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What Not to Forget When Filing a California Income Tax Return

  • Feb 13, 2014 | Gail Cole

 California estimates $1 billion worth of use tax goes uncollected each year.

Like income tax filers everywhere, Californians must dot their i’s and cross their t’s. They must write the right numbers on the right lines and sign and initial where required. And as the California State Board of Equalization (BOE) reminds, Californians’ must also pay the use tax they owe.

Use tax is owed “on items used in California that were purchased without paying tax from an out-of-state online or mail-order retailer.” To taxpayers sputtering in outrage over this new tax, the BOE reminds that use tax is not, in fact, new. “Use tax is not an ‘Internet tax’ and has been California law since 1935.” Apology accepted.

Use tax exists in every state that has sales tax. Not all states have a line for it on their income tax returns (indeed, not all states have state income tax). However, states like California and Kentucky are finding that including use tax on income tax returns increases compliance.

Use Tax Lookup Table

The BOE understands that not everyone remembers use tax when purchasing items online or through the mail, and that not everyone saves receipts. The BOE's Use Tax Lookup Table allows taxpayers to “pay use tax on each non-business purchase that is less than $1,000, even if they did not save their receipts.” The amount owed is based on the taxpayer’s adjusted gross income.

For example, a taxpayer with an adjusted gross income of less than $10,000 owes $2 in use tax liability. Taxpayers who make between $20,000 and $29,999 owe $8, and taxpayers making between $40,000 and $49,000 owe $15 in use tax liability.

The BOE reports that use tax revenue accumulated through California income tax returns grew 12% during the last fiscal year. That said, an estimated $1 billion of use tax revenue is not collected each year. That uncollected revenue could “pay the salaries of about 6,000 firefighters, 7,000 police officers, or 11,000 teachers.”

Use tax exemption for active service members

Beginning the first of this year, active service members are no longer required to pay use tax on out-of-state purchases made “prior to the report date on their transfer orders.”

How does your business handle consumer use tax?

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.