Does your California business bring in $100,000 or more in annual income? If so, this makes you a Qualified Purchaser under a new program from the State Board of Equalization (the BOE). I regularly see a few child care providers and other sole proprietors who have gross income (income before expenses) at this level. If you are not sure, look to see how much income you reported on your Schedule C, Line 7.
Businesses falling into the Qualified Purchaser category are required to register with the BOE for the purpose of paying use tax, which is another flavor of sales tax. It has been on the books for a long time, but is only recently being enforced. You may owe use tax if you buy supplies online from out-of-state vendors. If such vendors don't collect California sales tax, it is up to you to pay the use tax directly to the state. The use tax rate is the same as your local sales tax rate.
If your business gross income is under $100,000, you don't have to register, but you are still required to track and pay California use tax.
Under California law, all state residents making use tax purchases must pay use tax for the prior year by April 15.
Qualified Purchasers must register to file and pay their use tax electronically through the BOE website. A tax return must be filed every year, EVEN IF YOU OWE NO USE TAX.
In recent years, individuals have been able to report and pay use tax on their California income tax return. Do NOT report business use tax this way if you are required to register with the BOE**. Franchise Tax Board computers do not share information with the BOE, so notices will keep coming until you either e-file through the BOE website or contact the BOE to straighten things out.
The Board of Equalization is very serious about getting businesses to register and pay use tax. They have access to income tax data and have been sending out letters statewide to businesses with at least $100,000 in gross income. If you receive a BOE letter, DO NOT IGNORE IT. Otherwise, this state agency will continue to pester you and penalties may result.
Newly registered businesses are being asked to report use tax purchases for several prior years. The BOE e-file system is easy to use. If you don't think you owe any use tax for a certain year because you paid sales tax on all of your business purchases, go online anyway and report zero use tax.
If you previously reported use tax on an income tax return, this is another case where I recommend that you go online and report zero use tax for the years in question. Otherwise, BOE warning letters will keep coming. Reporting zero use tax will likely be easier than getting BOE computers to understand that you paid previously.
Always keep proof of any business use tax you pay. It can be treated as business deduction on your income tax return.
**If your business is required to register with the BOE, you can still report use tax related to personal (non-business) purchases on your California income tax return, if you wish.
Last updated 4 August 2012