Unregistered Out-of-State Businesses with Nexus in California - Voluntary Disclosure Program

The Board of Equalization encourages businesses to voluntarily register and pay use tax obligations due the State of California. The Voluntary Disclosure Program provides incentives for unregistered out-of-state companies to satisfy their use tax obligations.

Revenue and Taxation Code section 6487.05 governs voluntary disclosures in California. Out-of-state retailers who are engaged in business in California are required to collect use tax on sales of taxable merchandise to consumers in California. Section 6487.05 was adopted to encourage out-of-state retailers who have failed to collect and pay this tax to voluntarily come forward and register. Some of the benefits of this program are:

Limits the time the Board can make an assessment for prior taxes to three years. Without this section, the applicable statutory period would be eight years.

Allows the Board to waive late filing or late payment penalties.

Applicants may obtain a written opinion as to whether or not the Board would be inclined to approve a voluntary disclosure request based on circumstances presented anonymously.

Persons who are "engaged in business" in California (as defined by Revenue and Taxation Code section 6203) are responsible for collecting and remitting the sales or use taxes on all sales of tangible personal property (unless the transaction is otherwise exempt). Circumstances where a retailer is considered to be engaged in business in California, commonly referred to as "nexus," for sales and use tax purposes include (but are not limited to) the following:

Maintaining, occupying or using any type of office, sales room, warehouse or other place of business in California. This includes use that is temporary, indirect or through an agent or other representative.

Having any kind of representative operating in the state for the purpose of taking orders, making sales or deliveries, installing, or assembling tangible personal property.

Making repairs or providing maintenance or service to property sold, whether by employees, agents or other representatives.

Deriving rentals from a lease of tangible personal property located in California.

To qualify for the Voluntarily Disclosure Program, you must meet the following five conditions:

Be located outside California and cannot have been previously registered with the Board;

Be engaged in business in California as defined by section 6203;

Have not been previously contacted by the Board or its agents regarding its activities in California; and

Failure to pay the tax or file a return was due to reasonable cause and not as a result of negligence or intentional disregard of the law.

The voluntary disclosure program is not applicable to cases involving:

Any purchases subject to the California use tax.

Sales by persons, registered or unregistered, which are subject to California sales tax.

Any person holding or who held a seller's permit.

To request an opinion as to whether or not the Board would be inclined to approve a voluntary disclosure request or to discuss your eligibility for consideration under the Voluntary Disclosure Program, please contact the Voluntary Disclosure Specialist at the following address:

To receive the most accurate response possible to your request, please include the following:

A description of how you meet all of the qualifications listed above.

A description of your business activities, including how products are marketed and sold to California customers.

A detailed description of the flow of goods to the customer from the time an order is placed.

To apply for consideration under the Voluntary Disclosure Program, BOE Form-38, Application for Voluntary Disclosure, may be used. Completed applications may be sent to the following address:

Upon registration, you would not be required to complete back tax returns, instead, we ask applicants to prepare a spreadsheet detailing their taxable sales and taxable use of property by quarter by location. A check in the amount of the tax due should accompany the application and spreadsheet. Based on the information provided, subject to verification, we process the information provided and assess tax based on the reported amounts. You could expect to receive the bill for the tax, interest and penalty, approximately six to eight weeks after the registration application and spreadsheet are received. Payments received with the application will be applied to the bill. Once payment is received, the Board may process a request for relief of penalty.

Most applicants require a Certificate of Registration - Use Tax. This is a special registration program designated for out-of-state companies that have nexus in California. A Certificate of Registration - Use Tax may be obtained by completing Form BOE 400-CSC, Application for Certificate of Registration - Use Tax Application

To seek relief from penalty charges a written request must be made, signed under penalty of perjury, which sets forth the facts why the late filing occurred. Form BOE 735, Request for Relief of Penalty, may be used for this purpose.