Tax Liens Can Result From Unresolved Sales Tax Issues
Any retailer doing business in the state of California is subject to sales and use taxes law. To avoid tax liens the business must collect the sales tax on all taxable sales and remit it in a timely manner.
Audit results review
If taxes are not collected the amount due is equal to the tax due-all payable by the business. Even if the business is incorporated there can be personal liabilities for the owners.
As the tax rate is significant-at this time up to 8.5%–a business must ensure that they are in compliance. Compliance is basically collecting the correct amount of tax on taxable sales and making payment within the deadlines.
Generally the sales tax is collectable on the gross sales of tangible personal property (things not services). If you can see it or touch it-it is probably subject to sales tax with several major exceptions including:
- Real estate
- Stocks & bonds
- Prescription medicines
- Cold food
- Feed given to animals raised as human food
- Animals raised as human food
There are also certain exempt purchasers such as:
- U.S. government
- Out-of-state purchasers if you ship the items via a common carrier
- Retailers who will resell the items and have a sales tax certificate
Reporting requirements:
Accounting must be on the accrual method and must be able to measure the tax on monthly, quarterly or yearly basis. The tax is payable even if your customer has not paid you less adjustments for bad debts.
Penalties that could be assessed
- Negligent failure to report or for failure to pay the tax: 10% penalty
- Fraudulent failures to report and pay the taxes: 25% penalty
- Intentional failure to apply for a seller’s permit with the intent to evade the tax: 50% penalty
The use tax with the same tax rates applies to situations where taxable property was purchased out of state or was originally purchased tax exempt for resale but then consumed.
Some care needs to be taken in special circumstances such as transfer of assets or sale of a business. Generally if the sales of the business is a sale of stock then there is no sales tax owing. However, if it is a sale of tangible assets, then the sale will likely trigger sales tax payable.
We have represented clients in a variety of sales tax controversies and secured settlements with the State of California. As tax attorneys and CPAs with extensive experience we can provide you with effective counsel to avoid tax liens or penalties. We offer a complementary consultation to discuss a sales tax problem. Please call today 626-440-9518.