Various penalties are imposed for violations of the Sales and Use Tax Law. These penalties are summarized as follows:

Nonpayment or late payment of tax: Failure to pay the tax when due (except late prepayments) is subject to a basic penalty of 10% of the tax due.

Late prepayments: A taxpayer who fails to prepay tax by the due date but who pays the amount due by the last day of the month following the quarter in which the prepayment became due is subject to a penalty of 6% of the tax to be prepaid. If the failure to make a timely prepayment is due to negligence or intentional disregard of the law, rules, or regulations, the penalty increases to 10%.

Failure to file: Upon a failure to file a return, the State Board of Equalization must make an estimate of the tax, adding the interest and penalty. A failure or refusal to make original or supplemental returns or to furnish data required by the SBE is a misdemeanor and subject to a fine not less than $1,000 or more than $5,000 for each offense or one year in the county jail, or both.

False or fraudulent return: A penalty equal to 25% of the tax specified in the deficiency determination will be added if any part of the deficiency is due to fraud or intent to evade law or regulations. In the case of a determination for failure to file a return, if it is due to fraud or intent to evade the law or regulations, 25% of the amount required to be paid will be added, in addition to the 10% penalty for failure to pay. A penalty of 50% applies to taxes imposed on any person, who, to evade payment of taxes, knowingly fails to obtain a valid permit prior to the date in which the first tax return is due. The 50% penalty applies to taxes determined to be due for the period during which a person engaged in business in-state as a seller without a valid permit, and may be added in addition to the 10% penalty for failure to pay. The 50% penalty will not apply if the measure of tax liability over the period during which the taxpayer was engaged in business without a valid permit averaged $1,000 or less per month. Also, the 50% penalty will not apply to taxes due on the sale or use of a vehicle, vessel or an aircraft, if the amount is subject to the penalty under 6485.1 or 6514.1. Remember, the State has the burden of proof for fraud.

What constitutes filing a return: While the law provides that returns or reports must be filed on forms prescribed by the Board, a return or report will be deemed to have been filed in every case where the taxpayer appears to be acting in good faith and forwards a valid remittance for the amount of the tax declared to be due for a given period. This will include:

a) Remittance accompanied by correspondence;

b) Remittance accompanied by a facsimile form;

c) Remittance accompanied by any statement identifying the remittance;

d) A check signed by taxpayer or his agent, if payment is identified.

False resale certificate: Any person giving a resale certificate for a property that such person knows will not be resold in the regular course of business is liable to the state for the amount of the tax that would be due if such certificate hadn't been given plus a penalty equal to 10% of the tax or $500, whichever is greater, for each purchase. Any person who knowingly issues a resale certificate while not actively engaged in the business as a seller, for personal gain, or to evade payment of taxes is liable for the tax otherwise due on the transaction, plus a penalty of 10% of the tax or $500, whichever is greater, in addition to all other penalties. Also, it is a misdemeanor for any person, including an officer or employee of a corporation, to give a resale certificate if the purpose is to evade paying the tax and at the time of the purchase, the person knows that he or she will not resell the property in the regular course of business.

Permit and registration: A violation of the law regarding permit and registration is a misdemeanor, which subjects the offender, including an officer of the corporation, to a fine of not less than $1,000 nor more than $5,000, or imprisonment not exceeding one year, or both. Any person who, in order to evade payment of sales and use taxes, knowingly fails to obtain a valid permit before the date on which the first tax return is due is liable for a penalty of 50% of any tax due for the period in which that person engaged in business in-state without valid permit. The rules does not apply to any person whose measure of tax during such period without a permit averaged $1,000 or less per month. It also does not apply to the amount of sales and use taxes due on vehicles, vessels or aircraft, if that amount is subject to the penalty imposed by 6485.1 or 6514.1 for the registration of the vehicle, vessel or aircraft out-of-state to evade tax (a penalty of 50% of any tax determined to be due on the sales price of the vehicle, vessel or aircraft).

Negligence penalty: In sales tax audits, a 10% penalty of negligence may, at the auditor's discretion, be added. Negligence is defined as a failure to exercise due care. According to the audit manual, only two kinds of negligence will warrant a penalty:

a) Negligence in keeping records;

b) Negligence in preparing returns.

The fact that records may be inadequate to prepare financial statements does not necessarily constitute negligence for tax purposes. The only requirements for tax purposes is that they provide enough information to accurately prepare a tax return.

Penalty relief: Relief for penalties for failure to pay tax on time (including quarterly prepayments) is available if such failure is due to reasonable cause and circumstances beyond the person's control (Section 6592). Also, negligence penalties on audits can often be successfully deleted.