2015 COST SALT BASICS SCHOOL January 29, 2015 Atlanta, Georgia. Module 16: Sales/Use Tax Administration and Compliance Issues

Transcription

1 2015 COST SALT BASICS SCHOOL January 29, 2015 Atlanta, Georgia Module 16: Sales/Use Tax Administration and Compliance Issues Diane Yetter, YETTER TM Tony Chirico, Covidien Carolynn Kranz, Industry Sales Tax Solutions 2015 Yetter Consulting Services, Inc COST All rights reserved. Reprinted with permission. Page 1

2 Overview of Module Introduction This module discusses compliance with sales and use tax administration and all aspects of sales and use tax compliance with state and local return requirements. Objectives At the conclusion of this module participants should be able to: Identify and distinguish where a taxpayer is required to be registered, determine what tax needs to be collected on items sold and purchased, apply and document exemptions on both sales and purchases, and understand use tax accrual issues. Apply the knowledge learned through this module to complete a state registration form, understand the breadth of tools available for making taxability determinations, and validate a customer s exemption certificate. Identify and distinguish where and how to file sales and use tax returns. Apply the knowledge gained through this module to your business to help assure that sales and use returns are filed where required and contain the proper data, are amended appropriately when needed, and retained for audit support. Topics This module addresses the following topics: State and local tax issues relating to business registration, collection of sales tax, accrual of use tax, validation of exemptions and documentation in support, and tools and software solutions available. State and local tax issues relating to the preparation of sales and use tax returns. Included are discussions of data and records, return preparation, amended returns, and managing and responding to notices received from state and local jurisdictions. Reading Assignments Module outline. Page 2

3 Module 16 Outline I. Sales Tax Collection A. Where to collect B. Exemptions (products/statutory exemptions) C. Exemptions (customers) D. Situs E. Rates F. Tax credits/tax adjustments II. III. IV. Registration A. Steps to the process B. Preparing the application C. Timing D. Reasons to register Taxability Determinations A. Sales tax determination B. Use tax determination C. Methodology D. Tools Exemption Certificates A. Collection B. Issuance V. Data & Records A. Data Retention B. Data Retrieval C. Data Manipulation VI. VII. Use Tax Accrual A. General information B. Direct pay C. Temporary storage and distribution to other locations D. Exemptions E. Measuring use tax base F. Methods (manual/automated) Return Preparation A. Filing Entity B. Forms C. Sales Data D. Procurement Data E. Negative Returns/Credit Transactions F. Local Reporting G. Prepayments H. Vendor Discounts I. Authorized Signatures J. Due Dates K. Return Delivery L. Payment Methods Page 3

4 VIII. IX. Amended Returns A. Reasons for Amended Returns B. Return Adjustments C. How to prepare/forms Notices A. Reasons received B. Timelines C. Responding D. Tracking and Follow-up X. Audit Defense Overview A. Data Preparation B. Workpaper Review C. Top Tips for Audit Defense D. Panel Discussion XI. Transaction Tax Automation A. Reasons for use B. System types C. Rate automation D. Sales tax calculation E. Exemption certificate packages F. Procurement tax calculation G. Vendors and functionality H. Compliance Software Options I. Managed Tax Services Page 4

5 I. Sales Tax Collection A. Collection Requirements 1. Sales tax is required to be collected in jurisdictions where the seller maintains nexus. The determination of nexus is based on the activities that the business, or its representatives, performs in various jurisdictions. a) The only exception to this requirement is where a seller has voluntarily registered to collect sales tax. This may occur if a seller has registered under the Streamlined Sales Tax Project s ( SST ) central registration system, or because a seller has voluntarily chosen to register based on customer requests. Once a seller is registered it is obligated to collect sales tax on all sales, even if it has no nexus. 2. What does nexus mean for your business? a. Where do you maintain a permanent place of business warehouse, sales office, manufacturing plant, leased property at customer locations? b. Where have you operated a temporary place of business trade show booths, sales meetings, training sites, movable equipment at work sites? c. Where do you have individuals permanently operating on your behalf employee salespeople, manufacturer representatives, service people, agents, and related company activities? d. Where do you have individuals temporarily operating on your behalf traveling salespeople, traveling manufacturer representatives, owned delivery vehicles, agents? 3. Determine the level of activity and visibility of the previously discussed activities. a. How often, how frequent, and what is the duration of the visits? b. How visible are the activities for trade shows, are the shows open to the public? Are advertisements included in local newspapers, telephone directories, and industry directories listing in-state telephone numbers and contacts? c. Who are the customers? Are any of your customers state and local agencies? d. Evaluate the economic impact. B. Exemptions - Product / Statutory 1. As discussed in Module 13, statutory or product-based exemptions are those exemptions which are either exclusions from the tax base through definitions, such as services or exemptions that are not dependent on usage or customer, or exemptions such as freight, clothing, food, and drugs. Page 5

