California Out-of-State Voluntary Disclosure Program
Since the Supreme Court issued the Wayfair v South Dakota ruling, states across the country have been adjusting their sales and use tax collection rules to mirror South Dakota’s. This has created numerous compliance challenges for impacted companies because many are now required to charge, collect and remit sales tax on customers in various states. What makes this more difficult is while many states have similar regulations, there are some important differences that need to be adhered to in the calculation and collection of taxes. When it comes to managing sales and transactions, the compliance challenges have created a new set of responsibilities that companies need to proactively manage. In addition, these companies should carefully review regulations to ensure compliance with past rules to safeguard themselves from unexpected exposure. While challenging, the good news is the state of California announced an Out-of-State Voluntary Disclosure Program designed to help these companies with outstanding liabilities come into compliance with less cost. To help clients, prospects and others learn about the program and its participation benefits, JLK Rosenberger has provided a summary of key details below.
Are You Liable for California Use Tax?
As mentioned above, each state has different regulations governing the assessment and collection of sales and use taxes. For this reason, the regulations in your home state may vary widely from those in California. Companies engaged in business in the state are responsible for collecting and remitting the sales and use taxes on the sale of all tangible personal property (merchandise) unless specifically exempt from such taxes. Nexus is established when one of the following conditions are met:
- The business maintains, occupies or uses any type of office, sales room, warehouse or other places of business within the state. It’s important to note that this also includes use through a temporary agent or representative.
- The presence of a representative operating in the state to take orders, make sales or deliveries, installation or the assembly of tangible personal property.
- Those that derive rental from a lease of tangible personal property located within the state.
How to Qualify?
Several criteria must be met for a company to qualify for the disclosure program. Unlike other state programs, a business is required to meet all conditions to be considered for program participation, including:
- The business must be located outside the state of California and not previously registered with the California Department of Fee and Tax Administration (the Department).
- The business must be engaged in business within the state.
- There has been no prior contact with the Department about business activities in the state.
- The failure to pay taxes or file a return was due to reasonable circumstances and not from negligence, intentional disregard or intent to evade taxes.
- Registration with the Department is voluntary.
What are the Benefits?
There are several benefits that companies can receive from participating in the program including a limited lookback period and penalty assessment. Specifically, the Department will limit the period in which it can assess overdue taxes to three years (this is reduced from the normal period of eight years). Participants are eligible to receive a waiver of late filing fees and penalties and can anonymously inquire and receive written confirmation of program acceptance based on their specific circumstances.
The voluntary disclosure program is an excellent opportunity to come into compliance with California sales and use tax laws. However, it’s important to speak with a qualified tax advisor who can assess your situation and determine if you will benefit from participation. If you have questions about your tax liabilities in the state or need assistance with tax planning or compliance, JLK Rosenberger can help! For additional information, please call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.