BOE & EDD updates: use tax, E-Filing, EDD audits and more.

CalCPA Committee on Taxation member David Flamer recently presented a report to the COT of his meeting with the Supervisor of Audit Policy for the State Board of Equalization. Highlights include:

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Audit Areas

* Gas stations: There's been abuse in required tax prepayment schedules and, now that revenue is down, collection issues have arisen.

* Use tax (service industries): There is a goal for 100,000 letters to be sent to service industries with employees (ascertained via Employment Development Department data sharing) informing them to audit fixed assets acquired from out of state without use tax having been paid. The next step will be to audit consumables, such as supplies. The revenue goal is $10 million.

* Use tax (customs matching): Matching is being done between customs documents on imported goods and end users to see if use tax is being paid.

Taxpayers/Representatives Not Providing Support in Electronic Form

In conjunction with the provisions of documentation and support for sample transactions, there has been reluctance for taxpayers to provide documentation in an electronic form. The BOE has found that examinations can be completed more efficiently and accurately when data is provided electronically.

E-Filing Sales Tax Reports

The program was reported as doing well. However, of the 35 practice units represented at the COT meeting, only three of them are filing sales tax reports electronically.

E-mail Reminders

Enhancements have been made so tax preparers can use Form BOE 91A to request and receive e-mail reminders Tax preparers can list on the form all of their affected taxpayers. When the form is filed, the owners of record of the accounts in question will be notified of the preparer's request to e-file future sales tax returns. Once the form is approved, the BOE will e-mail the preparer the links for each of the clients for which they have been granted authorization to e-file sales tax returns each time a return is required to be filed.

Information Sharing

The BOE shares information with the EDD, as noted above, and shares gross receipts data with the FTB.

Other States

There is a "Border States Caucus," which includes Arizona, Texas and Nevada, among others, that occasionally meets to discuss ways to enhance collections and perhaps begin to share data.

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EDD Update

Jim Counts is CalCPA's liaison with the EDD. Here are some excepts from the report he filed with the COT.

The EDD is seeing businesses in trouble and its receivables are up, which isn't a surprise. The EDD will work with businesses in trouble if they contact the EDD upon receipt of a notice. Otherwise, the EDD will use its full collection options.

In the past, the EDD would receive collections from escrows related to real estate refinancings. However, with the decline in property values, the amounts received from such refinancings have taken a nosedive.

The EDD has about 170 auditors to cover 1.1 million employers. That works out to about one auditor per 6,500 employers. The EDD handles nearly 9,000 audits annually. It gets about 20 percent of the audits from the Economic and Employment Enforcement Coalition (a state task force looking for businesses in the underground economy). Industries being targeted by the EEEC are restaurants, auto repair shops, garment industry, pallet industry, agriculture, car washes and construction.

An additional 20 percent to 30 percent of the audits come from what are called "obstructed claims." These claims result from workers that file a claim, but have no wages reported by the paying business; or a business turns in a competitor as not reporting wages.

As many of us know, the above describes how many alleged "independent contractor" arrangements blow up: The person that was alleged to be an independent contractor files an unemployment, State Disability Insurance or workers' comp claim, and there are no records of the proper taxes having been paid.

Thanks to CPAs Jim Counts and David Flamer for their contributions to this column.

by Leonard W. Williams, CPA 

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. A member of CalCPA's Committee on Taxation, the AICPA Tax Division and a former Peninsula Chapter president, you can reach him at [e-mail].