6 2. Statutory exemptions do not require exemption documentation to claim the exemption. Rather, the item being sold must simply qualify under the statutory provisions in that particular jurisdiction. 3. Interstate Commerce Exemption a. The sales tax is imposed on sales where transfer of title or possession occurs within the taxing jurisdiction. b. Therefore, if a sale occurs in interstate commerce, the original state where the sale occurs cannot tax the transaction. c. However, the destination state will likely subject the transaction to its use tax. If the vendor is registered to collect the destination state s tax, the use tax should be collected and remitted to that state. If the vendor is not registered, the purchaser has the liability to remit the consumer s use tax. d. In order to document that a sale occurred in interstate commerce, the invoice should indicate that transfer of title or possession occurred in another jurisdiction. This can be shown through freight terms, delivery charges, or other documentation. C. Exempt Purchasers (Customers) D. Situs 1. Different purchasers may be granted exemptions under state statutes. These exemptions are granted by the legislature or are based on federal prohibitions. 2. These types of exemptions typically require exemption documentation to qualify for the exemption. Sellers must obtain, preferably prior to sale, and retain these documents to support the exemption claimed on the tax return should the tax return be audited. 3. As mentioned in Module 13, typical types of exemptions based on the customer and how they use the item purchased include: a. Federal Government b. State and Local Governments c. Exempt Organizations d. Reseller/Wholesale Transactions e. Manufacturing 1. Different types of sales can have different situs rules. In a given state, sales of property may have an origin situs while sales of service may have a destination situs. 2. These situs rules generally only apply to transactions subject to sales tax, rather than seller s use tax. Transactions subject to seller s use tax are generally always sourced to the destination since the transaction is in interstate commerce. Page 6

7 3. Historically, under the Streamlined Sales Tax Agreement (the Agreement ), all states must follow destination-sourcing rules for determining the appropriate jurisdiction and rate for sales tax. However, in December, 2007, the Agreement was amended such that states may use an origin-sourcing rule for purposes of sourcing the local sales tax on intrastate sales of tangible personal property and digital goods if they follow the guidelines provided for under the Agreement.. 4. While the below discussion provides the general rules for situsing of tangible personal property and services, some states permit and / or require certain types of transactions to be sitused on a multi-state basis, that is the transaction may be sourced to more than one state, with each state taxing a portion of the transaction. Multi-state sourcing is most common in sales / purchases of direct mail, software, digital goods, and services. 5. Situs Rules for Tangible Personal Property a. Several states, including Illinois and Missouri, source sales to the origin of the sale. Therefore, sales tax is assessed based on the rate in place in the locality of origin. The origin of the sale may be defined as the seller s place of business, the place from where the product was shipped, or the order-acceptance point. b. Illinois recently amended its sourcing rules effective August 26, 2014 to look at a variety of selling activities. Illinois looks at 5 primary selling activities when determining where to source sales. If the retailer conducts at least 3 of these activities in the same location, then that location will be the location where the transaction will be sourced. If this test is not met, then 6 additional activities are considered. There are also some industry specific sourcing rules.(86 Ill. Adm. Code , 86 Ill Adm. Code , 86 Ill. Adm. Code , 86 Ill. Adm. Code , 86 Ill Adm. Code , 86 Ill. Adm. Code , 86 Ill. Adm. Code , Ill Adm. Code , 86 Ill. Adm. Code , and 86 Ill. Adm. Code , Illinois Department of Revenue) c. Several states, including Louisiana, New York, Minnesota, and Colorado, source sales to the destination of the sale. Destination may be defined as the final destination, or where according to the contract the title changes hands. d. Some states, such as California, source state and local taxes using one sourcing rule, while district taxes are sourced under another sourcing rule. In California, local taxes are sourced at the origin of the sale, while district taxes are sourced by destination. In Texas, county and city taxes used to be sourced based on origin and transit taxes were sourced based on destination. However, effective September 1, 2007, transit and local taxes are now generally sourced at the origin location of the seller. Texas continues to be active in SST discussions and continues to comment that they are going to work to conform the state s laws to those under the Agreement, now that an alternative to destination-based sourcing had been adopted. 6. Types of Situs for Services a. The Benefit Received rule applies in states that tax the service if the benefit of the service is received within the state of the customer, rather Page 7

8 than where the service was performed. States that use this rule impose use tax on the service customer if the service provider is not registered to collect tax. Some states that follow this rule include Connecticut and Texas. b. The Service Provided rule applies in states that tax a service where it is provided, even if the effect of the service is delivered outside the state. States that follow this rule take the position that the service is conducted in their state and the first use of any property used in providing the service occurred in their state and, therefore, the service should be taxed. Currently, Louisiana follows this rule. E. Rates 1. General Information a. Only 14 states either do not impose a local tax, state administered or locally administered, or they have very few localities that impose a tax. b. For local jurisdictions that are administered by the state, the localities generally follow the state laws and rules. If an item is subject to tax at the state level, it is usually also taxable at the local level. c. There are a few exceptions to the rule above. Some items may have a reduced rate at the state level and an exemption at the local level. For example, Illinois taxes food and medicine at a reduced state rate and many locals exempt these items in total. The other main exception relates to incentives. A locality may provide an exemption or reduced rate on certain property, as an incentive to business. d. Home-rule jurisdictions are localities that administer their taxes separately from the state. Home-rule jurisdictions require separate registration if nexus is established in the locality. e. States with a combination of home-rule and state administered jurisdictions are Alabama, Arizona, Colorado, Idaho, and Illinois. States with only home-rule jurisdictions are Alaska and Louisiana. For the combination states, a taxpayer must pay the state administered local taxes to the state and the home-rule local taxes to the locality. f. Home-rule jurisdictions are not required to follow state statutes in all cases. They may tax items that are exempt under state statutes, or provide exemptions that the state does not. It is important to obtain the local statutes to determine the appropriate taxability of the items sold and purchased. 2. Sales vs. Seller s Use Tax a. Sales tax only applies on intrastate sales, where the seller and purchaser are located in the same jurisdiction. This is generally where title or possession transfers. b. Seller s use tax applies on interstate sales when the seller and purchaser are located in different states. Page 8

