California: Top Ten Areas of Taxpayer Noncompliance
- Mar 11, 2014 | Gail Cole
According to the California State Board of Equalization’s 2012-13 annual report, the sales and use tax audit program uncovered more than $528 million in missing tax revenue caused by taxpayer noncompliance.
The top ten
- Unsupported sales for resale was the top area of noncompliance. One in eight taxpayers made errors in this area, amounting to 21% of all net sales and use tax deficiencies. Those errors cost the state the most in lost revenue—more than $111 million in unpaid tax.
- Untaxed purchases from out-of-state vendors. Noncompliance was responsible for more than 14% of all net sales and use tax audit deficiencies and cost the state more than $78 million in unpaid tax. California taxpayers are required to pay use tax on taxable purchases when sales tax is not collected at the time of sale.
- Errors in compiling return.
- Reported sales lower than markup on purchases.
- Difference between recorded and reported taxable sales.
- Inadequate records resulted in unreported sales.
- Bad debts over-claimed on return.
- Difference between tax accrued and tax paid.
- Unreported taxable sales by unregistered retailers.
- Overstatement of exempt sales using purchase ratio.
Other areas of noncompliance include taxpayers who withdrew from resale inventory for their own use, and deficiencies in resale certificates.
Audits tend to inspire fear in the most law-abiding, compliant of hearts. Therefore it’s worth noting that the BOE returned more than $155 million to taxpayers in the form of sales and use tax audit refunds.
The information discussed above is described in detail in the BOE annual report, pages 23 ff.