State sales taxes may appear to be small fry compared to federal income taxes, but don’t be misled. The State of California is serious about collecting sales tax, and is vigilant in its pursuit and punishment of retailers who fail to remit the amounts they collect from their customers. The state prosecutor in a recent criminal sales tax evasion case clearly expressed the state’s position: “Sales taxes are used to repair potholes, educate our children, protect our neighborhoods… When you steal from the state coffer, you are stealing from the public.”
This past January, that prosecutor, Santa Clara Deputy District Attorney Erica Engin, put a San Jose used car dealer away for three years for sales tax evasion.
When you don’t pay your California state sales taxes on time
When you initially receive a California sales tax permit, you are given a payment schedule that is either monthly, quarterly, or annually.
If you fail to file your sales tax return on time, you will be subject to a 10% penalty. If you file on time but do not make the required payments, a 10% penalty will also apply. The total penalty, however, will not exceed 10%. Interest will also be charged for each month or partial month that your return remains unpaid.
In addition:
- You will be subject to a Collection Cost Recovery Fee (CRF) if your sales tax balance remains unpaid for more than 90 days (unless you are enrolled in a payment plan).
- If you intentionally operate without a California sales tax permit to avoid paying state sales taxes, the penalty increases to 50%.
- If the government determines that you have committed sales tax fraud, the sales tax evasion penalty may include fines and/or prison time. If your unpaid sales tax amounts to more than $10,000, you will be charged with a felony.
See Publication 75 for additional information on sales tax penalties and interest.
Mostafavi’s late filings lead to charges for felony tax evasion
Mostafavi’s habit of being late with both his tax returns and sales tax payments raised red flags with the authorities – this led to an audit by the California Department of Tax and Fee Administration (CDTFA) and eventually to a criminal investigation. Evidence produced during the jury trial showed that Mostafavi reported only $6.8 of the $1.8 million earned through his company, Euro Auto Imports, Inc. and that he did not pay over roughly $400,000 in sales tax.
Mostafavi is now serving three years in jail for felony tax evasion. He has also lost his business and his license to sell cars.
Get help from our California sales tax attorneys today
As tempting as it may be to keep or use the sales taxes you collect from your customers, it is simply not worth the risk. If you require assistance with the monitoring and remittance of your sales taxes to the state, the Moskowitz, LLP accounting department can help you. If you are already under investigation, contact our California tax attorneys immediately.