California tax collectors to visit small businesses
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 Times
September 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.