014(b) provides that an individual whose presence in California does not
exceed an aggregate of six months within a taxable year and who is domiciled without the state and maintains a permanent abode at the place of his domicile will be considered as being in this state for temporary or transitory purposes. However, he or she must not engage in any activity or conduct within this state other than that of a seasonal visitor, tourist, or guest.
The following connections with California will not, by themselves, cause a seasonal visitor, tourist, or guest to lose his or her status as such:
- Owning or maintaining a home.
- Opening a bank account for paying personal expenses.
- Having membership in local social clubs.
Bill and Sue lived and worked in North Dakota for 20 years until their retirement in the
summer of 2005. Beginning the winter of 2005, Bill and Sue spend four months each year in California. They spend the remaining eight months in North Dakota. While in North Dakota, they live in a home they have owned since 1995. They hold valid North Dakota driver's licenses, are registered to vote in North Dakota, and maintain North Dakota bank accounts.
Bill and Sue also own a California home, which they use while in California. They also
opened a California checking account for their personal expenses and are members of a
California country club. While in California, they do not engage in any California business
Bill and Sue are considered to be seasonal visitors, in California for temporary or transitory purposes. Therefore, they are nonresidents of California.
PRESUMPTION OF RESIDENCE
R&TC Section 17016 states: "Every individual who spends in the aggregate more than nine months of the taxable year within this state shall be presumed to be a resident. The presumption may be overcome by satisfactory evidence that the individual is in the state for a temporary or transitory purpose."
Note that R&TC Section 17016 merely provides a presumption of residence. The
presumption can be overcome. For example, in the Appeal of Edgar Montillion Woolley,
1951-SBE-005, July 19, 1951, the Board of Equalization ruled that the taxpayer was in
California for a temporary or transitory purpose even though he was in California for more that nine months during the year. The decision was based on the fact that during his stay in California, Mr. Woolley lived in a hotel on a weekly basis and his departure was delayed because of illness and a studio strike.
CCR Section 17016 provides that presence within California for less than nine months does not constitute a presumption of nonresidency. On the contrary, a person may be a California resident even though not in this state during any portion of the year.
DEFINITION OF DOMICILE
Domicile is an integral part of the definition of resident. An individual domiciled in California and absent from the state for a temporary or transitory purpose is considered to be a California resident. An individual's domicile also determines whether income received by a husband or wife is community or separate income.
CCR Regulations Section 17014(c) defines the term "domicile" as the place where an
individual has his or her true, fixed, permanent home and principal establishment. It is the place to which, whenever absent, he or she has the intention of returning. It is the place in which a person has voluntarily fixed his or her habitation and the habitation of his or her family. It is the place where a person has the present intention of making a permanent home, until some unexpected event shall occur to induce him or her to adopt another. It is not a place where a person is living for a mere special or limited purpose.
As stated by the California Court of Appeal, "domicile" is the one location with which, for
legal purposes, a person is considered to have the most settled and permanent connection.
It is the place where they intend to remain and to which, whenever they are absent, they have the intention of returning. See Whittell v. Franchise Tax Board, 231 Cal.App.2d 278 (1964).
An individual can have only one domicile at a time. If an individual has acquired a domicile at one place, the individual retains that domicile until another is acquired elsewhere.
A California domiciliary leaving the state retains his or her California domicile as long as he or she has the definite intention of returning here. This is true regardless of the length or reason of the absence. An individual domiciled in California who leaves the state loses his or her California domicile at the moment he or she abandons any intention of returning to California and locates elsewhere with the intention of remaining there indefinitely.
The concept of domicile involves not only physical presence in a particular place, but also the intention to make that place one's home. See the Appeal of Anthony J. and Ann S. D'Eustachio, 1985-SBE-040, May 8, 1985.
In order to change one's domicile, a person must actually move to a new residence and
intend to remain there permanently or indefinitely. See Noble v. Franchise Tax Board 118 Cal.App. 4th 560 (2004).
