Once Again, California’s Sales Tax Administrators Try to Avoid Transparency

Most organizations, whether private or public, would prefer to avoid transparency.  At best, allowing the public to review internal policies, procedures, and self-justification is tedious and time-consuming.  At worst (from the organization’s viewpoint), transparency can shine a light on incompetence, faulty reasoning, unjustifiable processes, and, occasionally, outright corruption.

The agencies administering California’s sales and use tax program have shown a particular distaste for transparency.  For decades the original agency, the California State Board of Equalization (BOE), refused to disclose the cases and documents underlying its regulatory interpretations, until it finally was forced to do […]

Supreme Court’s Wayfair Decision Will Force More Remote Sellers to Collect Sales and Use Tax

Last month we reported that a pending U.S. Supreme Court case, South Dakota v. Wayfair, Inc. (U.S. S.Ct., Dkt. No. 17-494, 06/21/2018), might expand the rights of states to impose their sales and use taxes on out-of-state sellers.  The Court’s June 21, 2018 Wayfair decision has done exactly that.

The decision overturned the physical presence requirement, a 51-year-old standard for determining when remote sellers must collect sales or use taxes on behalf of states other than their own.  Now, a state may impose registration and collection requirements even if there is no physical presence inside the destination state in which the […]

McClellan Davis Efforts Lead to Change for California Board Hearing Policies

Close-up Photo Of Gavel And Law Book

On May 24, 2016, Jesse W. McClellan, Managing Partner, testified before the Members of the State Board of Equalization (Board) at the California Taxpayers’ Bill of Rights Hearings in Sacramento, California to address a variety of concerns he had with Board policies. Part of his testimony focused on procedural problems with appeals cases that are scheduled for hearings before the elected Members of the Board. Specifically, Mr. McClellan stressed the need to establish guidelines for appeals cases that are removed from the hearing calendar by Board […]

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 […]

Are Tips Subject to Sales Tax in California?

Fotolia_38665300_S_Coffee with tipIf you’re a restaurant owner that’s been through a California sales tax audit, you probably asked the auditor the above question at some point during the process. The answer you probably received was, “It depends,” or, “Sometimes.” If you’re lucky, you didn’t get further clarification in the form of an audit bill for tax on your employees’ tips.

The underlying principle is deceptively simple: if the amounts of your tips are optional (left up to the customers), and all of the tips are actually distributed to your employees, the tips are […]

McClellan Davis Fights for Taxpayer Rights

Fotolia_14893664_S_ConstitutionOn May 24, 2016, Jesse McClellan, Esq., Managing Partner, testified before the Members of the Board of Equalization at the California Taxpayers’ Bill of Rights Hearings regarding two issues that have been historically problematic for taxpayers.  The first issue addressed pertained to the Board’s practice of permitting the Business Tax and Fees Department (Department) and/or the Legal Appeals Division (Appeals) to remove cases from the board hearing calendar without any meaningful reason or timetable.  The second issue pertained to the lack of review for Administrative Protest denials.


The first problem:

A hearing before […]

State-by-State Physical Nexus Criteria

SalesMap of USA with flight paths. Image with clipping path. and use tax nexus is a very fluid and evolving area of tax law, and although Congress has historically been considered to be the sole gatekeeper to change, states have recently become emboldened in their efforts to unilaterally lower nexus barriers.  For example, on March 22, 2016, South Dakota passed S.B. 106 which effectively establishes an economic nexus standard.  The law requires remote sellers to register and collect use tax on its sales into South Dakota if its sales into the state exceed $100,000 […]

Board of Equalization Aggressively Pursuing Independent Auto Dealers for Additional Sales Tax with a New, Questionable Audit Methodology

This month, Mitchell Stradford, a senior sales tax specialist at McClellan Davis and featured contributor in the April issue of the Independent Automobile Dealers Association of California (IADAC) magazine, shares how the California Board of Equalization is aggressively pursuing independent auto dealers for additional sales tax with a questionable new audit methodology.  IADAC is the only association that provides representation before regulatory agencies and advocates fair legislation on behalf of independent dealers and their customers.

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Visit www.iadac.org to read Mitchell’s informative article “Board of Equalization Aggressively Pursuing Independent Auto Dealers for Additional Sales Tax with […]

Sales Tax Implications of Business Reorganizations and Dissolutions

This article discusses the application of tax to transfers of business (capital) assets, when a business is sold, reorganized, or dissolved. It also discusses problems which can occur when transactions are not properly structured, and sales tax issues that may arise.
Generally, sales tax applies to the retail sales of tangible personal property. Thus, when a business is sold, tax does not apply to intangibles, inventory for resale, or realty. Tax applies to any remaining sales of tangible personal property (capital assets) used in a business, unless an exemption or exclusion from tax is available.

Regulation 1595 discusses the rules for exempt […]

Statewide Compliance and Outreach (SCOP)

Statewide Compliance and Outreach (SCOP) So, you’ve been contacted, either in person or by letter, by the California Board of Equalization’s, Statewide Compliance and Outreach Program (SCOP)…what do you do now? Well, let me provide you with some background information before we answer that question.

Statewide Compliance Outreach Program CautionFirst, let me discuss what the unit is supposed to be doing. The mission of SCOP, at least in theory, is one that’s beneficial to taxpayers. In short, they are supposed to be educating business owners on their sales/use/property tax responsibilities. In a business […]