State steps up drive for unpaid taxes

State tax officials are going after the taxes owed by people and businesses that purchase hundreds of millions of dollars a year worth of goods in out-of-state transactions – often via the Internet – but don't pay California taxes on the items.

The hunt for money is the latest in a series of moves by the state as it faces a $40 billion shortage over the next 18 months as well as an immediate cash shortage.

Just who isn't paying the taxes is a matter of dispute. But as a first step, the state Board of Equalization said it wants the purchasers to register voluntarily with the state, and said it is prepared to launch audits against those who don't.

To help identify the businesses, the BoE is using a cross-checking program through a database at the Employment Development Department to track service-industry businesses that the board believes are likely to owe use taxes.

The board believes about $2 billion goes uncollected each year in sales and uses taxes, and that out-of-state transactions represent the largest portion of that amount.

The voluntary sign-up program allows "taxpayers to report and pay their use tax liability subject to a three-year statute of limitations," the board said. Those who don't voluntarily sign up could be subjected to audits that can go back eight tax years, according to the board. In some instances, a 10-year stature of limitations may apply; in fraud cases, there is no limitation. The voluntary program does not apply to the purchase of vehicles, vessels or aircraft.

The BoE said the uncollected tax, called a use tax, "applies when a person or business in California purchases tangible merchandise from a retailer outside of this state that will be used, consumed, given away, or stored in this state and the retailer does not collect California tax on their sales."

"Businesses that have been identified by industry group and other factors as likely to have incurred a use tax liability are being contacted by letter and asked to report any use tax due for the past three years," the board said Thursday in a written statement.

The state Board of Equalization, a publicly elected tax board, collects some $53 billion annually in taxes and fees supporting state and local government services. It hears business tax appeals, acts as the appellate body for franchise and personal income tax appeals and sets values on utility property.