The burden of proving the acquisition of a new domicile is on the person asserting that
domicile has been changed. See the Appeal of Frank J. Milos, 1984-SBE-042, February 28, 1984.
Adam, who is domiciled in Illinois, comes to California on business, but intends to return to Illinois as soon as his business in California is completed. He maintains a California home while in California and stays in California for 11 months.
Adam retains his Illinois domicile. His stay in California is for a limited purpose.
Mark moved from Alaska to California in October 2000, to begin a permanent job. He sold his home in Alaska and purchased a home in California. He moved all his personal
belongings to California, opened a California bank account, and obtained a California driver's license. He has no intention of returning to Alaska.
Mark became a California domiciliary in October 2000, when he moved to California. He
came to California with the intention to remain here indefinitely with no fixed intention of
returning to Alaska.
Allen and his wife Ellen were both born and raised in California. Upon graduation from a
California college, Allen obtained employment in Los Angeles, CA. In 1999, Allen was sent to France for a one-year assignment. Ellen remained at their home in California with their two children. While in France, Allen rented an apartment and joined a local soccer league. He returned to California in 2000.
Allen remained a California domiciliary during his absence. He did not sever his ties with
California and the ties established with France did not show that he intended to remain
DOMICILE V RESIDENCY
Domicile and residency are not synonymous. California distinguishes them as two separate concepts. For income tax purposes, residency determines what income is taxable to California. Domicile is an important component of residency and determines whether income is split between spouses.
Domicile is the place where an individual has his or her true, fixed, permanent home and
principal establishment (CCR Regulations Section 17014(c)). Domicile requires both physical presence in a particular locality and the intent to make this locality one's permanent abode.
Residence is any factual place of abode of some permanency that is more than a mere
temporary sojourn. See Whittell v. Franchise Tax Board, 231 Cal.App.2d 278 (1964).
An individual can have only one domicile at any given time, but can have several
residences. See Whittell v. Franchise Tax Board, supra.
The key distinction between domicile and residency is intent. A new domicile is acquired by the actual change of residence in a new place of abode, coupled with the intention to remain there either permanently or indefinitely without any fixed or certain purpose to return to the former place of abode. (Appeal of Robert J. and Kyung Y. Olsen, 1908-SBE-134, October 28, 1980.) A determination of residence cannot be based solely upon the declared intention of the parties, but must have its basis in objective facts. (Appeal of Nathan H. and Julia M. Juran, 1968-SBE-004, January 8, 1968.) In determining residency, voluntary physical presence is a factor of greater significance than the mental intent or outward formalities of ties to another state. See Whittell v. Franchise Tax Board, supra.
Frequently, a person's domicile and residence are the same physical location. See Whittell v. Franchise Tax Board supra. However, a person's domicile and residence may not be the same. See the Appeal of Warren L. and Marlys Christianson, 1972-SBE-022, July 31, 1972.
An individual may be a resident although not domiciled in this state and, conversely, may be domiciled in this state without being a resident. (CCR Section 17014 and the Appeal of Terance and Brenda Harrison, 1985-SBE-059, June 25, 1985.)
Keywords: CA FTB Tax Help, CA Residency rules, CA residency audit, CA non residency, CA FTB Audit, CA FTB Appeal
Mike Habib, EA represents individuals and businesses before the State of California in all tax matters. You can reach Mike at 1-877-78-TAXES (877-788-2937).
Effective May 30, 2009, a new law imposes a 10 percent administrative collection processing fee on any outstanding debt older than 90 days. The fee is equal to 10 percent of the total amount of tax, penalty, and interest owed, or $10 for each collection event, whichever is greater. A "collection event" is defined as any time a taxpayer fails to:
• Timely file a complete return.
• Timely pay the full amount of tax reported on a return.
• Timely pay the full amount due resulting from an audit (after all appeal rights have expired or the result has been determined to be final).
