Whether your business is located here in San Diego or thousands of miles away, you may be responsible for collecting and paying California sales and use taxes if you do business, store goods, employ salespeople, or sell products to customers in California. This applies to transactions made in person or online, with strict new rules controlling how internet transactions are taxed in California.
If you do business in San Diego or other parts of the state, work with an experienced California sales tax audit attorney who can help you prepare for auditing, minimize the tax penalties you are facing, and explore better tax strategies for your business. Choose the San Diego tax attorneys and CPAs at the Tax Law Office of David W. Klasing, who deliver more than 20 years of award-winning tax experience to every client we work with. Whether we are providing tax audit representation, assisting your small business with accounting and bookkeeping, or appealing an improper tax decision, we are devoted to protecting your best interests.
Does California Have Sales Tax?
As of January 2019, there is no uniform federal sales tax law. However, with only a handful of exceptions, most U.S. states, including California, impose their own sales tax regulations.
In California, these regulations are enforced by an agency known as the California Department of Tax and Fee Administration (CDTFA), which was created in 2017 to take over certain responsibilities once performed by the California Board of Equalization (BOE). For example, the CDTFA is now responsible for collecting sales tax and conducting sales tax audits in California.
For these reasons, California and out-of-state retailers are required to register with the CDTFA if “engaged in business in California,” including online business. In fact, the CDTFA recently gained more power to collect sales tax from internet retailers due to a landmark Supreme Court case that was decided last year (South Dakota v. Wayfair).
While these rules apply throughout San Diego County, it is important to be aware that some cities have slightly different sales tax rates than others. For example, the city of San Diego has a sales tax rate of 7.750%, while other cities in the county, such as Vista, have a higher sales tax rate of 8.250%.
Why Did the CDTFA Choose My Business for a California Sales Tax Audit?
Just as there are many reasons the IRS can initiate an income tax audit, there are likewise numerous triggers that may lead the CDTFA to choose your business for a sales tax audit. Even if you do not think the audit is justified, it is important not to simply ignore the notices you receive, and to pay special attention to any deadlines they provide for responding. Potential reasons your business was selected for a sales tax audit include the following:
- You did not file taxes on time
- You reported a suspicious amount of exempt sales
- Your business conducts most transactions in cash
- Your business is part of an industry where, unfortunately, tax audits simply happen to be commonplace, such as dentist tax audits or veterinary tax audits
- Badges of fraud are apparent in your fact pattern.
Appealing a CDTFA Sales Tax Assessment
Like the results of an IRS tax audit, the results of a CDTFA sales tax audit can be appealed, or disputed, by a taxpayer who believes that the auditor has made some sort of error, producing an incorrect outcome. If you wish to file an appeal, you must submit certain materials to the Office of Tax Appeals (OTA), which can only be done after you have received either a Notice of Action or an Appeals Bureau Decision from the CDTFA. It is important to note that sales tax audit adjustments, often related to the CDTFA conducting a mark up audit, and identifying unreported cash sales can also cause Franchise Tax Board and IRS audits and potentially even criminal tax investigations.
Your submission materials or “opening brief” must contain a thorough explanation of “the facts involved and the specific reasons you disagree with the action taken by the tax agency,” as the OTA explains. Additionally, you must provide copies of your CDTFA notices, along with “documents such as bank statements or receipts that support your case.” In lieu of a written request, you may instead submit OTA Form L‐01 (Request for Appeal). Our San Diego tax appeals attorneys can guide you through every detail of this process.
For in-depth information on this subject, you may wish to browse the CDTFA Appeal Procedures handbook, which goes into exhaustive detail explaining the steps and rules for appealing an auditor’s determination.
San Diego Sales Tax Lawyers and CPAs Serving California and Out-of-State Retailers
California sales and use tax compliance can be challenging, particularly for businesses that are located out-of-state, do business in multiple states, or sell products online. Our San Diego tax audit lawyers bring clarity to a complex issue, making it easier to avoid or mitigate the costly fines and penalties that can result from failure to follow the law. Whether your business needs help preparing for a sales tax audit, calculating sales tax liabilities, or simply reviewing its overall tax strategy, our business accountants and attorneys are here to help.
To schedule a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our San Diego office at (619) 780-2538. Alternately, you can reach our main office by calling (800) 681-1295. Please note that all meetings at our San Diego tax office are by appointment only.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here:
See our Q&A library on Sales Tax Issues and Sales Tax Audits.