The CDTFA has an array of penalties that they can assess against taxpayers. There are penalties that can result from CDTFA audits or in other situations. The reasons for interest and penalty charges vary. For example, you may be assessed interest and penalty charges if you:
• File a late return and/or make a late payment.
• Do not include a payment or a sufficient payment with your balance-due return.
• Do not report tax on a taxable transaction.
• Calculate tax at the incorrect rate.
• Do not file a return.
• Operate a business without the required CDTFA-issued permits or licenses.
• Misuse a resale or exemption certificate.
• Make sales without a valid permit.
• Knowingly collect sales tax reimbursement or use tax (tax) and fail to remit the tax to us.
Late filing or payment
You must file your tax return and pay the tax by the due date. If the due date falls on a Saturday, Sunday, or legal holiday, your return and payment will be considered timely if you file a return and pay the tax the next business day. Also, additional information on filing is available in publication 439, Online Services.
You are subject to:
• A 10 percent penalty if you do not file your tax return by its due date.
• A 10 percent penalty if your tax payment is late.
Example: You have a tax amount due of $1,000 for the reporting period. You file a late return and make a late tax payment. As noted above, a 10 percent penalty applies for the late payment and the late return filing. In this example, the total penalty amount is limited to $100 (10 percent of your total tax amount due).
A 10 percent penalty applies to taxes that are paid after the due date of the return, including any tax prepayments made after the due date. However, if you have made prepayments for the reporting period and are late in your final payment, the 10 percent penalty is based on your total tax amount due minus any payments, including prepayments that are made by the due date.
CDTFA Penalty for Failure to File a Return
If it is determined that you should have filed a tax return, but failed to do so, the CDTFA will send a Notice of Determination (bill) indicating the amount you owe, including interest and penalty charges.
Interest: The interest charged for unpaid taxes is the same as that charged on taxes paid with returns that are filed late.
Penalties: The penalty for failure to file a return is 10 percent of the tax amount that is due for each bill. Moreover, an additional 25 percent penalty applies if the failure to file was due to fraud or intent to evade the tax, and you may be subject to criminal prosecution.
CDTFA Negligence and Fraud Penalties
If the CDTFA finds that you did not report tax because of negligence or intentional disregard of the law, a 10 percent penalty will be added to the bill. However, if the CDTFA find that the tax was not reported due to fraud or with the intent to evade the law, a 25 percent penalty will be imposed. In addition, you may be subject to criminal penalties.
Failure to pay State tax reimbursement
A 40 percent penalty can apply if you collect sales and use tax but fail to pay it to the CDTFA. Furthermore, the CDTFA reviews each situation to determine if there was reasonable cause or an unforeseen circumstance that resulted in you failing to pay your taxes. Failure to pay the state tax is also a requirement for the CDTFA to personally assess a business owner.
The penalty will not be assessed if any of the following apply:
• The unreported tax averages less than $1,000 each month, or
• The unreported tax is less than 5 percent of the total tax due from that period.
The failure to file and pay is due to reasonable cause or circumstances beyond your control, such as:
• A death or serious illness in the immediate family.
• A natural disaster or catastrophe directly affecting the business.
• We sent tax returns to a wrong address.
• You fail to make a timely payment only once over a three-year period, or once during the period in which you were
engaged in business, whichever time period is shorter.
• You voluntarily corrected errors in paying sales tax or use tax collected and paid the amount due as a result of those errors prior to being contacted by us regarding possible errors or discrepancies.
The penalty applies when you knowingly collect tax and fail to timely pay the amounts owed to the state. If you have been penalized, you can request relief by proving reasonable cause or circumstances beyond your control that affected reporting tax.
If you have questions about CDTFA penalties, contact a tax lawyer today to discuss your matter.