On September 1, 2009, the Florida Department of Revenue will start collecting this fee on any debt from a collection event that is more than 90 days old, as well as any future debt from a collection event that remains outstanding for more than 90 days after initial notification. The collection fee will not be collected prior to September 1, 2009.
The fee will apply to all taxes and fees listed below:
• Communications services (including gross receipts)
• Corporate income/franchise and emergency excise
• Documentary stamp (including surtaxes)
• Gross receipts on dry cleaning facilities
• Gross receipts on utility services
• Insurance premium, fees, surcharges, and assessments
• Intangible personal property
• Lead-acid battery and waste tire
• Local option tourist development
• Miami-Dade County Lake Belt Area
• Motor fuel and diesel fuel
• Motor vehicle warranty
• Registration of secondhand dealers and secondary metals recyclers
• Rental car surcharge
• Sales and use (including discretionary sales surtaxes)
The collection fee only applies when the Department of Revenue administers and collects the tax or fee.
Keywords: Florida tax help, Florida tax relief, Florida tax professional, Florida state tax relief
Here is a New Year resolution you can't afford to ignore... No more tax problems!! Yes, you can get rid of your tax problems in 2009.
You can solve your tax problems and get tax relief through our tax resolution services. You can finally get a fresh start by getting rid of your looming tax problem.
You have many options to settle your tax account and move on with your life. Here are some options that should entice you to get your life in order:
Offer In Compromise: an offer in compromise, OIC, will usually be accepted by the taxing authority to resolve your tax problem if the amount offered to settle your tax problem is equal or exceed the taxpayer's Reasonable Collection Potential, RCP. The IRS, or the State, or the Sales Tax Agency determines RCP by using the financial analysis tools like the 433-A for individuals and 433-B for business entities.
Installment Agreement: paying the tax amount through a negotiated installment agreement is a common way to resolve your tax problem. You should seek our professional tax advice, as the taxing authority will usually request a large monthly payment, while our firm will work on attaining an installment agreement that is reasonable and you can live with without causing a financial and economic hardship on you and your family.
Currently Non Collectible - CNC Currently Non Collectible - CNC is accomplished when the IRS holds off an individual or business taxpayer's account from active enforcement collection efforts. There are specific rules and requirements that a taxpayer must meet before a CNC status be accomplished. The IRS would not pursue enforcement collection activity against the taxpayer and possibly the statute of limitations on the entire tax liability will run.
It makes far more sense, and will probably be less costly in the long run, to resolve your tax problem with the IRS now, rather than dealing with the potential embarrassment and financial burden of having your employer garnish and levy your wages / paycheck or the IRS freezes and levy your bank accounts.
The IRS released tax records on their most famous tax problem cases that imprisoned Al Capone, they inadvertently nabbed the Governor of New York allegedly spending tens of thousands of dollars for what they least expected. From Will Smith, to Wesley Snipes to Nicolas Cage IRS audits and collection activities are on the rise, and is expected to continue in 2009 and for many years to come!
