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New Use Tax Filing Rule for Calif. Businesses

By Robin Enos on May 26, 2011 | Last updated on March 21, 2019

When does a service business located in California have to register with the California Board of Equalization, and start filing yearly returns declaring (and paying) California use tax?

Since 2010, if your service business is a "qualified purchaser" under California Revenue and Taxation Code section 6225, your business must register for an account with the Board of Equalization (BOE). And once registered, you will have to file a use tax return every year.

Who is a "qualified purchaser" for purposes of California use tax, under Section 6225? A "qualified purchaser" means a person (or business) that meets all of the following conditions:

  • Receives at least $100,000 in gross receipts from business operations per calendar year. (Note: Gross receipts means total receipts from in-state and out-of-state operations.)
  • Does not hold a seller's permit or certificate of registration for use tax (under section 6226 of the Revenue and Taxation Code).
  • Not a holder of a use tax direct payment permit under Rev & Tax Code sec. 7051.3.
  • Not otherwise registered with BOE to report use tax

So what is this California use tax anyway? A use tax is a tax on tangible goods -- things you can see, feel, touch, drink, eat, drive, listen to or read. And if you buy the goods from a source outside California, you owe the tax, reports the Lake County News.

The only way to escape liability for this use tax on out-of-state purchases? If the seller pays ordinary California sales tax for your location, then you do not have to pay the use tax.

The use tax can be figured easily. Use tax equals the state sale tax for your location. In San Jose, the rate is 9.25% of the purchase price. In Los Angeles, 9.75%. In El Cerrito or El Monte, you pay the highest rate in the state--10.25%.

So if you buy something, anything, from an out-of-state source, and the source does not charge you California sales tax, you have a legal obligation to report the purchase to the Board of Equalization, and pay the tax.

Whether you are a business or an individual.

The only new burden imposed on small businesses by Rev. & Tax Code sec. 6225 is the filing requirement. All "qualified purchasers" must register for a Board of Equalization account. Every year thereafter, registrants must file yearly returns.

What if you bought new wine in old jugs, from outside California? Or an old book in a new cover, from outside California? Or any goods whatever from outside California?

If you did, you would owe California use tax. And that's been the law in California since 1935.

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