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CATax: BOE Use Tax Issues

California CPA November 2009

Plus: Child Support Withholding; Filing Status Guidance
By Leonard W. Williams, CPA

Taxpayers with annual gross business receipts of at least $100,000 have been receiving letters from the California Board of Equalization stating that they must register with the BOE as “qualified purchasers” and report and pay use tax.

Use tax isn’t new, but the registration requirement is. Most CalCPA members probably have received calls from clients who are wondering what these letters are all about, despite the fact that the letters explain the phenomenon.

‘We’re From the Government. We’re Here to Help You’
A BOE “sales tax compliance & outreach representative” recently visited a CalCPA member. The representative had proper identification and said that the BOE hired 70 representatives to review compliance with sales and use tax regulations at all businesses in California. He then asked to see the CPA’s purchase invoices for recently purchased fixed assets and supplies, and explained the new registration requirement.

Representatives also check the reasonableness of what is being reported, i.e., how the business owners can make a living on what they report, compared to
what the business looks like. They also check the type of permit against the type of business they observe. Certain aspects of these visits seem similar to those made by IRS and FTB auditors.

Child Support Withholding Guide for Businesses
California’s Employment Development Department issued “California Child Support—A Guide for Business,” which includes procedures on new hire reporting, remitting payments electronically, income withholding procedures and FAQs. The user-friendly format contains links to critical forms and websites and can be obtained online.

Newly Married Couple—One Person Has a Large Pre-marital Year Tax Problem
The first time a tax preparer usually hears of these types of problems is when the couple comes in for their tax appointment at the beginning of the year following their marriage. It usually starts with: “Should we file as married filing jointly or married filing separately?” Often, the question is whether or not each may file as single. The answer is no.

In a recent phone call, a client told his tax preparer that his divorce was final Dec. 28, but he’s having a hard time getting the data from his ex-wife for what she did last year. When told that they can’t file married filing jointly because marital status is determined as of Dec. 31 of the year in question, he replied, “You mean that Dec. 28 isn’t close enough?”

The usual solution is to file as married filing separately. But it’s more complicated. A well-drafted prenuptial agreement is the way to handle this, with each side independently represented. Some unforeseen side effects of skipping this step include:

• In protecting someone against this tax problem, they also may be deprived at some point in the future of their right to claim an interest in community earnings.
• It’s always possible to tear up a marital or prenuptial agreement when both sides are willing, but there is no guarantee that they will ultimately agree to do so.
• Under California Family Code Sec. 910, the community estate is liable for the pre-marital debts of either spouse. Tax return filing status doesn’t change that.

California Business Personal Property Reassessment
The question was asked as to whether or not there is a formal way to amend a Form 571 or otherwise attain a reassessment of business personal property taxes. This arose when reconstructed client books and records showed that many assets had been disposed of, but never removed from, the Form 571.

There is no legal provision for amending a 571 after May 31 of the year in which it is filed. However, for 2009, most counties have until Nov. 30 to file appeals.

As for prior years, it’s up to the county. If it won’t allow changes, the only recourse for prior years is filing for a refund of property taxes paid on nonexistent improvements. If the nonexistent property includes substantial cost that was assessed as fixtures of leasehold improvement, then consider a claim for refund under California Revenue & Taxation Code Sec. 5096(e) for either three (unsecured) or four (secured) prior years. Improvements referred to in 5096 are defined in Sec. 105 to include trade fixtures. Assessors frequently allocate a percentage of certain categories to trade fixtures, which would leave that category open.

Thanks to the following CPAs for contributing to this column: Jim Bone, Corina L. Christiansen, Jim Counts, Kip Dellinger, Ernie Howard, John W. Kennerson Jr. and Ralph H. Weintraub. 

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner, a member of CalCPA’s Committee on Taxation, the AICPA Tax Division and a former Peninsula Silicon Valley Chapter president.