9 c. Some states impose local use taxes. The determination of the correct local use tax rate to apply is based on the destination or ship-to address. d. Of the states that impose a local sales tax, seven states do not impose local use tax and seven impose a local use tax for some, but not all of their jurisdictions 3. Rate Changes a. Businesses operating in numerous states must track sales and use tax rates for changes on both state and local levels. b. For sales tax, it is critical to charge the correct tax rate on a timely basis. Significant exposure can exist if tax rate changes are not implemented on the correct date. c. Rate changes occur frequently, particularly at the local level. At an extreme, sales tax rates can change on a monthly basis. Generally, taxpayers are notified of a rate change by the appropriate jurisdiction in time to make the changes. Appropriate procedures need to be maintained to ensure rate updates occur on a timely basis. This can be critical for businesses with retail locations that have registers that must be manually reprogrammed. d. The time needed to incorporate rate changes into billing and rate calculation systems should be known. Business processes should incorporate this time needed to ensure timely compliance. e. Businesses that publish catalogs and order forms must be able to incorporate rate changes into their promotional materials in a timely fashion. f. Since rates do change, an automated rate function should be able to retain prior rates in order to correctly tax refunds and credits. F. Tax credits/tax adjustments 1. Tax only credits and debits occur when tax was charged in error or omitted in error. Both transactions are usually processed by the Credit Department. These transactions have a tax return impact and must be reported to the Tax Department. In some businesses, the tax refunded to customers who provide exemption certificates after invoicing is never reported. Therefore, the business has refunded the tax to the customer but has never received the refund from the taxing jurisdiction. Businesses should insure that they have a proper tracking mechanism so they are able to recover taxes that are not due. 2. Tax credits and tax adjustments could occur either due to the late submission of exemption documentation by a customer, missed rate updates on the tax calculation system, or errors in calculating the tax. 3. The appropriate tax credit and adjustment must be refunded to the customer based on the taxability of the item and the rate at the location of the transaction at the time of the sale. Page 9

10 4. Depending on the type of tax adjustment, the amount may be adjusted on a current period return, or an amended return for the period when the original transaction occurred may be required. 5. Bad debts are often not reported on the sales tax return. In order to claim a bad debt deduction, it must be determined whether the deduction represents a taxable sale. Once this is determined, the appropriate state must be identified. Most states accept a formula that includes a taxability factor and destination factor. The treatment of bad debts for sales tax purposes varies on a state by state basis; however SST has a uniform rule surrounding the deductibility of bad debts and how they are reported for sales tax purposes. 6. It is important to confirm that all tax credits and adjustments, including bad debt, are timely included in the tax returns to minimize the cash flow impact to the seller. 7. Because many credit and refund procedures are not processed through the standard billing process, these functions should be reviewed regularly with the appropriate departments to insure that all items that have a sales tax impact are reported to the Tax Department for inclusion in the tax return. II. Registration A. Steps to the Process 1. The first step necessary in handling compliance is nexus determination. That is, determining where the taxpayer is required to be registered. This includes not only state level determination, but also a local level determination for home rule jurisdictions. 2. Establishment of nexus requires collection of sales or use tax by retailers on sales of taxable property and services within a jurisdiction. It also requires payment of consumer s use tax on the use of taxable property and services if the sales tax was not collected. 3. An additional factor that needs to be evaluated is who the taxpayer is. Businesses that operate with a complex corporate structure, including purchasing companies, e-commerce units, subsidiaries, joint ventures, and corporate service center companies all add complexity to this determination. 4. An evaluation of the various activities conducted individually by the corporate entity is required, as well as the activities conducted by others on behalf of the taxpayer. 5. Corporate structure changes including acquisition, mergers, divestitures, and change in corporate entity types impact the registrations held by the company. These changes require either updating of registrations or deregistration and reregistration. This can be a very time-intensive project. 6. Jurisdictions have different classifications of registration based on the business activities. How a business completes its registration can impact the remainder of the compliance function. This includes the correct tax type (sales, seller s use, consumer s use, and miscellaneous taxes). Care should be taken to insure that the proper forms and registrations are completed. Seek advice from the state tax authorities if there is any uncertainty. Page 10

11 B. Preparing the Application C. Timing 1. After a nexus study has been conducted to determine where a taxpayer has a presence, registration must occur. 2. In addition to determining where to register, a taxpayer must determine how to register. The taxpayer needs to determine which taxes it will be required to collect or pay. Some states differentiate between sales tax, seller s use tax and consumer s use tax on both their registration application and return. How the taxpayer registers can impact the return they are required to file and the rate they are required to collect. 3. Many application forms request an average annual liability. This information is used to determine filing frequency. Some states permit less frequent filing if the liability is small. Large liabilities may require more frequent filing or prepayments. 4. Read forms carefully when answering the average annual questions. On some forms it asks for tax liability, others ask for sales. If the form asks for sales, you need to determine whether it is asking for taxable sales or gross sales and whether it is asking for in-state sales only. 5. Most applications also request the date that business began in the jurisdiction. This is used to determine if returns are due for prior periods. If a prior period is listed, expect to receive a request to file these returns with interest and penalty notices. 6. If a registration form is being filed for a business that has had nexus for some period of time, careful attention must be given to answering the date question. Most forms are signed under penalty of perjury, so an inaccurate date could cause problems. 7. Registration application forms can be obtained from the Department of Revenue of the jurisdiction. Additionally, most states now have forms available online. An easy way to get to all the states is through the COST web page at or the Federation of Tax Administrators home page at 8. If a company wishes to register under the SSTP system, a simplified registration process is available on the SSTP Registration site at However, if a company is going to register using the SSTP central registration system, the company will be obligated to register in ALL Full Member states in existence at the time of registration and any that add in the future. 1. If it is determined that the taxpayer is not registered in all the jurisdictions where it is conducting business, an evaluation of the action steps must be conducted. a. If the nexus was created recently, or there is minimal liability, immediate registration may be the appropriate action. b. If the nexus was established in the past, an evaluation of options should occur. At a minimum, all exemption certificates should be obtained in Page 11

