I have previously written about the Board of Equalization (BOE) collecting use tax from California businesses with gross income of $100,000 or more through their Qualified Purchaser Program. I understand that the BOE may also be pursuing use tax audits of businesses with incomes below $100,000, including child care providers. I cannot confirm this, but.....
California use tax rules apply to all individuals and businesses in the state. In the current climate, with the state grasping for additional revenue, I recommend that all California residents take steps to comply with the law. This goes double for family child care providers and other business owners, because current BOE enforcement efforts are directed at the business community.
Use Board of Equalization Publication 123 to help you identify use tax purchases. You may not have any, but from time to time, most of us make a purchase where sales tax was not collected. Usually this happens when buying from out-of-state sellers. California residents who buy online without paying sales tax, may owe an equivalent amount in the form of "use tax." Your tax rate will depend on the sales and use tax rate in your area, which consists of the California statewide base rate, plus any city or county taxes that apply.
Child care providers, and other business owners, should make a note of any business purchases where sales tax would normally be collected, but isn't. (This leaves out garage sale purchases and other purchases from sellers who - if located in state - would not be required to collect sales tax.)
To be in compliance with state law, you must keep track of personal use tax purchases, as well. However, if it's easier and/or cheaper, you can pay personal use tax using the new BOE lookup table and forget about saving personal receipts.
Because of the unique nature of family child care expenses, providers should track three separate totals when it comes to any use tax purchases:
1. Total amount spent on use tax purchases of 100% business items
2. Total amount spent on use tax purchases of "shared" personal/business use items
3. Total amount spent on use tax purchases of 100% personal items (or use the lookup table)
You can deduct the cost of use tax paid on 100% business purchases and a percentage of the cost of use tax paid on shared items.
If you aren't required to register with the BOE and e-file your use tax return (meaning you are NOT a Qualified Purchaser), I recommend that you pay use tax by filing a BOE Use Tax Return. File your use tax return and pay the tax by April 15 every year.
It is also possible to pay use tax on your individual California income tax return, but using the BOE form is a better way to go. I have seen cases where the state Franchise Tax Board never turned over use tax paid through the taxpayer's income tax return to the Board of Equalization. (They may have owed back taxes or miscalculated their income tax, for instance.) This made for a very messy situation.
Last updated 21 June 2013