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As of June 27, 2003, the California State Board of Equalization (SBE) regulation that implements the current practice of payment of sales and use taxes by electronic funds transfer (EFT) will come into affect. This regulation mandates all taxpayers with an estimated tax liability of $20,000 or more to pay their taxes by EFT. First-time taxpayers will not be required to use EFT, but SBE will be conducting annual reviews to identify repeat taxpayers that meet the threshold. If a taxpayer drops below the mandatory threshold, the taxpayer must request to be removed from the list and must continue to pay by EFT until notified of exemption from the program. All taxpayers who voluntarily join the program must remain in the program for at least one year. If no sales and use tax is due, taxpayer must summit a zero return or send a written notification of no payment due to the SBE. (Reg. 1707, California State Board of Equalization, effective June 27, 2003)


In the state of California, the government exemption for sales and use tax does not apply to federal contractors purchasing materials for the job because they are not considered agents of the government. This would also include construction contractors. However, government contractors are considered retailers purchasing machinery and/or equipment to fulfill a government contract. A resale certificate can be issued for purchases but the title of the property must pass over to the government before any piece of equipment or material is used by the contractor. (Tax Facts Publication No. 102, California State Board of Equalization, September 2002.)


Beginning December 3, 2002, the manufacturer's exemption certificate and manufacturer's use tax declaration will show both the beginning and expiration date of a partial exemption for the leasing of qualified property. Prior to December 3rd, the certificate and declaration were used for partial exemption of state sales and use tax for any sale of manufacturing equipment. Also, the changes make the certificate and declaration eligible to be used for either a lease or a sale. It also cleared up confusion between "the three-year validity period of the exemption certificate and the six-year partial exemption period for the lease of qualified property entered into during that three-year validity period." (Reg. 1525.2, California State Board of Equalization, effective December 3, 2002)


A bill, unanimously approved by the California Assembly Revenue and Taxation Committee, would extend the Internet Tax Moratorium to January 2008. The current moratorium is set to expire in January 2004 and would affect local taxes on Internet access, online computer services, as well as bit/bandwidth taxes. (A.B. 128, introduced January 25, 2003)


As requested last month by Governor Gray Davis, The California Commission on Tax Policy in the New Economy has decided to solicit public comment on issues of tax policy prior to issuing an interim report at the end of April. The next Commission meeting will be held on March 12, 2003 to identify tax issues the public would like to be discussed at the forum. The hearings will be held in San Francisco on March 24 and in Los Angeles on April 14. (California Commission on Tax Policy in the New Economy Meeting, Sacramento, California, February 24, 2003, Ch. 619 (S.B. 1933))



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