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The California Department of Tax and Fee Administration (CDTFA), which is the agency formerly known as the board of equalization, has started sending letters to individuals who didn’t report any use tax on their individual income tax returns. As a reference, the letter is CDTFA – 1295 and it has a revision date of February 2018. The letter says “Our records indicate that you may not have reported use tax on your California State Income Tax Return and we would like to bring this possible oversight to your attention.” It goes on to say the majority of households in California owe at least a small amount of use tax. The letter that explains how to pay use tax either on the individual tax return using form 540 540A or 540NR or online.
If you did not report use tax on a previously filed return, don’t amend your income tax return. Instead, you’ll want to vist cdtfa.ca.gov/services and from there go to the payments tab and select Pay Use Tax for one-time purchases from out-of-state retailer.
The CDTFA says the letter was sent as part of an outreach campaign and generally there won’t be a follow-up letter, but the CDTFA could certainly audit the taxpayer in the future. The agency also wouldn’t provide details about how individuals were selected to receive a letter or what criteria would be used to follow-up. According to the CDTFA an audit will not necessarily follow unless it falls into an audit selection program, the details of which they don’t reveal.
In addition to sending you letters to individual taxpayers the CDTFA also commonly sends letters requesting extensive information from certain businesses that purchase equipment and supplies out of state, such as dentists, doctors, contractors, and attorneys. In some cases the CDTFA has followed up on a lead from another state or the audit could be random. If you are a business owner or principal, and have received one of these letters your best be is to reach out to your tax professional for assistance.