Tax problems do not go away by themselves... Take action today by contacting Mike Habib, EA directly at 1-877-78-TAXES or CLICK HEREAs an IRS licensed Enrolled Agent (EA) specializing in Tax Relief and Tax Resolution Services, I can represent individuals and businesses in all of the following states, counties, and metro cities, Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington D.C. West Virginia Wisconsin Wyoming. AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY New York, Los Angeles, Orange County, Riverside, San Bernardino, San Francisco, Ventura, Lancaster, Palmdale, Santa Barbara, Chicago, Washington D. C., Silicon Valley, Philadelphia, Boston, Detroit, Dallas, Houston, Atlanta, Miami, Seattle, Phoenix, Minneapolis, Cleveland, San Diego, St Louis, Denver, San Juan, Tampa, Pittsburgh, Portland, Cincinnati, Sacramento, Kansas City, Milwaukee, Orlando, Indianapolis, San Antonio, Norfolk & VB, Las Vegas, Columbus, Charlotte, New Orleans, Salt Lake City, Greensboro, Austin, Nashville, Providence, Raleigh, Hartford, Buffalo, Memphis, West Palm Beach, Jacksonville, Rochester, Grand Rapids, Reno, Oklahoma City, Louisville, Richmond, Greenville, Dayton, Fresno, Birmingham, Honolulu, Albany, Tucson, Tulsa, Tempe, Syracuse, Omaha, Albuquerque, Knoxville, El Paso, Bakersfield, Allentown, Harrisburg, Scranton, Toledo, Baton Rouge, Youngstown, Springfield, Sarasota, Little Rock, Orlando, McAllen, Stockton, Charleston, Wichita, Mobile, Columbia, Colorado Springs, Fort Wayne, Daytona Beach, Lakeland, Johnson City, Lexington, Augusta, Melbourne, Lancaster, Chattanooga, Des Moines, Kalamazoo, Lansing, Modesto, Fort Myers, Jackson, Boise, Billings, Madison, Spokane, Montgomery, and Pensacola
As per Los Angeles Times
The effort is part of a new program to catch scofflaws. Investigators will be checking for seller's permits, business licenses and evidence that firms are collecting and paying enough sales and use tax
By Cyndia Zwahlen Special to The TimesSeptember 8, 2008
The tax man cometh -- right to your door, if you operate a business in a target ZIP Code.
Next week, the first of 8,000 small retailers and other businesses targeted can expect state workers to come calling as part of a new program by California tax collectors to catch scofflaws.
The investigators from the state Board of Equalization will be checking for seller's permits, business licenses and evidence that the businesses are collecting and paying enough sales tax and the often-overlooked use tax.
The campaign is the start of a three-year program that state officials say will eventually reel in $223 million in previously uncollected taxes.
"There is a $2-billion difference between taxes owed and taxes paid," said Randie Henry, deputy director for the agency's sales and use tax department.
"This effort will help us to address that gap by making the landscape fair for those businesses that do comply with the law and are registered and appropriately pay their taxes," she said.
Based on the results of a pilot program, Henry expects that 3% of the businesses inspected won't have their required seller's permits, which are supposed to be posted in a public spot, and won't have paid required taxes.
The initial targeted ZIP Codes in Southern California are: Perris, 92570; Santa Ana, 92701; Torrance, 90505; and Van Nuys, 91406. Businesses farther north, in parts of Emeryville, Sacramento and San Jose also will receive the 20-minute visits.
The new program to boost compliance is getting off to a slower start than anticipated because of the state budget stalemate. Until money is released to fully fund the effort, the size of the program's seven teams will be limited. Instead of 12 state workers each, eight of whom were to be in the field, there will be smaller teams with about three field workers each, said Erin Little, the department's assistant chief of field services in Southern California.
Follow-up efforts also may take longer until the program is fully staffed, said Anita Gore, spokeswoman for the Sacramento-based board, which collects certain business taxes and fees, as well as property taxes. The board doesn't handle individual or corporate income tax.
They're ready at Second Time Around, a consignment shop that has operated in the Torrance 90505 ZIP Code for 32 years, said owner Susan Carmer. She was puzzled when she received the letter from the board but decided to check to make sure her seller's permit was still in its glass case and that her business license was at hand.
She said she'd never considered that some retailers might not register or pay their share of sales tax.
Still, Carmer is concerned about any potential for disruption to her business that a visit from a state worker might cause.
"Sometimes you just can't get away. You've got clothes coming in the back door and selling out the front," Carmer said.
By today, an additional 8,500 storefront businesses probably will have received letters from the state agency notifying them of the next round of inspections due to start in three to four weeks.
Those missives went out Thursday to businesses with sales permits registered in four ZIP Codes: Lake Elsinore, 92530; San Jose, 95111; Santa Ana, 92705; and Torrance, 90504.
