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A recent amendment classifies and distinguishes between optional and mandatory tips. Voluntary tips paid by the customer to an employee are considered optional tips and are not taxable. On the other hand, mandatory tips, gratuity or service charges billed to the customer in the invoice are taxable even if the final recipient of these tips is the employee that catered to the customer. (Reg. 1603, California State Board of Equalization, effective August 15, 2007)


Recent amendments to California regulations dealing with sales for resale have increased the penalties for misuse of a resale certificate. Effective June 5, 2007, in addition to fines imposed at 10% or $500, whichever is greater, for improper payment or reporting of tax due, the person may be liable to additional penalties: 10% for negligence or 25% for fraud. (Reg. 1668, California State Board of Equalization, effective June 5, 2007)


California amended their regulation to define the term “florists” and clarify the applicability of sales and use taxes to the sale of flowers by Internet sellers. “Florist” is defined as “a retailer who conducts transactions for the delivery of flowers, wreaths, etc., through a florist delivery association and who uses telephonic, electronic, or other means for the transmission of orders.” Additionally, when a retailer of flowers, who is not a florist, requests for a delivery of flowers to a customer in California, he will not be charged tax to the amounts received by the florist making the delivery and that florist will not be treated as a drop shipper. Similarly, if an out of state florist makes the same attempt to a California retailer of flowers, tax will not apply to the amounts received by the retailer making the delivery and that retailer will likewise not be treated as a drop shipper. (Regulation 1571, California State Board of Equalization, effective April 29, 2007)


The California Board of Equalization has released revised instructions and a new form, explaining how taxpayers can request special reporting periods for sales and use tax. The Board has generally required businesses to file their sales and use tax returns for regular calendar periods. However, if a business has established accounting periods that do not correspond to regular calendar periods, the Board may now be able to customize the tax reporting periods to better suit the business’s accounting practices. Businesses need to complete the BOE-715 form, Request for Special Reporting Periods, or can provide a schedule with account number indicating the exact periods that are to be reported on each return for the next two years to be eligible for the special reporting periods for sales and use tax. Additional rules and regulations do apply. (BOE-715 REV. 2, California Board of Equalization, December 6, 2006)


Effective January 1, 2007, any person who collects California sales tax reimbursements or use tax, and fails to timely remit those amounts to the California State Board of Equalization is liable for a penalty of 40 percent of the amount withheld. Under certain circumstances, the penalty is not applicable and a taxpayer may be relieved from payment. For instance, the penalty does not apply to any person whose liability for unremitted sales tax reimbursement or use tax averages $1,000 or less per month or does not exceed 5% of the total amount of tax liability for which the tax reimbursement was collected, whichever is greater. Furthermore, penalty relief is provided to a person whose failure to timely remit sales tax reimbursement or use tax was due to a reasonable cause or circumstance beyond the person’s control. Additional regulations apply. (Ch. 252, S.B. 1449, Laws 2006)



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