12 order to minimize the potential liability. If there is significant liability, voluntary disclosure may be the appropriate action. 2. Communication with parties to the transactions subject to prior filings should occur, including vendors and customers. If they have paid the tax under audit or through use tax compliance, the tax is not due by the seller, though documentation regarding the payment may be required. Additionally, the transaction may be exempt from tax. 3. Many jurisdictions offer a voluntary disclosure program. Although some jurisdictions have very formal voluntary disclosure procedures, others are flexible and allow you to negotiate the types of settlement terms you require including simplified filing of a spreadsheet in lieu of monthly returns, acceptance of current exemption certificates for prior period transactions, and waiver of penalties and interest. 4. This agreement usually limits the number of years that jurisdiction will go back (usually their normal statute of limitation for registered businesses). In addition, penalty and interest concessions may be included. 5. Be aware that voluntary disclosure applications must be filed prior to being contacted by the jurisdiction and before registration. 6. The Multistate Tax Commission also provides a National Nexus program where a business can enter into a number of voluntary disclosures for various states. There are 37 states (including the District of Columbia) that participate in this program. 7. Under the Streamlined Sales Tax program, there is an amnesty option, limited to new members states and all associate member states, which requires no payment for prior period liabilities unless there was tax collected. This amnesty does not apply to use taxes due on purchases. Furthermore, this option requires registration with all SSTP full member states. 8. If the taxpayer is registered and discovers it does not have nexus, an evaluation also needs to be conducted. D. Reasons to Register a. If a taxpayer is not required to be registered, it can contact the jurisdiction and cancel registration. However, tax authorities do not like to lose taxpayers so a request will be scrutinized closely. It should be clear that nexus does not exist before taking this step. b. Registration can continue as a voluntary filer. If this option is chosen, the state should be contacted to notify it of the taxpayer s lack of presence in its jurisdiction. In some cases, the tax rate that is collected or the return filed is different for a voluntary filer. In some jurisdiction, there are fewer administrative requirements on a voluntary filer. In Illinois, a voluntary filer is not subject to weekly payments even if they have large tax remittances. One advantage of continuing to file is that the statute of limitations will continue to run, limiting any unknown potential exposure. 1. In most jurisdictions, there is no statute of limitations if the taxpayer has not filed the required returns. This means the taxing authority can assess its tax Page 12

13 back to the date that nexus was established. Some states have a limit on this. For example, Illinois can only go back six years. Michigan typically assesses ten years of liability. 2. States occasionally offer amnesty programs to encourage businesses to register. If a business can take advantage of registering under an amnesty program, it should do so. Most jurisdictions impose harsher penalties after an amnesty program for businesses that are discovered. Tennessee is currently holding a program under the SSTP Amnesty. New Hampshire has announced they will have an amnesty program in 2015 but details have not yet been released. Programs have recently closed in Louisiana, Massachusetts, New Jersey and Ohio. Louisiana will be holding another program in COST and other organizations maintain a listing of current tax amnesty programs. 3. It is illegal to collect sales tax before registration. Since sales and use taxes are considered trust taxes, criminal penalties could apply. Most states will permit you to begin collecting once an application for registration has been filed. But, all taxes collected must be remitted as soon as registration is accomplished. Interest may be imposed if the time period exceeds the current filing period. Page 13

14 ACTIVITY: SALES TAX REGISTRATION Page 14

15 Mega Retail Service Company Module 16 Sales/Use Tax Administration Registration Case Study Student Guide Mega Retail Service Company ( MRSC ) is a mid-size computer hardware and technology consulting group (Consolidated FY2008 Revenues of $200 million). MRSC got its start in the mid 1980s providing computer consulting services to the United States Military. To support these consulting services, MRSC also began to manufacture custom computer hardware to satisfy unique military requirements. In the mid 1990s, MRSC secured U.S. government approval to sell its technology and hardware in the commercial marketplace which is currently the fastest growing segment of its product line. MRSC s legal entity structure consists of the following divisions: Mega-Retail Division ( Mega-Retail ) Distributes and sells computer hardware to end-use customers Warehouse and distribution site for computer hardware finished goods inventory is located in Dallas, TX Additional warehouse and distribution site is located in Wichita, KS CA-based retail site makes regular shipments into and out of California Mega-Service Division ( Mega-Service ) Provides retail computer consulting services Division through which computer consulting services are provided to retail customers Small office containing three consultants is located in Wichita, KS Provides support services (installation and implementation) for hardware sold by Mega-Retail CA-based employees periodically visit retail customers at customer locations to assist with technical issues Additional Information on MRSC Headquarters: 123 W. Main Street, Weston, FL (Broward County) Telephone number: / Fax: Website: EIN: Accounting Method: Accrual Calendar year company MRSC is within the city of Weston Warehouse Address: 6109 Alvorado, Dallas, TX (Dallas County)(phone #: ) Secondary warehouse address: 1551 S. Division Street, Wichita, KS (Sedgwick Co)(phone#: ) Consulting office address: 801 S. Division Street, Suite 220, Wichita, KS (Sedgwick Cnty)(phone #: ) California retail address: Sepulveda Boulevard, Pleasanton, CA (Alameda County) (phone # , fax # ) service@mrsc.com Mega-Service California employees are based out of offices in their homes Average monthly revenue: Florida = $5M, California = $900,000 Officers: CEO- Kate Morehead, 90 Maple Street, Weston FL (Broward County) KMorehead@mrsc.com CFO- John Duckworth, 12 Oak Street, Weston FL (Broward County) JDuckworth@mrsc.com Doug Lindholm is not an officer. Doug is the Tax Director and is the contact person Phone: DLindholm@mrsc.com MRSC ships products using common carrier Bank Info- Willow Community Bank, 215 W. Main Street, Weston, FL Bank Account Number: Estimated monthly sales tax liability: Florida = $140,000, California = $70,000 NAICS Code- FL: RETSEV9 NAICS Code - TX: Fiscal Year End: Calendar Year Taxpayer, December 31 Module 16 Sales Tax Administration & Compliance Registration Activity Student Guide Page 1