Retail businesses that aren't registered with the state probably didn't get the letter but may receive an in-person visit as workers, known as specialists, go door-to-door in the selected areas.
Henry emphasized that specialists were not auditors. If a company is suspected of owing taxes, it will be referred for a follow-up.
Seller's permits are free. Businesses that need one, including retailers and service businesses that sell or lease taxable items, can find an application online at www.boe.ca.gov.
Businesses that sell or lease items have to collect the 7.25% state sales tax, as well as any sales tax imposed by local cities or counties, and turn it over to the Board of Equalization. The board then pays the city's and county's shares to those local governments.
Most retailers follow the rules. Many service businesses that also sell items don't know that they too are required to have a seller's permit and to collect and pay sales taxes.
"All of us can understand the person who has a service business that has small incidentals they sell" not being aware of the need for a permit, Henry said. "But people actually selling tangible property, collecting taxes from their customers and not sending it in, those are the people we hope to fine," she said.
In a typical visit, specialists will introduce themselves, check for required permits, such as a seller's permit, business license and permit to sell cigarettes or tobacco, if applicable.
They will check that their records match the business address, telephone, owner name and the like.
They will eyeball the physical operation to see whether it matches the picture given by the firm's sales tax returns.
"One of the things about a visual visit is you can see, does what they are reporting make sense based on what we see happening in the store," Gore said.
The specialists also will explain the relevant state business tax and fee requirements and hand out seller's permit applications.
Follow-ups will be scheduled for businesses that aren't in compliance.
Firms will not be fined for the lack of a seller's permit unless they refuse to comply, Little said. The state can fine a business owner as much as $1,000 and impose a one-year jail term for noncompliance.
The inspectors also will be visiting sellers at fairs and swap meets, including the Pomona Swap Meet, to check for valid seller's permits, while the owners of such ventures will be contacted so they can inform their vendors.
The average noncompliant business in the pilot program had been operating without paying taxes for almost two years, Henry said. The average overdue tax bill was $10,000.
The workers will also hand out a brochure that briefly explains the program as well as how to file a complaint if a business owner has concerns about the process or the state worker's behavior.
The Board of Equalization held a meeting in Culver City last month and in Sacramento in July to notify business owners, trade groups and city officials.
The agency is sending letters to city officials and offering brochures and posters to business groups in an effort to get the word out.
Don't be caught unaware.
Ventas Finance I LLC v. Calif. FTB, Cal. Ct. App., Dkt. Nos. A116277; A117751, 08/11/2008
The California Court of Appeal once again has ruled invalid the state fee imposed on limited liability companies (LLCs) under former Rev. & Tax. Cd. § 17942 (the "§ 17942 fee"). Affirming the lower court, the Appeal Court held that the § 17942 fee as applied to Ventas, an LLC that conducted business in California and other states, was not fairly apportioned and, therefore, violated the Commerce Clause because the levy was based on total income without apportionment to income attributable to, or derived from, California sources. The court rejected the Franchise Tax Board's (FTB's) request for judicial reformation of the former statute to allow an apportioned fee refund since Ventas did business in California and other states unlike in the earlier Northwest case (that held the fee invalid) where the LLC conducted no California business. However, the court concluded that neither federal due process nor any principle of California law requires the FTB to refund the entire amount that Ventas paid. Consequently, the refund should be limited to the amount Ventas paid for the years in issue that exceeds the amount that would have been assessed, without violating the Commerce Clause, using a method of fair apportionment. The postjudgment order awarding attorney fees was also reversed, and remanded for the lower court to redetermine eligibility and the amount of reasonable fees in light of the partial reversal of the lower court's judgment.
