The California Department of Tax Administration held its annual Taxpayers’ Bill of Rights hearing August 22 and heard from 30 taxpayers, including several business owners who expressed frustration with the amount of time and money they have to spend on complying with California’s complicated sales tax laws.
The meeting, which lasted approximately 70 minutes, was conducted by Claudette Yang, the CDTFA’s taxpayers’ rights advocate, with other CDTFA officials in attendance. Yang noted at the outset that the agency would not address comments during the meeting, but would provide written responses later.
CalTax Sales Tax Consultant Joan Armenta-Roberts testified that taxpayers want to work with the CDTFA to support legislation that would allow taxpayers to go directly to the state for sales tax refunds, without having to go through a vendor (currently possible for use tax, but not sales tax), as some vendors aren’t cooperative.
Gina Rodriquez, principal for Ryan LLC, agreed with Armenta-Roberts’ suggestion, and said her firm has encountered problems with vendors who don’t want to get involved, mistakenly thinking their participation isn’t needed because the other party can go straight to the state for the refund – the situation that exists in other states, but not in California.
Armenta-Roberts also testified about a taxpayer who received confusing information from staff in a CDTFA field office – later corrected by a CDTFA auditor in Sacramento – leading to confusion over whether the taxpayer needed to register as a seller and whether three years of back taxes were owed. She recommended that the agency improve the training of field office staff to provide accurate advice.
Rodriquez raised an issue relating to the recent elimination of the bad-debt deduction, noting that Sales and Use Tax Regulation 1642(d) needs to be amended to reflect the change in law.
Other testimony from the hearing:
- A business owner stated that notices from the CDTFA relating to water rights applications and invoicing typically don’t arrive until approximately one week after they are mailed, cutting into the very short deadline for responding.
- A small-business owner in El Dorado County said it is too difficult to remit sales and use tax to the state – “It should be easy, like buying a plane ticket,” he commented.
- A mechanic who owns a used car dealership said he recently spent three hours with the CDTFA staff over a $14 discrepancy from 2022. The business owner said wants to “go to work, get under a car and fix it,” not spend hours talking to CDTFA over a few dollars. “Work with me so I can stay in business,” he said. “If I shut down, four other people are going to lose their jobs.” He added that he had another call with the CDTFA scheduled to occur after the hearing.
- A consultant for distilleries said the CDTFA’s form for distilled spirit taxes creates confusion regarding bulk amounts, and the CDTFA requires rounding to the nearest gallon, which makes it difficult to reconcile with federal reporting that is more precise.
- An accountant representing a business that sells items to the state government said the business has cash-flow issues because sales tax is due right away for the shipments of goods to the state, but the state doesn’t pay for a long time – this essentially constitutes an interest-free loan to the state, the accountant argued.
- An owner of a medium-sized business reiterated her complaint from last year’s hearing regarding problems with the CDTFA’s online accounts – specifically, the lack of email correspondence received by taxpayers who select the option to receive email correspondence. The taxpayer said her company had to pay approximately $2,000 in penalties last year because it didn’t receive email notification of an issue, so now she has to spend time frequently checking the agency’s online portal for notifications. “We will fix this,” Yang said, and she apologized that the problem hasn’t been solved yet. Several other taxpayers also testified about problems associated with the online system.
- A cannabis business owner testified that the CDTFA is improperly applying tax to charges for packaging and other goods, and likely will be challenged in court.
- The owner of a small auto wholesale business said he has to file monthly reports with the CDTFA even though he hasn’t had any actual transactions to report in many years. Yang said the CDTFA reached out to this taxpayer and the CDTFA field office in his area to change the reporting frequency.
- A car dealer said he has to spend a significant amount of time to comply with tax laws, and his experience with the CDTFA staff “has been unpleasant” when it comes to getting them to understand the car sales business and tax compliance issues.
- A representative of a Colorado company that remits sales tax to California said the CDTFA’s process for updating jurisdiction codes is too slow, forcing the business to spend a lot of time and effort to figure out which jurisdiction it should report.
Additionally, a handful of taxpayers testified on issues that would require statutory changes – exempting businesses from remitting small amounts of sales tax, adopting a flat rate for small businesses in other states that sell products in California, etc. – or about issues that are not directly controlled by the CDTFA, including frustration with California’s tax burden in general, dissatisfaction with court decisions, tax deadlines that don’t work well with business calendars, and misuse of tax dollars.
Armenta-Roberts recommended that the CDTFA consider reviving a practice used by the State Board of Equalization in which the agency would conduct “educational audits” for new businesses, on a voluntary basis, to help new business owners comply with the law and discover problems quickly, rather than finding out years later that they hadn’t collected and remitted the proper amount of sales tax.
“That’s a great suggestion,” Yang said.
Yang noted that this year’s meeting differed from last year’s in that taxpayers did not have to register in advance to speak.