16 Mega Retail Service Company Module 16 Sales/Use Tax Administration Registration Case Study Student Guide Drop Shipments: MRSC does not participate in any drop shipment transactions. Internet sales: The Company does sell to customers over the Internet. Credit cards: The Company does not accept payment via credit card. Trade shows: MRSC does not participate in any trade shows or any other similar activities. Principal customers: United States Department of Defense, Big Oyl Corporation, Electrick Car Mfg., Sole-R Panels Ltd. Principal suppliers: Cloud Computing Corp., ABC Cable Company, Catch Phrase Consulting Company, Hubris Components, Inc. (addresses available at our location upon request), Dell Computers (425 Elm Street, Round Rock, TX 78680) Advertising: Newspapers, magazines, cable TV, radio, telephone directories California business banking information: Citibank, Pleasanton CA branch Credit card processor: Citibank merchant account # Attachments Florida: registration Form DR-1 and instructions California: Seller s Permit Application Form BOE-400-SPA and instructions and Form BOE-403-B (Registration Information for Out-of-State Account) Module 16 Sales Tax Administration & Compliance Registration Activity Student Guide Page 2

17 BOE-403-B FRONT REV. 3 (11-92) REGISTRATION INFORMATION FOR OUT-OF-STATE ACCOUNT STATE OF CALIFORNIA BOARD OF EQUALIZATION ACCOUNT NO. DATE 1. OWNER 2. STATE OF INCORPORATION, IF APPLICABLE FEIN NO: 3. PARENT CORPORATION, IF ANY STATE OF INCORPORATION 4. Names and addresses of related companies doing business in California: 5. Out-of-State Location of Records CHECK 1 BOX ONLY: Out-of-State Records maintained at our facility. Out-of-State Records maintained at independent accountant s office, not at our own facility. Accountant s Name Telephone No. ( ) Accountant s Address 6. ANNUAL SALES IN CALIFORNIA Gross Sales Taxable Sales FUNCTION TELEPHONE INVENTORY SALES NEGOTIATED 7. CALIFORNIA LOCATIONS (Address) (Warehouse, Service, etc.) NUMBER FROM LOCATION (A) Yes No Yes No (B) Yes No Yes No (C) Yes No Yes No 8. INDEPENDENT SALES REPRESENTATIVES IN CALIFORNIA: Name and Address (Complete List) TELEPHONE NUMBER (A) ( ) (B) ( ) (C) ( ) 9. LIST OF PRINCIPAL CALIFORNIA CUSTOMERS (Names & Complete Addresses; Attach Additional Sheets if Necessary): (A) (B) (C) (D) 10. PRINCIPAL SUPPLIERS (Names & Addresses) (See Reverse)

18 BOE-403-B BACK REV. 3 (11-92) 11. Corporations: Please attach your latest financial statements. 12. Real Estate Owned: (Anywhere in the United States) ADDRESS CURRENT VALUE BALANCE DUE PAYMENTS MADE TO 13. Are you a lessor or lessee of equipment situated or used in California? Yes, as a lessor Yes, as a lessee No 14. Do you lease or license computer software located in California? Yes No 15. Do you perform construction contracts in California? Yes No Type of contracts: Lump Sum Time and Material Cost plus a fee Are all materials purchased California tax paid? Yes No 16. Do you sell and install machinery, fixtures or equipment? Yes No 17. Do you make sales to ultimate consumers in California? Yes No 18. Do salespersons, solicitors, independent contractors, or manufacturers agents based in, or traveling into California, solicit orders or provide assistance to customers on behalf of your company? Yes No. If your answer is yes, please list these persons on line 20 indicating their name, address and date started. 19. Please check the different advertising media you use to reach California customers. Local/regional newspapers National newspapers and magazines Cable television Radio/non-cable TV Telemarketing Television shopping systems Trade shows/fairs Direct mail Yellow pages Catalogs placed in outlets If none of the above, please indicate how you solicit California sales: 20. Additional remarks: Prepared by: Title : ( ) Telephone number

