BOE Targeting Local Businesses for Sales and Use Tax Payments

The State Board of Equalization (BOE) is taking a new approach to collect California sales and use tax and has been ramping up their enforcement in this area to identify purchasers who may owe use tax. At BPW, we are seeing more and more of our clients receive letters from the BOE instructing them to avoid an audit and follow a few simple reporting requests.

Upon receiving registration information from the Employment Development Department (EDD), the BOE may send your business a letter if there is the likelihood that your business has purchased fixtures, equipment, machinery, furnishings, consumable supplies or other items from retailers outside California for use in California. If your business has made out-of-state purchases without paying the California sales or use tax–whether these purchases were made in person, over the Internet, by telephone or by mail–you may owe California use tax.

The Revenue and Taxation Codes authorizes the BOE to conduct an audit, which may encompass a period going back eight years (longer if fraud is detected), but is instead requesting recipients of the letter to either confirm that their business has been paying use tax and return the signed letter verifying their statement; or, the letter instructs those who have not paid use tax to review their records over the past stated years, report any purchases that were made without tax on the provided BOE-403_CLW Use Tax Return Worksheets and provide appropriate documentation. The letter requests the following documentation from businesses:

• Summary pages (usually 1-8) of the business’s Federal Income Tax return for the past year, including any schedules/statements that pertain to the first 8 pages of the return
• Asset depreciation schedule for the past year
• The business’s purchases journal for the past year

The BOE also provides a Sales and Use Tax Facts Sheet to help guide you through identifying sales and use tax owed. Please click here to download the facts sheet.

We recommend that businesses keep all purchase documents for fixed asset additions to prove sales tax paid. If you have made any out-of-state purchases, you should be filing an annual return and reporting them and paying any taxes due. You may want to consider filing a return every year (even if no taxable purchases or no taxes are due) in order to start the clock running on the Statute of Limitations.

If you have any questions about the BOE letter or need assistance in understanding how to establish and claim sales and use tax, please feel free to contact me at (805) 963-7811 or rmaloy@bpw.com.