California Court Finds that Sales/Use Taxes Collected from Customers Outside the State Are Not California Excess Tax Reimbursement
Facts and Background In a significant victory for taxpayers selling multistate from California, the Sacramento County Superior Court recently ruled in favor of Body Wise International LLC, rejecting the California Department of Tax and Fee Administration’s (“CDTFA” formerly known as the Board of Equalization) attempt to characterize out-of-state tax collections as California “excess tax reimbursement.” (Body Wise International LLC vs. California Department of Tax and Fee Administration, Case No. 34-2023-00333398.) The case arises from an audit covering the period April 2010 through June 2013, during which Body Wise—a retailer of nutritional supplements—shipped products to customers throughout the United States and [...]
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 [...]
Contractors that Manufacturer Materials and Fixtures
For sales and use tax purposes, a manufacturer can be defined as one who converts some form of tangible (generally personal) property into another form that has a different function or purpose. Construction contractors may be regarded as manufacturers when they substantially modify materials or fixtures before installing them, rather than just buying such items in a ready-to-install state. For purposes of this article, all references to “materials” and “fixtures” will pertain to property that contractors affix or otherwise convert to realty. Most states expect contractors to pay sales or use tax only on the costs of the physical components [...]
Construction Services – Installation Labor
Construction-related installation labor (affixation or conversion of tangible personal property to realty) is taxable to varying extents in 14 states. Since repairs to realty (restoration of real property to its original condition) were featured in the previous installment, I’ll try to avoid covering similar ground to the extent possible. However, overlapping treatments of installation and repairs are built into the sales and use tax statutes of a few of the states, so some duplication of the applicable commentary is inevitable. The states that tax all construction-related installation labor are Arizona, Hawaii, New Mexico, and Washington. In Arizona, contractors are taxed [...]
Construction Services – Repairs and Maintenance
In the majority of states, services related to construction are not subject to sales tax. In a large minority, however, one or more construction services are specifically included in the sales tax base. The two major forms of labor (services) associated with construction contracting are installation (affixation of tangible personal property to realty) and repairs to real property. In some states, installation labor that results in new construction is treated differently from installation associated with a remodel or reconstruction. In addition, the dividing lines among repairs, reconstruction, and new construction may vary from state to state. Other common construction services [...]