Monday, December 28, 2009

Beware the BOE!

Here in California, as in most states, we have a sales tax. Because of Constitutional restrictions on states, and also as a practical matter, California and the other states are unable to levy sales taxes on inbound sales from out of state retailers that do not have physical locations within the state. As a result many people shop online or via mail order and avoid paying sales taxes.

There is a move afoot in Congress to relax these rules and make a uniform approach to sales tax so that states can assess these transactions. So far it has not progressed much because politicians are currently reluctant to raise taxes so close to an interim election.

California has its own unique take on this. Since California cannot tax the interstate sale, if an out of state seller sells something to you and California sales taxes were not paid on the transaction, California will tax you on the in state “use” of the item. The tax is the same rate as the sales tax that would have been paid had it been taxable for sales tax purposes. This Use Tax is supposed to be voluntarily paid to the Board of Equalization by adding it to your income taxes and paying on April 15th. Compliance has rarely been enforced, and as a result NOBODY DOES IT.

The BOE has decided to start cracking down on all you scofflaws living here, but they do not have the resources to chase after pennies. So now, tax preparers will be compelled to ask you about out of state purchases in order to include them on your tax return! If we do not, and you are audited, we could be subject to liabilities as well. As miniscule and as silly as it seems, look for your tax preparer to begin asking you about all your on line purchase transactions in order to calculate your Use Tax.

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