strategies-init

California Use Tax Audits – Use Tax on Leases

In general, during California use tax audits, use tax will only be asserted against the lessor since it is difficult to determine from the lessee’s records whether the lease is a “sale” under the Sales and Use Tax Law. Therefore, a review of the lessor’s records will be made to determine if any tax liability exists. Whenever the audit of a lessee reveals that tax has not been collected by the lessor, and the auditor cannot determine that tax was properly due, an audit memorandum (Form BOE–1164) will be prepared and sent to the lessor’s district. During use tax audits, he auditor will not assert tax against the lessee. An exception to the above general policy is that tax may be assessed against the lessee if the lessor is located out-of-state, and the property being leased is not mobile transportation equipment (MTE). If tax is assessed, Form BOE–1164 will be sent to the lessor’s current district showing the amount of tax assessed and the applicable periods.

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Franchise Tax Board Appeals – Process of Appealing FTB’s Decision in Protest Dispute

The Franchise Tax Board Appeals Process

The protester who wants to appeal the Franchise Tax Board’s decision, has 30 days to file appeal in writing from the day FTB mails Notice of Action letter. If taxpayer does not appeal within 30 days, the decision becomes final. FTB then sends taxpayer written demand for payment, and taxpayer must pay the amount demanded within 10 days from the day the Franchise Tax Board mailed the demand letter.

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About a Franchise Tax Board Wage Garnishment

With respect to a Franchise Tax Board wage garnishment, the Franchise Tax Board can use involuntary means of delinquent tax collection if voluntary means do not work. For example, an Order To Withhold (OTW) is a one time legal order seizing 100% of the available funds from a financial institution or escrow company (also commonly known as a Franchise Tax Board wage garnishment) . Potential payors for an OTW include California banks or escrow companies holding funds (e.g., checking or savings account, or proceeds from a sale of property or another asset) of a business entity. An OTW can not be issued to a financial institution where no branches are located within California. Prior to remitting funds to the Franchise Tax Board because of a Franchise Tax Board wage garnishmen, banks are required to hold funds for 10 days from the date the OTW was received. Miscellaneous payor sources for OTW may be, but are not limited to the following:

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A Continuous Order To Withhold (COTW) is a legal order seizing funds from a miscellaneous payor and remains in effect for up to a year from the date the COTW was issued. A COTW attaches rents, commissions or scheduled payments from a sale of property or any other type of asset where continuous multiple payments are made. COTW payors do not include funds held by a bank or escrow company. A COTW attaches 100% of the available funds at the time they are received, but does not exceed the amount due on the order. COTW is valid until the amount on the order is withheld in full or the twelve months has expired. The total amount due includes the total tax, penalties, fees and interest to the date of the COTW. Applicable tax years are all tax years with liabilities receiving due process that are due and payable.

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It may be determined that a protest should be returned to originating auditor for further development. Further development implies gathering additional facts about the case. After sufficient facts are gathered, auditor makes his or her analysis and sends the case along with recommendations back to Protest Unit or Technical Resource Section within FTB. If taxpayer agrees with auditor’s recommendations then a Hearing Officer will issue the Notice of Action based on submitted recommendation. If the taxpayer and representative are not in agreement with the auditor’s recommendation, and they still require an oral hearing, the protest will be assigned to a Hearing Officer to conduct the oral hearing and resolve the case.

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Individual California taxpayers without the income, assets or means to pay state tax liability right away or in the foreseeable future can try to use the option of a “California State Tax Offer in Compromise” (OIC). The California State Tax Offer in Compromise program allows taxpayer to offer a lesser amount for payment of a final tax liability, if taxpayer does not dispute it. Generally, FTB approves a California State Tax Offer in Compromise when the amount offered by taxpayer is pretty much the most FTB can expect to collect from taxpayer within a reasonable period of time. FTB look at the following facts:

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Here is a quick summary of some of the procedure surrounding Franchise Tax Board lien release:

An FTB lien can be released without being satisfied under the following situations:

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Assumer Assessments

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