19 BOE-400-SPA Rev. 4 (3-10) California Seller s Permit Application for Individuals/Partnerships/Corporations/Organizations (Regular or Temporary) State Board of Equalization Board Members Betty T. Yee First District San Francisco Michelle Steel Third District Rolling Hills Estates Jerome E. Horton Fourth District Los Angeles John Chiang State Controller Barbara Alby Acting Member Second District Sacramento Interim Executive Director Kristine Cazadd

20 2 Frequently Asked Questions Who must have a permit? You are generally required to obtain a California seller s permit if you sell or lease merchandise, vehicles, or other tangible personal property in California. A seller s permit allows you to sell items at the wholesale or retail level. If your sales are ongoing, you should apply for a Regular permit. If your sales are of a temporary nature (90 days or less), apply for a Temporary permit. You cannot legally sell taxable items in California until you have been issued a seller s permit. Do I need more than one permit? Each location where sales of taxable items are made requires, and must display, a seller s permit. If you have more than one selling location, attach a list that includes the address for each location, and we will issue the permits needed. If your application is for a temporary permit, one permit will be enough, but you need to display a copy of that permit at each temporary location. Is there a charge for a permit? No. However, we may require a security deposit. Deposits are used to cover any unpaid taxes that may be owed at the time a business closes. Is information about my account subject to public disclosure? State laws that protect your privacy generally cover your records. Some records are subject to public disclosure, such as the information on your seller s permit, names of owners or partners, your business address, and your permit status. See the disclosure information on the back page. Why do you need a copy of my driver license? When it is required, it is used to ensure the accuracy of the information provided and to protect against fraudulent use of your identification. Why am I being asked if I sell tires, covered electronic devices, or tobacco products at retail? Effective January 1, 2001, California retailers of new tires began collecting a tire fee (currently $1.75) for each new tire sold to consumers. Beginning January 1, 2005, retailers must collect a recycling fee on the retail sale or lease of certain new or refurbished video display devices that have a screen size of more than four inches measured diagonally. Video display devices subject to the fee are called covered electronic devices (CEDs). They include televisions, computer monitors, or any other product that contains a cathode ray tube, including bare cathode ray tubes, computer monitors, and laptop computers that use a liquid crystal display. For more information on the Electronic Recycling Fee Program or CEDs, visit: sptaxprog/ewaste.htm. Effective June 30, 2004, if you sell cigarettes and/or tobacco products, you must obtain a license (separate from a seller s permit) for each location you intend to sell these products. Depending on your response to each question and the type of business, the BOE will send you information about these license and fee programs. What are my rights and responsibilities as a seller? When you obtain a seller s permit, you acquire certain rights and responsibilities. You may buy property for resale without paying tax to your supplier. By providing the vendor a completed resale certificate, you are not required to pay sales tax on property you are buying for resale. You cannot use a resale certificate to buy property for your own use (even if you plan to sell it after its use). You must keep records to substantiate your sales, purchases, and return deductions and keep them for four years. You must file returns according to the BOE s instructions for the filing basis that we determine from your application. You must file a return even if you have no tax to report. You must pay the sales tax due on your retail sales in California. You may be reimbursed by collecting the amount of tax from your customers. You must notify the BOE of any business changes. A permit is issued only to the owner and address listed on the permit. If you change ownership, address, add another location, sell or close your business, add or drop a partner, you must notify the BOE by calling or in writing. Your notification will help us close your account and return any security on deposit. If you do not, you could be held liable for continuing business taxes. Note: Notify us immediately if you drop or add a partner in order to protect former partners from tax liabilities incurred by the business after the partnership changes. Seller s Permit Application Individuals/Partnerships/Corporations/Organizations (Regular or Temporary) (3-10)

21 3 City TAXPAYER INFORMATION SECTION TDD/TTY FIELD OFFICES call for addresses Area Number Code Bakersfield Culver City El Centro Fresno Irvine Norwalk Oakland Rancho Mirage Redding Riverside Sacramento Salinas San Diego San Francisco San Jose San Marcos Santa Rosa Suisun City Van Nuys Ventura West Covina Business Located Out-of-State Step 1: Complete Your Application How Do I Apply for My Seller s Permit? Complete the application on page 5. If your business is an ongoing operation, check permit type Regular. If your business will operate at the location(s) for 90 days or less, check Temporary. Please provide all the information requested on the application. If you do not, this will delay the issuance of your permit. Refer to the Tips on page 4. If you need assistance, please call your local BOE office or the Taxpayer Information Section at Note: If your business is located outside California, you also need to complete form BOE-403-B, Registration Information for Out-of-State Account. Visit our website at call the Out-of-State Office at , or the Taxpayer Information Section at , to request a copy by mail or by fax (select the automated fax-back option). For information regarding whether or not your out-of-state corporation qualifies to transact business in the State of California, you may visit the Secretary of State s website at For information regarding the minimum franchise tax for corporations, please visit the California Taxes Information Center s website at Step 2: Send Your Application for Processing Send or take your application to the district office nearest your place of business. If you plan to apply in person, contact the local office to find out when they are open. Note: A permit is required before you begin making sales. Advise the BOE if you have an urgent need for a permit. Step 3: After Your Application Is Approved If your application is complete, you should receive your permit in about two weeks. Based on the information in your application, the BOE will provide you with regulations, forms, and other publications that may help you with your business. Or, you may choose to view and download information from our website at You will also be informed as to when to file tax returns: monthly, quarterly, fiscal or calendar yearly. Electronic filing is the BOE s method for filing your sales and use tax return and making payment. Visit our website for details. Post your permit at your place of business in a location easily seen by your customers. Seller s Permit Application Individuals/Partnerships/Corporations/Organizations (Regular or Temporary) (3-10)

