California has three different taxing agencies: California Department of Tax and Fee Administration (CDTFA), the Employment Development Department (EDD) and the Franchise Tax Board (FTB). If you are a San Francisco business owner in California, you must understand each agency and what taxes you need to provide to all of them.
Occasionally, a San Francisco business owner may fall behind on taxes to these agencies or neglect to file the proper returns. This is not an ideal situation. However, if a business owner has not filed returns — especially to include use tax payment — and has not been contacted by the taxing agency first, they can file under the “voluntary” In-State Voluntary Disclosure Program. Let’s look at what this program is and whether it’s a fit for your business.
Generally, use tax applies when a person or business in California purchases tangible merchandise from a retailer outside of California that will be used, consumed, given away or stored in this state, and the retailer does not collect California use tax on their sales.
The In-State Voluntary Disclosure Program allows qualified purchasers within California, who are not otherwise required to hold a seller’s permit, to report and pay their use tax liability subject to a three-year statute of limitations. It also allows the CDTFA to waive late filing and late payment penalties. Without this program, the CDTFA has an eight-year statute of limitations to collect the taxes.
The CDTFA is actively pursuing use tax liabilities from consumers through a variety of programs. Consumers with use tax liabilities are encouraged to take advantage of the benefits available by participating in the In-State Voluntary Disclosure Program before being contacted directly by the CDTFA. Once a person or business is contacted by the CDTFA regarding an unreported use tax liability, that person or business is no longer eligible to participate in the program and will not be given the benefit of the three-year statute of limitations and a waiver of penalties.
To qualify for the In-State Voluntary Disclosure Program, business owners must meet all of the following conditions:
- You are a resident or located within California
- You have not previously registered with the In-State Voluntary Disclosure Program
- You have not previously filed an individual use tax return with the program
- You have not reported an amount for use tax on your Individual Income tax rreturn filed with the Franchise Tax Board
- You are not engaged in business in this state as a retailer, as defined in Revenue and Taxation Code section 6015
- You have not been contacted by the CDTFA for failure to report the use tax imposed by section 6202 of the Revenue and Taxation Code
- Your failure to pay the tax or file a return was due to reasonable cause and not as a result of negligence, intentional disregard of the law, or by an intent to evade taxes
- Your purchase is not of a vehicle, vessel or aircraft
- You voluntarily come forward to participate in the In-State Voluntary Disclosure Program
The idea of owing back taxes can be scary. However, the In-State Voluntary Disclosure Program offers a big advantage to California business owners who may owe use taxes to the CDTFA. Pursuing this option voluntarily can limit your tax liability in taxes and late payments. If you believe you owe use taxes and may be eligible for the program, contact an experienced San Francisco tax attorney to help you apply to the program.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.
