Tax Compliance Tips for California Businesses

Man using a calculator

A woman smiles as she goes through her taxes

Whether or not you owe any sales and use tax, California mandates that any business holding a seller’s permit routinely file sales tax returns. Depending on the situation, this may be every month, quarter, or year.

Considering the extensive regulations regarding California sales tax, any business, large or small, needs to understand how to navigate the state’s sales tax landscape. Here are tips that will help any business owner stay compliant with the state’s Board of Equalization (BOE), which enforces California’s sales tax laws.

1. When and How to File a Return

A business will find out how frequently it needs to file a return when it obtains a seller’s permit. As stated above, tax returns will need to be filed on either a monthly, quarterly or yearly basis; most businesses will be asked to file quarterly.

Returns are due the month after a reporting period has closed. For example, if a business owes taxes quarterly and its period ends on June 30, the tax return is due the final day of July. Return dates that fall on Sundays or holidays are moved to the next business day.

This is when businesses must file their taxes and pay all taxes due. Tax extensions can be requested through the BOE’s website. If accepted, the state will typically delay taxes owed by one period and waive late fees or penalties. Taxes can be paid by e-file, postal mail, or can be delivered in person.

2. What if You Don’t File a Return?

If you fail to file your sales and use tax returns on time, you risk having your seller’s permit revoked, effectively ending your legal right to operate your business. Any company that continues to operate after its seller’s permit has been revoked violates the state’s tax code. This offense, a misdemeanor, can be punishable by a fine of as much as $5,000 and up to a year in prison.

There are options available to any company having trouble paying its sale and use tax. The state offers installment payments, which can help you pay off your tax bill without any penalties or fees. The worst action any business having trouble paying its taxes can take is no action at all. Even if you cannot pay the tax owed, you should still file on time.

3. How to Calculate Sales Tax Owed

Businesses in California pay sales tax on gross receipts of sales of tangible property within the state. One way to think of this tax is as a fee the state charges for your right to make sales. Sellers typically pass sales tax on to buyers as part of the purchase.

State and local sales tax rates vary depending on the jurisdiction, ranging from 7.25 percent to 9.75 percent. To calculate sales tax, businesses need to consider gross receipts from all sales in a given period.

Most businesses file sales and use tax on a quarterly basis, but pay their sales tax every month. For more on the nuances of calculating the sales tax your business owes to the government, see this resource on the BOE’s website.

4. The Importance of Good Record-Keeping

Other than filing taxes on time, the best way to stay compliant with all BOE regulations is to keep meticulous sales records. If there is a tax dispute or your business is audited, you will be asked to produce all sales tax-related documents.

Keep in mind that your recorded and reported sales always must match. This is your responsibility, and the BOE will be looking to catch any discrepancies.   

If your business deals with any of the following, the BOE mandates that all business maintain these documents and records:

  • Sales invoices or sales journals
  • Resale certificates
  • Freight Invoices
  • Purchase invoices
  • Purchase orders
  • Cash register tapes
  • Receipts of delivery
  • Bills of lading
  • Any certificates of tax exemption
  • All documentation used to prepare your tax return
  • Any relevant correspondence
  • All documentation used to prepare your tax return

5. Seek Professional Assistance

Even the most savvy and experienced business owner may need assistance making sure their business is keep pace with the California’s often-complicated sales tax laws. With everything that business owners have to worry about, it’s easy to miscalculate money owed or overlook a piece of paperwork.  

Even if a company is keeping meticulous books and paying sales taxes every period, it’s possible something may slip through the cracks and draw the attention of the government. Tax attorneys represent your business and your business’s best interests when you’re being targeted for an audit. Hiring a tax attorney can save company time, money, and even your seller’s permit.