Implementation of the new business use tax registration and reporting
program, enacted last year in a budget trailer bill, is causing major headaches
for taxpayers, the State Board of Equalization was told March 24 at a meeting
of the Board's Legislative Committee.
ABX4 18 (Assembly Budget Committee) requires people
who receive $100,000 in gross receipts in business operations, who are not
registered as retailers with the board, to register and file a use tax return
by April 15.
So far, board staff
has taken a hard line in implementing the statute. They have asked for returns
for 2007 and 2008 in addition to 2009, although the earlier years are not
specifically mentioned in the new statute. In addition, in letters that
notified taxpayers of the new reporting requirement, they threatened taxpayers
that they can go back eight years.
Staff told the
Legislative Committee that statutes authorize this and they wanted to leave the
eight year throw-back option open. However, at the outset of the meeting,
Margaret Shedd, head of the board's Legislative Unit, pointedly said that the
board did not sponsor or support the legislation.
To date, $4.3
million has been collected from use tax returns filed.
Testifying before
the committee, Gina Rodriquez, Spidell Publications'
Sacramento editor, said tax practitioners are reporting that a significant
number of their clients did not even receive a notice and registration form
from the board. Board Member Jerome Horton asked how the staff identified
taxpayers to send notices to. Staff said they used 2007 federal income tax data
and admitted this was old data, and that a number of taxpayers could have been
missed.
Ms. Rodriquez added
that April 15 is the worst possible deadline, as tax practitioners are
preparing millions of income tax returns and will be unable to file the use tax
returns on time. On top of this, she said that many people don't believe the
law applies to service providers, and lawyers are threatening to go to court.
She added that the State Bar has not informed lawyers that the law applies to
them.
The problem is that
the new use tax reporting section (Revenue and Taxation Code Section 6225) does
not define "gross receipts." As a result, taxpayers must rely on the
general definition in Section 6012 to see if they exceed the $100,000 threshold
– and if their gross receipts are not included in that definition, they are
excluded in determining if the threshold is exceeded.
Board Member
Michelle Steel said her husband got a letter from the BOE and she called the
office and could not get through. "It is not simple to file," she
said. She called the new law a "totally ridiculous" bill. Acting
Board Member Barbara Alby said she is getting panicky
phone calls from legislators, and added, "They were part of the sausage
making on this bill."
Deputy State
Controller Marcy Jo Mandel, representing Controller John Chiang, raised another
problem. She asked why taxpayers who already had satisfied their use tax
liability (by paying on their income tax returns) are required to send in a use
tax return under the new law. Board staff said they were requiring that they do
so, but would allow a credit.
It also is unclear
if persons covered by the new filing requirement can use the income tax
reporting method for use tax owed for 2009. They may not be able to, which is a
problem since many people have already filed their 2009 income tax. Ms. Mandel
said if they have reported use tax on their income tax forms, they should not
be penalized.
Ms. Rodriquez urged
an extension of the due date. Staff said this was impossible. Board Member
Betty Yee said she sympathizes with the hardship, but changing the due date is
beyond the board's authority. She added that the attempt of a legislative fix
might create more chaos than already exists.
Staff said taxpayers
could ask for relief of late filing penalties, and they would be generous in
abating penalties for "reasonable cause."
Some observers
wondered what this means, in view of the fact that staff has taken a hard line
in the bill's implementation. What is "generous"? What will be
considered "reasonable cause"? Further, as board staff reminds the
board over and over during appeals, taxpayers cannot rely on oral advice from
the staff.
Cal-TaxReports, March 29, 2010
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