Articles Posted in California Sales Tax Problems

On Nov. 7th I will be speaking at the at the 2008 Annual Meeting of the California Tax Bar on Sales and Use Tax Audits: A Guide for Tax Professionals. My co-panelist will be Robert Tucker, a tax specialist from the California State Board of Equalization (SBE or BOE). We will be discussing how to handle a sales tax audit including procedural rules and tips for dealing with the SBE.

The 2008 Annual Meeting of the California Tax Bar runs from Nov. 6 through 2008, and attracts hundreds of tax attorneys, and tax accountants from around the state. Additional topics include:

Criminal Tax Investigations Offshore Enforcement California Tax Litigation SBE New Rules for Tax Appeals Federal and California State Trust Fund Recovery (TFRP) Penalties

The California State Board of Equalization (BOE or SBE) was handed a defeat by the California Appellate Court in Dell Inc. v. Superior Court of San Francisco 159 Cal.App.4th 911 (2008) . The court held that the value of the Dell service contracts purchased by consumers was not subject to California Sales Tax even though the price of the contract was not separately stated in the invoice. The case has potentially wide reaching application to other California sales tax audits.

The facts in Dell indicated that the service contracts were optional, and that they were priced separately from the underlying computer equipment. For example, a consumer purchasing a computer could check a box on Dell’s website to add a service contract for an additional $x. The amount would be added to the purchase price but the invoice issued to the customer would indicate a lump sum price for the computer and the service contract. Everyone agreed that if sold separately the service contracts were intangible property, not subject to California sales tax. It was also agreed that if the Dell service contracts were sold with computers they would not be subject to California sales tax provided that the price of the sales contract is separately stated in the invoice or other contract of sale.

The BOE argued, however, that in the absence of a separate statement of the charge for the service contracts they are subject to California sales tax. The Court disagreed, and found that the transaction was a “mixed transaction” involving separately identifiable transfers of goods and services. It differentiated the sale from a “bundled transaction” involving goods and services that are inextricably intertwined in a single sale. As such as long as the value of the separable identified parts can be established then the value attributable to the transfer of intangible property or services is not subject to California sales tax.

By law the California State Board of Equalization (SBE) is required to publish each quarter a list of the 250 sales and use tax debts owed to the California. In order to make this list the California sales tax debt must be over $100,000. However, the tax debt will not be listed if the taxpayer has contacted the SBE and made an installment agreement, or other arrangements such as an offer in compromise.

For the last quarter of 2007 the California sales tax debts on the list ranged from $17.5 million down to a low of “only” $362,297.09. Except for admitted sales taxes liability reported on a sales tax return filed with the California State Board of Equalization, the SBE can not generally bill additional sales taxes without affording the taxpayer a hearing before the 5 member Board of Equalization. For more information about the appeals process read our article.

If you have a California Sales Tax problem in excess of $75,000 please call California sales tax problem attorneys at Brager Tax Law Group, A P.C.

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