A new law, which might take the prize for the worst piece of legislation in 2009, requires nearly 200,000 California businesses to register and file use tax payments with the Board of Equalization (BOE) by April 15th. This onerous regulation will cost more to comply with – because of the unbelievable inconvenience it causes business owners – than the state will make in revenue.
The new law requires all business owners with gross revenue over $100,000, that are not already registered with the BOE, to register for a use tax account and file use tax returns for 2007, 2008, 2009, and for every year in the future.
That’s right: three years of filings will be due on the same day taxpayers must file state and federal income tax and payroll taxes.
AB 4x 18 was signed into law in July 2009. The Board rushed to begin implementation in November 2009, but many businesses received the news as late as mid-March 2010, and more have yet to be notified. If you haven’t received a letter and your business makes over $100,000 in gross revenue, it is your responsibility to register and file use tax returns by April 15th.
The use tax is the equivalent of sales tax, and it is owed on products for which sales tax was not paid – mainly products bought out of state. The use tax isn’t new; it’s been around since 1935, but the state income tax return already has a line on which use tax can be reported. This new law is especially unfair to service-sector businesses that are accustomed only to filing income tax returns.
This new law attempts to treat service businesses that don’t collect sales tax as retailers by requiring them to register with the BOE. Service businesses such as, attorneys, accountants, barbers, beauticians, doctors, those who have personal income from rental property, and even non-profit organizations now must spend their valuable time to pay a tax that they most probably don’t owe.
The last thing California needs in this tough economy is another needless regulation and an increase in state bureaucracy.
My e-mail is full of letters from concerned taxpayers who don’t know why they are being targeted for compliance with this little understood new law. After all, most Californians don’t even know the use tax exists. I’ve also received a number of phone calls from state legislators who don’t know about this new regulation even though they are the ones who passed it. No wonder the Legislature’s approval rating is so low.
One taxpayer recently e-mailed me that it cost him $1,000 in billable hours to sort through three years of receipts and find he owed only $62 from a 2008 purchase. That $62 was assessed with $13 in interest. Basically, the state taxed this taxpayer $1,000 worth of time just to collect $75.
He signed off “Tired of big government but not ready to give up.” I hope more taxpayers are as understanding as he is, because I know I’m not.
The owner of one faltering business told my staff that having to review three years of records could be “the straw that breaks the camels back” and puts him out of business.
California needs to change its hostile business climate if it is going to pull itself out of this deep and deepening recession. Yet, the Legislature continues to rely on inflated revenue estimates in order to defer the tough decisions that need to be made in this economic crisis. Anticipated use tax revenue is used to defer the tough decisions it will take to fix our state, without regard to the burden it will place on taxpayers.
At our March 24th hearing in Sacramento, the Board of Equalization discussed the difficulty taxpayers are facing in complying with this awful regulation, but unfortunately, there is not much the Board can do to get around the legislative mandate. Use tax filers can, and should, file for relief of penalty for 2007 and 2008, if they owe tax. The required forms are available on our website. Still, there is no making up for the time and money lost due to the inconvenience of this ridiculous law.
What would you say to a business owner at his wits’ end over hours of billable time taken up with this law, when he finds he owes nothing?