Unclaimed California Use/Sales Tax
When goods are purchased out-of-state that are used, consumed or stored in California and sales tax is not collected on the purchase, you are required to report the purchase and pay a “use” tax (i.e. the sales tax for items used in California). The most common types of transactions that trigger the use tax are when items are purchased on-line or from mail-order catalogs sold by out of state companies.
The use tax in California is not new. The California use tax law became effective on July 1, 1935. According to the California Board of Equalization website,
“The use tax is intended to protect California sellers who otherwise would be at a competitive disadvantage when out-of-state sellers make sales of goods to California customers without charging tax. The use tax also assures that all consumers in the state contribute fairly to the funding of state and local programs whether they choose to make purchases in California or outside the state.”
In the past you were required to prepare a separate return for the State Board of Equalization – now, to make it easier on taxpayers, you can report the used tax on your California income tax return. There are two options to reporting the unclaimed use tax on your California individual income tax return. You have the option of totaling all your out-of-state purchases where sales tax was not collected, computing the use tax on those purchases, and then adding that amount to your overall California income tax liability.
Your second option is a lookup table. If all of your purchases subject to use tax were each under $1,000 (meaning that you didn’t buy any one item for more than $1,000), you can use a table based on your income to lookup your tax.
If you purchased items that cost $1,000 or more, and you also had some that cost less than $1,000, and you do not want to total all of your purchases, you can total just the purchases over $1,000 and compute the use tax on those items, plus use the lookup tables for the small purchases.
Using the Use Tax Lookup Table to compute your use tax liability provides a safe harbor, which means the FTB will not challenge you regarding the correct amount of your use tax liability. With this new reporting option you will see this question on your tax organizers as you gather your 2011 tax information.
Pursuant to IRS Circular 230, the Internal Revenue Service requires us to inform you that any tax advice included herein is not intended or written to be used, and it cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by the IRS on the taxpayer. That said, please do not hesitate to contact us if you have any further questions regarding this matter.
Tags: Sales Tax
