Many of my clients have inquired recently about the Use Tax letters they have been receiving from the California State Board of Equalization. They want to know what is and how should they respond.

What is the California Use Tax?

In recent years, more and more purchases of all kinds by businesses and individuals are happening out of state, either over the internet or through some other means. These sales often happen without any sales tax being charged or paid. Since sales tax is a huge revenue source for California, the Use Tax was put in place a few years ago to tap into the missing sales tax on goods bought out of state. Recently the California Board of Equalization (BOE) has become more aggressive about collecting the tax, especially from California businesses.

How much is the Use Tax and how is it paid?

The Use Tax is paid at the same percentage as sales tax, based on the location of the person or company buying the goods. The tax can be paid through the annual income tax return or the Sales and Use tax forms. In addition, there is a new way to pay the tax online, through the BOE website. Larger companies have been automatically enrolled in this website to facilitate the payment process.

What about prior years?

The Use Tax has been in place for several years, but many individuals and businesses have been ignoring it. The BOA is increasing enforcement and is saying that taxpayers should pay special attention to paying their Use Tax for 2007, 2008 and 2009.

When is the Use Tax due?

The Use Tax is due at the same time as the due date of the Sales Tax form if being reported with sales tax, or by April 15, if being reported through the BOA website or along with the individual tax return. There is no form to request an extension, but there is no penalty for filiing after the due date if there is no Use Tax owed.

I hope this information has been helpful to you. Please check out my previous article: Common mistakes businesses make on their taxes.

In future blogs, I will be answering other questions I hear often, such as:

  • What questions should someone ask when looking for someone to prepare their business taxes?
  • What deductions should businesses look into for their 2009 taxes?
  • What actions can a business take to reduce their taxes for 2010?
  • What should businesses do to make tax preparation easier for 2010?

Irene Meyer-Lopez has been a CPA for 22 years. Irene has extensive business experience and is a Certified QuickBooks Pro Advisor. She and her firm provide a full set of services for small to medium-sized businesses, including accounting, tax preparation and planning, payroll, incorporation, corporate minutes and filings, human resources support and business advisory services.