22 4 Tips for Filling Out Your Application Item 1: Permit Type Check whether you are applying for a regular or temporary permit. You may apply for a temporary permit if you intend to make sales for a period of 90 days or less. Otherwise, you must apply for a regular permit. Items 2 8: Business Identification Information Check your type of ownership and provide all of the information requested. Partnerships should provide a copy of their written partnership agreement, if one exists. If it is filed with us at the time you apply for a permit and it specifies that all business assets are held in the name of the partnership, we will attempt to collect any delinquent tax liability from the partnership s assets before we attempt to collect from the partners personal assets. The Registered Domestic Partnership ownership box should only be checked if both persons are registered as domestic partners with the Office of the Secretary of State. Items 9 35: Ownership Information Indicate whether those listed are owners, partners, etc., and enter their driver license or California Identification Card number and, except in the case of corporate officers, their social security number. Also, provide a reference for each person, who does not live with that person. This information will be kept in strict confidence. If mailing your application, you must provide a photocopy of your driver license or California Identification Card. Items 36 49, 66: Type of Business, Selling Locations, and Landlord Information Check whether the business is a retailer, wholesaler, etc., and whether the business is full time or part time. Describe the types of items you will sell. Avoid using broad descriptions, such as general merchandise. Instead, list specific examples such as sports equipment or garden supplies. Indicate the number of selling locations, the address, telephone number, address, and website of the business, as well as the landlord s name, address, and telephone number. If there are multiple selling locations, additional addresses can be listed on the reverse side (Item 66). Correspondence will be sent to the business address unless a different mailing address is specified (Item 42). Items 50 51: Projected Monthly Sales Indicate your projected monthly gross and taxable sales. If unsure, provide an estimate. Your projection helps to determine how often you will need to file a return. If your actual sales vary, we may adjust your filing frequency. Items 52 55: Related Program Information Provide your Alcoholic Beverage Control license number, if applicable. Indicate if you will be selling new tires, covered electronic devices, or tobacco products. We will contact you to determine if you need to register for any of these other programs. Items 56 65: Related Party Information Identify the person maintaining your records, your bank, and if you accept credit cards, your merchant card account. Also, identify major California-based suppliers and the products that you purchase from them. Items 67 74: Ownership and Organizational Changes If you are purchasing a business, or changing from one type of business organization to another, provide the previous owner s name and seller s permit number. If you are purchasing a business, you should request a tax clearance in advance to assure that you won t have to pay any taxes owed by the previous owner. Items 75 82: Temporary Permit Event Information Applicants for a temporary permit must complete each item in this section. Certification Each owner, co-owner, partner, or corporate officer must sign the application. Seller s Permit Application Individuals/Partnerships/Corporations/Organizations (Regular or Temporary) (3-10)

23 BOE-400-SPA REV. 4 (FRONT) (3-10) APPLICATION FOR SELLER S PERMIT STATE OF CALIFORNIA BOARD OF EQUALIZATION 1. PERMIT TYPE: (check one) Regular Temporary FOR BOE USE ONLY 2. TYPE OF OWNERSHIP (check one) * Must provide partnership agreement TAX IND OFFICE PERMIT NUMBER S NAICS CODE BUS CODE A.C.C. REPORTING BASIS TAX AREA CODE Sole Owner Married Co-ownership Corporation Limited Liability Company (LLC) General Partnership Unincorporated Business Trust Limited Liability Partnership (LLP)* Limited Partnership (LP)* (Registered to practice law, accounting or architecture) PROCESSED BY PERMIT ISSUE DATE Registered Domestic Partnership Other (describe) / / 3. NAME OF SOLE OWNER, CORPORATION, LLC, PARTNERSHIP, OR TRUST 4. STATE OF INCORPORATION OR ORGANIZATION RETURN TYPE (1) 401-A (2) 401-EZ VERIFICATION DL PA Other 5. BUSINESS TRADE NAME/ DOING BUSINESS AS [DBA] (if any) 6. DATE YOU WILL BEGIN BUSINESS ACTIVITIES (month, day, and year) 7. CORPORATE, LLC, LLP OR LP NUMBER FROM CALIFORNIA SECRETARY OF STATE 8. FEDERAL EMPLOYER IDENTIFICATION NUMBER (FEIN) CHECK ONE Owner/Co-Owners Partners Registered Domestic Partners Corp. Officers LLC Officers/Managers/ Members Use additional sheets to include information for more than three individuals. 9. FULL NAME (first, middle, last) 10. TITLE Trustees/ Beneficiaries 11. SOCIAL SECURITY NUMBER (corporate officers excluded) 12. DRIVER LICENSE NUMBER (attach copy) tear at perforation 13. HOME ADDRESS (street, city, state, zip code) 14. HOME TELEPHONE NUMBER ( ) 15. NAME OF A PERSONAL REFERENCE NOT LIVING WITH YOU 16. ADDRESS (street, city, state, zip code) 17. REFERENCE TELEPHONE NUMBER ( ) 18. FULL NAME OF ADDITIONAL PARTNER, OFFICER, OR MEMBER (first, middle, last) 19. TITLE 20. SOCIAL SECURITY NUMBER (corporate officers excluded) 21. DRIVER LICENSE NUMBER (attach copy) 22. HOME ADDRESS (street, city, state, zip code) 23. HOME TELEPHONE NUMBER ( ) 24. NAME OF A PERSONAL REFERENCE NOT LIVING WITH YOU 25. ADDRESS (street, city, state, zip code) 26. REFERENCE TELEPHONE NUMBER ( ) 27. FULL NAME OF ADDITIONAL PARTNER, OFFICER, OR MEMBER (first, middle, last) 28. TITLE 29. SOCIAL SECURITY NUMBER (corporate officers excluded) 30. DRIVER LICENSE NUMBER (attach copy) 31. HOME ADDRESS (street, city, state, zip code) 32. HOME TELEPHONE NUMBER ( ) 33. NAME OF A PERSONAL REFERENCE NOT LIVING WITH YOU 34. ADDRESS (street, city, state, zip code) 35. REFERENCE TELEPHONE NUMBER ( ) 36. TYPE OF BUSINESS (check one that best describes your business) 37. NUMBER OF SELLING LOCATIONS (if 2 or more, see Item No. 66) Retail Wholesale Mfg. Repair Service Construction Contractor Leasing 38. WHAT ITEMS WILL YOU SELL? 39. CHECK ONE Full Time Part Time 40. BUSINESS ADDRESS (street, city, state, zip code) [do not list P.O. Box or mailing service] 41. BUSINESS TELEPHONE NUMBER ( ) 42. MAILING ADDRESS (street, city, state, zip code) [if different from business address] 43. BUSINESS FAX NUMBER ( ) 44. BUSINESS ADDRESS 45. BUSINESS WEBSITE ADDRESS www. 46. DO YOU MAKE INTERNET SALES? 47. NAME OF BUSINESS LANDLORD 48. LANDLORD ADDRESS (street, city, state, zip code) 49. LANDLORD TELEPHONE NUMBER ( ) 50. PROJECTED MONTHLY GROSS SALES $ 53. SELLING NEW TIRES AT RETAIL? Yes No 51. PROJECTED MONTHLY TAXABLE SALES $ 54. SELLING COVERED ELECTRONIC DEVICES? Yes No (continued on reverse) Yes No 52. ALCOHOLIC BEVERAGE CONTROL LICENSE NUMBER (if applicable) SELLING TOBACCO AT RETAIL? Yes No

