New California Use Tax Return: April 15, 2010 Filing Due Date Is Rapidly Approaching!

By RBZ and Michael L. Caplinger, CPA/CMI - CAPLINGER TAX

Passage of last year's California Assembly Bill 18 placed a new requirement on many in-state businesses to register to file California use tax returns. As a result, the California State Board of Equalization sent more than 180,000 letters to California businesses, notifying them that they have been identified as “qualified purchasers” subject to the newly required reporting.

The State Board assigned registration numbers to these qualified purchasers and provided an access code in the letters for online filing. As described in the letters, qualified purchasers are businesses having at least $100,000 in annual gross receipts and who are otherwise not registered with the state for payment of sales or use taxes.

Qualified purchasers were directed to submit registration applications, file returns and pay their California use tax liability for the past several years, plus interest charges and applicable penalties. The letters described the status of the returns for the pre-2009 years as delinquent and advised that a return for 2009 use tax liability is due by April 15, 2010. The new law requires registration and filing of use tax returns, even if no taxable purchases were made.

What is California use tax?

California use tax is similar to the state's sales tax and generally applies to purchases of equipment or supplies from out-of-state vendors. The use tax is referred to as a "compensating tax" as it is designed to even the playing field for in-state retailers who are subject to the state's sales tax and out-of-state competition, whose sales made in interstate commerce are not subject to sales taxes due to Constitutional limitations on interstate taxation. Since many out-of-state retailers are not registered to collect the tax, the purchasers' liability for the tax remains until the tax has been paid to the state.

What does this mean to you?

If you have received one of these letters or other correspondence regarding use tax registration, then you may likely have a few questions about your use tax liability and what to do. Use tax liability is not new and is not limited to "qualified purchasers". The requirement to pay use tax has been present since enactment of the tax in 1935.

Assembly Bill 18 simply established the requirement for all but the smallest businesses to register and file use tax returns if not already paying sales and use taxes to the state. Liability for the tax extends to nearly all individuals and businesses that make purchases of tangible goods from out-of-state sources for use within the state.

Compliance with the directives outlined in the letter is compulsory as this new law requires qualified persons to register with the Board of Equalization and to file a use tax return by April 15th covering purchases made in the preceding calendar year. However, the law did not extend the due date for returns covering pre-2009 years. Thus, returns for 2007 and 2008 are already delinquent and subject to interest and 10% late payment penalties. Similar interest and penalty charges will apply to use tax from 2009 purchase activity that is not reported and paid by April 15th, 2010.

How is your use tax liability calculated?

Use tax is generally calculated on the purchase price of tangible personal property purchased from outside of California for storage, use or other consumption within the state, and is at a rate that is similar to the state's sales tax rate. However, a host of exemptions and exclusions potentially apply, such as for property brought into the state solely for subsequent reshipment outside of the state for permanent use there.

What if you haven't received a letter from the State Board of Equalization but are a "qualified purchaser"?

Businesses meeting the definition of a qualified purchaser that have not received a letter from the State Board are nonetheless required to register and file. Interest charges and failure to file penalties will apply despite lack of notification from the Board of Equalization of qualified purchaser status.

Michael L Caplinger, CPA/CMI of CAPLINGER TAX is focused on delivering value to clients through sales & use tax and business license services. Michael has been practicing exclusively in state & local taxes for over 25 years and brings his clients the keen insight and depth of knowledge that only many thousands of hours of problem solving can provide. Michael works regularly with RBZ’s professionals to serve their clients’ sales & use tax and business license needs and can be reached by email at michael@caplingertax.com or by telephone at (805) 986-1985.

RBZ, LLP is one of the largest public accounting and strategic consulting firms in Los Angeles and has been providing tax services for over 35 years. We are located at 11755 Wilshire Blvd., Ninth Floor, Los Angeles, CA 90025.

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