No judicial reformation. Holding that the former § 17942 fee, as applied to Ventas, violated the Commerce Clause and due process (because it was based upon all income unapportioned to activities within California), the lower court had refused FTB's request to reform former § 17942 to add an apportionment mechanism because the legislative history showed that the legislature rejected including an apportionment mechanism, and neither the statute nor the legislative history contained any indication of the type of apportionment mechanism the legislature would have enacted. The lower court ordered that Ventas was entitled to a refund of the entire amount it paid pursuant to former § 17942. In its appeal to the appellate court, Ventas argued the litigation was necessary to address FTB's position that only those LLC's that had no income attributable to California sources were entitled to a full refund. In all other cases, FTB maintained that the appropriate remedy was to refund the difference between the amount the LLC paid and the amount it would have paid if former § 17942 included a fair apportionment mechanism. Ventas reasoned that this litigation conclusively resolved issues left unresolved after the Northwest case by establishing that former § 17942 could not be judicially reformed, and that any LLC who paid the levy was entitled to a full refund.
Apportioned fee refund. The Appeal Court ruled that FTB failed to establish the limited conditions that would support exercise of the power of judicial reformation, and declined to reform former § 17942 in the manner FTB suggested. The court, however, concluded that a refund of the entire amount Ventas paid pursuant to former § 17942 is not compelled by the Due Process Clause, or by any principle of state law. A refund of the difference between the amount Ventas paid and the amount it would have paid based upon income derived from or attributable to California sources, using a method of fair apportionment, would fully cure the Commerce Clause violation, ruled the court. This remedy does not place an unreasonable burden on Ventas because the parties had already agreed what Ventas's California apportionment percentage would have been for the years in issue, if this apportionment methodology were used. The court, therefore, reversed and remanded to the trial court for further proceedings to determine the amount of the refund.
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Mike Habib, EA
Among the most frightening words a business owner can hear are the words: sales tax audit. There are many reasons why this is a phrase that should be feared, not the least of which is that the negative outcome of a sales tax audit may cost you your business, your accounts receivable, your current business & personal assets, and can leave you starting over with nothing. There are options available to you though, keep reading to learn how you can survive this trying time.
Begin with the best possible defense - an exemplary system of record keeping when it comes to sales tax paid, received, and possible exemptions. Document everything and review your documents with an internal sales tax audit yearly. This gives you a great opportunity to catch mistakes that may have been made and correct them before an actual audit takes place. You will also want to review your documentation immediately prior to your audit.
When faced with a sales tax audit, or a use tax audit, you need to go to the tax resolution experts. Chances are that you either have a bookkeeper on staff or you use an outside bookkeeping firm in order to file sales and tax state reports. You may consider the valuable services of our firm for assistance with the your sales tax audit as well as dealing with the potential outcome and any consequences that may apply.
Many businesses find that the sting of owed sales tax is not nearly as lethal as the time and attention that must be dedicated to the process of a sales tax audit. This takes hours of work finding the documentation, defending the receipts for tax-exempt items, and time is money in the business world. Unfortunately, this is a necessary evil. The penalty for not complying with the taxing authorities in this matter are simply too devastating to consider.
When experiencing a sales tax audit you need to provide the auditor with a nice quiet place in which to work, all the documentation he or she needs and/or requests, and a basic overview of how your business operates. Be prepared to provide follow up documentation if necessary and to defend certain transactions along the way. The purpose of the sales tax audit in all honesty is to generate more money for the state so cooperate but don't roll over.
Our firm is well-qualified and can assist you from the very beginning of your sales tax audit by speaking the language of your sales tax auditor. Many auditors are much more approachable when dealing with a licensed tax representative rather than dealing with individual taxpayers and business owners. Let our firm work for you and the tax savings are likely to pay for the service and so much more.
Having a tax expert on your team such as Mike Habib, EA often helps when enduring a sales tax audit. He knows the tax code and will be able to identify potential pitfalls prior to the audit in addition to being able to help you defend certain transactions that may fall within gray areas of the tax code or negotiate with your auditor if necessary. The most important thing you can do to prepare for a sales tax audit however is to avoid panic and let the tax experts do their job while you try going about your own as seamlessly as possible while waiting on the verdict.