24 BOE-400-SPA REV. 4 (BACK) (3-10) 56. NAME OF PERSON MAINTAINING YOUR RECORDS 57. ADDRESS (street, city, state, zip code) 58. TELEPHONE NUMBER ( ) 59. NAME OF BANK OR OTHER FINANCIAL INSTITUTION (note whether business or personal) 60. BANK BRANCH LOCATION 61. NAME OF MERCHANT CREDIT CARD PROCESSOR (if you accept credit cards) 62. MERCHANT CARD ACCOUNT NUMBER 63. NAMES OF MAJOR CALIFORNIA-BASED SUPPLIERS 64. ADDRESSES (street, city, state, zip code) 65. PRODUCTS PURCHASED ADDITIONAL SELLING LOCATIONS (List All Other Selling Locations) 66. PHYSICAL LOCATION OR STREET ADDRESS (attach separate list, if required) OWNERSHIP AND ORGANIZATIONAL CHANGES (Do Not Complete for Temporary Permits) 67. ARE YOU BUYING AN EXISTING BUSINESS? Yes No If yes, complete items 70 through ARE YOU CHANGING FROM ONE TYPE OF BUSINESS ORGANIZATION TO ANOTHER (FOR EXAMPLE, FROM A SOLE OWNER TO A CORPORATION OR FROM A PARTNERSHIP TO A LIMITED LIABILITY COMPANY, ETC.)? Yes No If yes, complete items 70 and OTHER OWNERSHIP CHANGES (please describe): 70. FORMER OWNER S NAME 71. SELLER S PERMIT NUMBER 72. PURCHASE PRICE $ 73. VALUE OF FIXTURES & EQUIPMENT $ 74. IF AN ESCROW COMPANY IS REQUESTING A TAX CLEARANCE ON YOUR BEHALF, PLEASE LIST THEIR NAME, ADDRESS, TELEPHONE NUMBER, AND THE ESCROW NUMBER TEMPORARY PERMIT EVENT INFORMATION 75. PERIOD OF SALES FROM: / / THROUGH: / / 76. ESTIMATED EVENT SALES $ 77. SPACE RENTAL COST (if any) $ 79. ORGANIZER OR PROMOTER OF EVENT (if any) 80. ADDRESS (street, city, state, zip code) 81. TELEPHONE NUMBER ( ) 82. ADDRESS OF EVENT (If more than one, use line 66, above.attach separate list, if required.) 78. ADMISSION CHARGED? Yes No CERTIFICATION All Corporate Officers, LLC Managing Members, Partners, or Owners must sign below. I am duly authorized to sign the application and certify that the statements made are correct to the best of my knowledge and belief. I also represent and acknowledge that the applicant will be engaged in or conduct business as a seller of tangible personal property. NAME (typed or printed) SIGNATURE DATE NAME (typed or printed) SIGNATURE DATE NAME (typed or printed) SIGNATURE DATE FOR BOE USE ONLY SECURITY REVIEW FORMS PUBLICATIONS BOE-598 ($ ) or BOE-1009 REQUIRED BY APPROVED BY BOE-8 BOE-400-Y PUB 73 PUB DE 44 BOE-162 BOE-519 BOE-467 BOE-1241-D REGULATIONS REG REG REG RETURNS