Certain CA Service Providers Must File Use Tax Return

The California State Board of Equalization (BOE) is notifying approximately 300,000 service business owners that they may owe use tax. Businesses that meet the statutory definition of a "qualified purchaser" are required to register with the BOE, file returns by April 15 (April 18 in 2011) of each year, and report all purchases subject to use tax from the previous calendar year. A "qualified purchaser" is a business that receives at least $100,000 in gross receipts per year from business operations, is not required to hold a seller's permit with the BOE, is not a holder of a use tax direct payment permit, is not required to be registered with the BOE, and is not otherwise registered with the BOE to report use tax. Businesses that do not meet the $100,000 gross receipts threshold are still required to report and pay use tax, but are not required to register with the BOE for that purpose. Persons that have multiple businesses with the same ownership must register if the aggregate gross receipts of those businesses meet or exceed the $100,000 threshold. New applicants have been automatically registered to eFile their returns for 2010. If a taxpayer is not a retailer or service business currently required to register with the BOE, the easiest way to report and pay use tax is on the California state income tax return.

New Use Tax Registration Requirements

The California State Board of Equalization (BOE) announced that thousands of California qualified purchasers are now required to register with the BOE and file use tax returns by April 15 of each year, reporting all purchases subject to use tax from the previous calendar year, beginning with purchases made during the 2009 calendar year. A qualified purchaser is a business that meets all of these tests:

• Is not required to hold a seller’s permit with the BOE;
• Is not required to be registered or otherwise register with the BOE;
• Is not a holder of a use tax direct payment permit; and
• Receives at least $100,000 in gross receipts per year from business operations.

The BOE has begun notifying 184,000 businesses of this requirement by letter.

More information is available on the BOE website

7 Tips When Starting a Business

Last week, the IRS published the top seven things it wants you to know if you plan to start a new business:

• First, decide what type of business entity you are going to establish.
• Identify which taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
• Obtain an Employer Identification Number (EIN).
• Implement a good recordkeeping system.
• Determine your company's tax year end.
• Determine your accounting method for calculating income and expenses. The most commonly used accounting methods are the cash method and an accrual method.
• Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

The page includes links related to starting a business, operating a business, and closing a business. As unexciting as these issues seem, it's a good idea to take care of them. When it comes to taxes, an ounce of prevention is worth a pound of cure - and then some.

New California Sales Tax Rates

Sales taxes increased 1% today throughout California. The State Board of Equalization (BOE) has published updated guidance related to the tax increase, including guidance on:

• District Taxes and Delivered Sales
• California City and County Sales and Use Tax Rates
• FAQs on the Sales Tax Increase

California sales tax increases by 1% on April 1

If you are planning to make a major purchase soon, you may want to act before April 1, when the statewide California sales tax increases by 1%.

The temporary 1% tax rate increase will expire on either July 1, 2011, or July 1, 2012, depending upon whether voters approve the proposed Proposition 1A, Budget Stabilization Act, in a statewide election to be held May 19, 2009.

There is an exemption from the tax rate increase for fixed-price contracts and fixed-price lease agreements entered into prior to April 1, 2009. To qualify as fixed-price,:

• Neither party can have the unconditional right to adjust the price for an increase in costs or terminate the contract or lease, and
• The tax amount or rate must be specifically stated in the contract or lease agreement.

For more information, including FAQs about the tax increase, please visit the California State Board of Equalization website.

Tax incentive to purchase a new car

In hopes of spurring the overall economy in general, and the automobile industry in particular, the recently enacted “American Recovery and Reinvestment Act of 2009” includes a new tax break for purchasers of new cars: a deduction for state and local sales and excise taxes paid on new vehicle purchases.

This new tax deduction for sales tax:

• Applies to purchases of passenger cars, minivans, light trucks, motorcycles, and motor homes, but it only applies on $49,500 of the vehicle's price and it only applies to new vehicles.
• Applies for new vehicles purchased between Feb. 17, 2009 and the end of 2009.
• Is available even if you do not itemize your deductions.
• Is not available for couples who earn over $260,000 or individuals who earn over $135,000 in 2009.