Tuesday, June 21, 2011

Savings up in smoke

There’s been much going on in our office in the last few weeks and I have been hard pressed for spare time to keep you informed about interesting tax stuff, but this came across my desk and I just had to share it:

One of our clients recently received a letter from the California Board of Equalization (now that's a politically correct name) assessing unpaid Sales and Excise taxes on purchases of cigarettes by mail from an out of state retailer. Apparently this individual had been buying cigarettes for years from this source, and the state sent their auditors out and obtained records of these sales. The period for the assessment was 2005 through 2007, and the total bill to our client was over $1600!

More good news: at some point he will assuredly get another bill for 2008 and forward.

This is just another salvo in the state’s campaign to collect Sales and Use taxes. All of you who own businesses have received letters by now demanding that you file Use Tax returns online or face fines, even if no tax is due. You may also have noticed on your personal California tax return the line that you are supposed to use to voluntarily pay Sales (Use) tax on internet purchases you may have done in the previous year. The state is desperate for revenue and they perceive, perhaps correctly, that there is a lot of noncompliance in this area. Look for more and more of this type of audit, even at the individual level, in the coming years.

With respect to this particular assessment, I’m not sure which surprised me most. The fact that California was able to obtain such complete data from the out of state retailer, or that my client (age 70) still smokes unfiltered Lucky Strikes


Rachel Perlmutter said...

Which leads me to the question as an online retailer, the responsibility for out of state purchases falls squarely on the purchaser's shoulders to make sure their sales taxes are paid, not on ours as the out of state seller.

Paul Scholz, CPA said...

Thats absolutely correct. and currently the state estimates that they have about a 1% compliance rate on California buyers paying Use Tax on online purchases. Just 1%.