The state of California is getting even more aggressive at collecting all the taxes the law allows – no matter how small. Use tax is the latest way for the state to look for cash. The Legislature has enacted strict new registration and filing requirements for businesses with gross income of $100,000 or more.

You may have received a letter from the California State Board of Equalization (BOE) requesting contact information so you could be registered as a use tax payer.

The letter advised you to provide contact information. Whether you provided that information or not, the BOE registered your business because they believe you meet the $100,000 requirement.

The letter also requests that you file returns and pay use tax that you have not paid for 2007 and 2008.

You must also file a Use Tax Return on or before April 15, 2010 to pay use tax on any out-of-state purchases during 2009. You tax preparer will file the use tax return for you. You will need to provide them with a list of purchases you made where no California sales or use tax was paid but where the item was sent to and first used in California during 2009.

What is and is not subject to sales and use tax can be complicated. There are numerous exceptions to the rules, but here are some common ways that people make out-of-state purchases that are subject to use tax:

• Internet purchases;
• Certain foreign purchases;
• Shopping channel purchases;
• Mail-order purchases; and
• Phone-ordered purchases.

These are some common examples of items subject to use tax:

• Machinery and equipment;
• Computers, printers and other electronic equipment;
• Office furniture and supplies;
• Computer programs shipped on a disc; and
• CDs and books.

Items that are exempt from sales tax are also exempt from use tax. Here are a few examples:

• Softward that is transferred over the Internet and nothing is mailed to you;
• Newspapers, magazines, and other periodicals; and
• Purchases where the seller added California sales tax to your purchase.

What if another state’s sales tax was paid?

If you were required to pay, and did pay, another state’s sales tax on the purchase, you may take a credit against the California use tax due. So, for example, if you paid 7% sales tax to another state, you are only required to pay the difference between the 7% and your rate.