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The CDTFA has a reputation for aggressively pursuing sales tax violations and assessing interest and penalties for late filing and late payments. For many California businesses, a few sales tax violations quickly resolved with payment of sales tax arrears, interest, and penalties are of little concern. However, when a pattern of sales tax violations develops, or when the business falls within a category at high risk for audit (bars, car dealerships, cannabis retailers), a CDTFA sales tax audit may be on the horizon. When this occurs, it’s important to retain an audit defense lawyer to communicate on your behalf and represent you throughout the audit. A California tax law firm can work with your CPA to present records and account for discrepancies while working toward penalty relief and an installment plan.
To learn more about the CDTFA audit process and how tax attorney Jin Kim can help you, call our office at (916) 299-9913 for a free consultation.
Sales Tax Interest & Penalties
The CDTFA tax bill is referred to as a notice of determination. In brief, it’s an official notice from the CDTFA that they have determined that you owe additional taxes that often include interest and penalties. If you filed the sales tax return late, the penalty rate can range from 10 percent to 25 percent depending on whether the failure to file was due to fraud or intent to evade taxes. In addition, a collection cost recovery fee (CRF) may be applied that ranges from $190 to $950 depending upon the liability. Perhaps the greatest tax penalty applied by the CDTFA occurs when the taxpayer collects sales tax from customers but fails to remit said sales tax to the CDTFA. In that case, the CDTFA assesses a 40% penalty on the business absent reasonable cause for the taxpayer’s late payment or the unreported tax being less than $1,000 for the month or 5% of the tax due. These are just some of the penalties frequently assessed by the CDTFA, but there are many more.
Sales Tax Suppression Software & Devices
A sales suppression device (aka zapper) is a software program that falsifies or deletes data regarding point of sale (POS) transactions. In response to the widespread use of zappers in California restaurants, bars, liquor stores, grocery stores, gas stations, and retail outlets at large, the California legislature enacted several laws targeting the use of sales suppression software. Notably, Under California Sales and Use Tax Code Section 7153.6 any person who sells, purchases, installs, transfers, or possesses any automated sales suppression device or software is guilty of a misdemeanor, punishable by up to 3 years in prison and $10,000 per offense. Accordingly, CDTFA audits involving businesses with sales suppression devices can lead to significant criminal and civil tax liability. Nevertheless, some businesses are victims of employee misconduct involving sales suppression – as recognized by the CDTFA – and thereby pose as a
Sales Tax Penalty Relief & Installment Plans
Sometimes a taxpayer can appeal a notice of determination to reduce their tax liability or seek penalty relief through the CDTFA. However, in severe cases with considerable sales tax liability, a taxpayer may incorporate an installment plan to address any remaining debt to the CDTFA. Through an installment plan, a taxpayer with sales tax arrears can continue business operations and avoid disruptive CDTFA collections.
CDTFA Audit Defense
If you received notice of a CDTFA audit, the first thing you need to do is contact a tax attorney. With legal representation, you can ensure that communications with the CDTFA go through your attorney. Moreover, you can prepare a strategy for addressing the audit and work toward containing its scope. To learn more about CDTFA audit defense call our office at (916) 299-9913 for a free consultation with tax attorney Jin Kim.