For the last few years we had a reminder in our tax organizers about paying your share of California's sales tax on out-of-state purchases - or better known as Use Tax.  There is a updated (read, BETTER) news about this subject.... read on...

 

As a reminder, California is stepping up the education process and collection enforcement of Use Tax.  A "Use" Tax is the equivalent of Sales Tax.  You have reportable use tax if you purchased goods outside of California for use, storage or consumption in California... and did not pay California sales or use tax on the purchase.  So, if you purchased merchandise from a vendor located outside the state or the country, you may owe California use tax.  This includes purchases over the internet.  When I prepare your taxes, I will be asking you if you made purchases outside of California, because you can pay the use tax with your income tax return.  If you do not report and pay your use tax in a timely manner, such as with your personal income tax return, the State can assess penalties and interest.

So, you ask, what is this all about...? Well, the intent is to protect California merchants who otherwise would be at a competitive disadvantage when out-of-state vendors make sales to California customers and don't charge sales tax - now a huge issue with the increased use of the internet.

 

Here is the updated Good News

There is now a safe-harbor method of reporting your use tax.  You will not have to compile all your reciepts to prove what your purchased out-of-state, then calculate the tax... instead you may use the new safe-harbor use tax tables are available for use with your individual 540 California tax return (business entities including schedule C businesses cannot use these tables).  Instead of collecting all your receipts for non-taxed purchases, California will allow you to pay a predetermined amount based on your adjusted gross income (up to $20K – $7, up to $40K – $21, up to $60K – $35, up to $80K – $49, up to $100K – $63, up to $150K – $88, up to $200K – $123, over $200K – multiply by 0.07%).

If you elect to use the tables, you will be presumed to have met your requirement and they will not ask for more, even if the actual tax based on receipts would have been much higher.  Individual purchases over $1,000 are treated separately from the use tax tables.  This can be a strategic move.  Beware, if you owe money to the FTB for any other reason such as past due taxes, the FTB will not pass the use tax paid to the BOE, and you will get a bill from the BOE with a 10 percent late penalty.  Your other option is to file a separate Form BOE-401-DS Use Tax Return, but the safe harbor tables are not available for this return.