Mitchell Stradford

About Mitchell Stradford

Mitchell Stradford is a former senior sales and use tax auditor with the California State Board of Equalization. Mitch leads McClellan Davis’ efforts to advocate on behalf of the cigarette and tobacco industry. He graduated from California State University Sacramento with a B.S. in Business Administration with a concentration in accountancy. Email Mitchell

CDTFA Revises Policy Regarding 40 Percent Unremitted Tax Penalty

Pursuant to Revenue and Taxation Code section 6597, any person who knowingly collects sales tax reimbursement and who fails to remit the sales tax reimbursement to the California Department of Tax and Fee Administration (CDTFA) can be held liable for a penalty of 40% of the unreported tax amount, if the tax amount exceeds $1,000 per month and is in excess of 5% of the total tax due for any reporting period.

Historically, CDTFA has been hesitant to apply the penalty in most circumstances even when the numerical thresholds are met unless CDTFA has been able to establish that the failure […]

Change in Excise Tax Obligation for Sales of Cannabis

Beginning January 1, 2023, cannabis retailers will be responsible for collecting and paying the cannabis excise tax to the California Department of Tax and Fee Administration (CDTFA).   The new application of tax is a departure from the previous application of tax in which the distributor was responsible for remitting both the cultivator and the distributor excise taxes.  Under the new law, a 15% cannabis excise tax will be applied to the gross receipts of the retail sale of cannabis and retailers will now be required to obtain a cannabis retailer’s license which will create a requirement for them to report […]

California Department of Tax and Fee Administration Issues Special Notice L-778 and Revokes Special Notice L-698

In September 2020, the California Department of Tax and Fee Administration (CDTFA) revoked previously issued Special Notice L-698 by issuing Special Notice L-778.  Special Notice L-698 was issued in August 2019 and it attempted to impose an excise tax collection requirement on licensed out-of-state tobacco distributors making sales to licensed tobacco wholesalers located in California. 

Special Notice L-698 was controversial when it was issued because the imposition of excise tax on out-of-state distributors required them to collect the excise tax on the non-discounted selling price to its wholesaler customers, contrary to historical […]

California Department of Tax and Fee Administration Issues Special Notice L-506

In September 2017, the California Department of Tax and Fee Administration (CDTFA) issued Special Notice L-506 which provides guidance on the application of excise tax on sales from out-of-state licensed tobacco distributors to in-state licensed tobacco distributors.  In summary, Special Notice L-506 states that the sale from an out-of-state licensed tobacco distributor to an in-state licensed tobacco distributor is not a distribution and therefore does not constitute a taxable transaction for the out-of-state licensed distributor.

According to discussions we held with representatives from the CDTFA, the special notice was intended to clarify the long-standing interpretation […]

Partly Cloudy Skies with a Chance of Sales Tax

How Sales Tax Applies to Cloud Based Software Service Offerings

Once widely considered to be a niche segment of the market, cloud-based software services are now the norm, not the exception.  Virtually everyone, whether personal or business related, uses some sort of cloud-based service on a consistent basis, potentially without even realizing it. 

With respect to sales and use tax compliance, keeping up with changes in the law and the correct application of tax within this industry has been challenging.  Most business owners consider online software applications to be exempt from tax […]

Frequently Unclaimed Tax Credit – Automotive Dealers

Independent automotive dealers have a lot on their plates when it comes to running their business and they may not have time to understand all the finite details that come with their sales tax reporting obligations.  While most dealers certainly understand that their wholesale vehicle sales are exempt sales for resale and that their retail sales are subject to tax, they may not be familiar with a tax credit that is both easy to claim and applies to almost every vehicle dealership, both new and used.  Most dealerships are also familiar with resale certificates that they issue to […]

Automotive Repair Businesses Face Audit Challenges with the California Department of Tax and Fee Administration

Automotive repair businesses are frequently targeted for sales and use tax audits by the California Department of Tax and Fee Administration (CDFTA).  The audit of an automotive repair business can present challenges for auditors as they may not be familiar with the business practices of many automotive repair businesses.  This can lead to misunderstandings and a misapplication of common audit procedures that are used to verify that sales tax was correctly reported.  An auditor’s lack of understanding of how an automotive repair business maintains its records and reports its sales tax obligation can often lead to significant frustrations […]

Restaurants and Caterers Beware – Facility Rental Charges are Generally Subject to Tax

Restaurants commonly make their banquet rooms available for large parties to hold special events such as birthday parties, wedding receptions, and retirement parties. Most restaurants, however, are unaware of the potential sales tax assessment that may accompany the rental charges for these facilities.

A common practice is for the restaurant to offer the rental of its banquet room for a flat fee and then separately offer an abbreviated menu from which its customers choose the meals for their guests. The food and drinks are often served at a price per person under these arrangements.

Restaurants generally understand that food and drinks served […]

Southern California Medical Marijuana Dispensaries be on the Look-out

In recent months, our firm has seen a significant increase in the Board of Equalization’s (BOE) audit activities as they relate to medical marijuana dispensaries, and even more specifically as they pertain to the Los Angeles area.  The BOE audit staff has been targeting the local dispensaries in its sales tax audit activities and has been performing audits that are not being completed in accordance with the BOE’s established audit procedures.  The result of the BOE’s renewed focus on medical marijuana dispensaries, in conjunction with their unorthodox and inappropriate audit procedures, is leaving many tax compliant marijuana dispensaries with undeserved, […]

Board of Equalization Audit Procedures Put Bars at Risk of Overstated Audit Liabilities

Fotolia_93991126_S_Restaurant_tableThe Board of Equalization (BOE) often selects bars for sales and use tax audits. The fact that bars can deal with a significant amount of cash, and can often times have more relaxed financial controls than other types of businesses, make them an ideal target in the eyes of the BOE. In the audit of a bar, an auditor will generally examine the business’ sales records and then seek to verify the recorded amounts with a markup analysis. The markup analysis contains intricate computations and the auditor’s inability to identify certain intricacies […]