The Use Tax and You

By Carol Painter

Many of you may, or may not be familiar with the use tax laws. However if you live in California and own any sort of business you had better become familiar with it because the Board of Equalization (BOE) is cracking down on it.

What is the use tax? I am glad you asked. What happens here is that items bought in other states are not subject to local sales tax and therefore no revenue is generated from them. (Think catalogs, online, phone orders etc…) Now we can’t have people getting away with buying things tax free, can we? So the BOE has come up with the ingenious idea of the use tax. Simply put, it is a sales tax levied on items bought out of state and brought into use in California

Who does it apply to? Technically everybody must pay the use tax, including individuals. So that Solid Gold Hits of the 70’s you ordered off Amazon? Yes, you are supposed to report that. In fact, most tax returns have a line for you to include your use tax on them. However, the individual returns are not the real concern of the recent BOE changes. What they are really cracking down on are businesses.

The new rules state that all businesses with at least $100,000 or more in gross receipts must register online with the BOE and pay their use taxes by April 15 th. $100,000 in gross receipts is a very low threshold and most businesses out there will have at least that much. So the bottom line is that the BOE is getting aggressive with businesses everywhere.

If you have a seller’s permit you are already registered with the BOE so this new rule won’t affect you. You’re already filing sales tax returns which include reporting use tax. However, companies that are not required to hold a seller’s permit are of particular concern here. This would include such services like CPA’s, doctors, distributers and any other service that does not sell a physical “product.”

So you folks in this category may be getting a letter from the BOE in the very near future informing you of the requirement to register. However the BOE targeting their criteria based on 2007 data. So if you qualified in 2007 but had less than $100,000 in gross receipts in 2008 or 2009 you need to contact the BOE and let them know you are exempt. If you have any questions about the use tax and registering with the BOE then please contact us here at ELLS or contact your CPA for more information.

Posted 09/11/09