Income Tax: California Franchise Tax Board
California’s Franchise Tax Board collects and enforces state income tax assessments and collections. The FTB operates similarly to the IRS in many situations and conforms to many federal tax laws, with some significant differences. With the State’s high tax rates, complex tax laws and aggressive taxing authorities, the FTB’s authority must be taken seriously. Hone Maxwell LLP’s tax attorneys handle all types of California income tax and FTB administrative matters to ensure any individual or business with ties to the State complies with its tax laws.
California has its own criteria to determine if income is taxable, considering everything from vacation homes to business licenses. In addition, the FTB uses estimates and comparisons to determine taxable income and then assesses taxes based on this determination. This can lead to many issues, including “residency audits.” Taxpayers who reside outside of California are not immune to these potential assessments. California can levy payments and bank accounts outside the State if the FTB determines a tax liability is due.
It should also be noted that California does not conform to all federal tax laws or United States tax treaties. Therefore, it is crucial to ensure international tax planning includes separate consideration for California’s tax implications. FTB collection enforcement is also less regulated and more aggressive than the IRS. Failing to respond to notices or balances due is not advisable, as this can lead to more severe collection activities and consequences, as well as communication to the IRS for possible federal tax assessment.
Sales Tax: California Department of Tax and Fee Administration
The California Department of Tax and Fee Administration (CDTFA), which collects California sales taxes, recently increased the number of small to medium-sized businesses selected for sales tax audits. It also appears that the State government has become more aggressive in assessing and collecting sales taxes.
Sales tax problems often arise from inadequate records. HMLLP attorneys help determine if documentation is adequate and advise on reconstructing missing records. Additionally, there are new problems arising as international commerce increases.
A sales tax audit determination may also lead to an adjustment to state and federal income tax returns. Since the CDTFA may share information with the IRS and FTB, it is essential to dispute all erroneous sales tax audit adjustments. A California sales tax audit, and its possible appeal, is a highly complex process requiring knowledge of the California sales tax laws and an understanding of CDTFA procedures.
Payroll Tax: Employment Development Department
The Employment Development Department (EDD) administers payroll taxes in California. Although California payroll tax rates are not as high as federal tax rates, the EDD is very active in auditing and collecting payroll taxes.
An EDD audit can be very stressful, and employers have a lot at stake in these situations. Often, the issue at hand is worker classification – employee versus independent contractor. The consequences of this determination extend well beyond taxes and penalties, including additional consequences related to unemployment insurance, benefits, minimum wage and other human resource concerns.
EDD collection matters can also result in significant financial consequences to a business and its owners. As a state agency, the EDD has the power to cancel or suspend business licenses when employers fail to comply with payroll tax responsibilities.
HMLLP attorneys have the necessary experience to handle EDD audits and collections effectively and collaborate with business owners to ensure that operations are considered and respected in resolving these matters.