Backtaxes

[ScottLewis]

I bought a product from a company based on the East coast 4 months ago, shipped to CA. Cost me close to $10 grand. Tax free according to them.

The company recently got audited by the CA tax board, and now they are asking that i fork out almost 800 bucks in sales tax.

Am I obligated to pay this company? Seems like it's the company's responsibility, not mine. I doubt the tax board would ever come after me anyway... it would cost them $2K in manpower to chase after a few hundred bucks.

 

[KK]

how would a company on the east coast be audited by california. Does that business have offices in CA?

 

[Orsorum]

Well, typically sales taxes are levied on the end consumer, but the legal incidence is on the retailer - the SBE will not come after you. I am not acquainted with contract law so I do not know their legal remedies, but they are ultimately liable for the taxes.

How did the company state the request? Did it threaten legal action?

 

[ScottLewis]

They did not threaten legal action. They sent a cookie cutter letter (obviously a copy sent to ALL California customers) along with a copy of a BOE (Board of Equalization) form. The form includes several checkboxes, and you check the box that applies to you... either you're keeping the product for resale (no sales tax required) or you're keeping the product for your own use, in which case you are the end buyer and tax must be paid. Basically, the company requested that if I am the end buyer, I should foward money to the company so that they could send it to the BOE.

The letter was not mailed using any delivery confirmation, so I'm just going to ignore it. This is very poor business practice, and my original plans of becoming a repeat customer are now trashed.

KK, the company was audited by California because the company offers a service where they send in a technician to your home/office to install the product. By California law, that constitutes "doing business in California". I did not purchase this service, but the law does not make an exception for this.

Orsorum, thank you for your response. That puts me at ease. I am starting my own business right now and sure as heck do not have hundreds/thousands of dollars to pay for other people's mistakes. If I ever made a billing mistake, I would certainly not make my own customers pay.

 

[Orsorum]

Link

 

[KK]

Originally posted by: Orsorum
Link

I take that as he wasn't aware of said taxes a time of purchase, therefore the company eats it.

 

[Orsorum]

Originally posted by: KK

Originally posted by: Orsorum
Link

I take that as he wasn't aware of said taxes a time of purchase, therefore the company eats it.

I was showing him the link as a potential confirmation of his suspicions.

It seems as though it ultimately depends upon the terms of sale. If there's a clause in their purchase agreement that says, "Purchaser will be held liable for any taxes assessed on purchase" or something like that, he'd have a hard time getting out of it. However, again, I'm not an expert in contract law nor do I have any experience in that area.

If I were in his position, I wouldn't respond to the notice. The vendor is liable for the taxes and it's their fault they didn't collect it from the purchaser as part of the sales transaction.

 

[kranky]

You better be careful.

Everything you buy out of state that wasn't subject to sales tax IS subject to use tax. The BOE already knows you bought the item and didn't pay sales tax. If you ignore the request, how hard is it to imagine they review your tax return to make sure you paid the equivalent use tax on the purchase? And what if it turns out that you bought other items out of state and didn't pay the use tax? How much would you owe then, counting penalties and interest?

I would think this through very carefully.

 

[Orsorum]

Originally posted by: kranky
You better be careful.

Everything you buy out of state that wasn't subject to sales tax IS subject to use tax. The BOE already knows you bought the item and didn't pay sales tax. If you ignore the request, how hard is it to imagine they review your tax return to make sure you paid the equivalent use tax on the purchase? And what if it turns out that you bought other items out of state and didn't pay the use tax? How much would you owe then, counting penalties and interest?

I would think this through very carefully.

I agree that he needs to think it through, and you raise a really good point: he would be liable for use tax IF the transaction were originally not subject to sales tax. And, with a transaction this large, I am sure the BOE will notice it (and ask) if he gets audited. And you are correct, if he gets audited and he has unpaid use tax, it will come back to bite him big time.

And I have to say, Scott, you seem to be playing a lot of games with business deals, judging by your few posts on these boards. If this is coming up this often I would conjecture you're skirting the line on deals often, and that isn't a good thing. If that is the case you will eventually get caught and you will be paying out for it, like Kranky brings up, penalties and interest included for tax-related issues. If this is a regular aspect of your business dealings you should have an attorney and a CPA to consult with in real life, not anonymous people on a computer message board.