CDTFA Archives - INSIDE SALT

CDTFA Proposes Significant Revisions to Chapters 4 and 13 of the Sales Tax Audit Manual

by Charles Moll, III, Troy M. Van Dongen, Marcy Jo Mandel and Elle Kaiser | Feb 10, 2022 | Audits, California, Local Tax, Nationwide Importance, Sales Tax

On February 2, 2022, the California Department of Tax and Fee Administration (CDTFA) held an interested parties meeting (IPM) to discuss proposed amendments to sales tax audit manual (AM) Chapter 13, “Statistical Sampling,” and Chapter 4, “General Audit.”

Prior to the IPM, the CDTFA released a lengthy discussion paper outlining the extensive proposed changes to the AM, which includes:

1. Removing the three error rule. The current text of AM 1308.05 explains that when a sample produces only one or two errors, the auditor must evaluate whether these errors are representative or whether it is possible they indicate problems in certain areas that could be examined separately. Under the proposed amendment, the same evaluation standards would still be in place without the minimum error requirement. According to the CDTFA, the proposed removal of the three error rule is because of the fact that “the number of errors identified in a sample does not give any indication whether the sample is representative or not…If the combined evaluation evaluates within Department [CDTFA] standards, it is justified to project the results even if one or two errors are found.”

2. Requiring 300 minimum sample items per stratum unless the auditor obtained approval from CAS to select fewer than 300. Currently, the “minimum sample size of at least 300 items of interest is to be used in all tests, except where the auditor can support a smaller sample size and it evaluates well.” (AM 1303.05) Under the new subsection titled “Materiality,” a minimum of 300 sample items per test stratum is recommended. Computer Audit Specialist (CAS) approval is required for selecting less than 300 sample items per test stratum.

3. Refunding Populations: A minimum of 100 sample items per stratum is required. In the section addressing sampling refund populations (AM 1305.10), the proposed amendment would permit auditors to select as few as 100 sample items per test stratum without CAS approval, provided the expected error rate is sufficiently high (greater than 20%). No such rule exists under the current text of Chapter 13.

4. Contacting CAS when the prior audit had 300 hours charged to it is now mandatory. In contrast, under the current rule, it is mandatory that CAS be contacted when the prior audit expended 400 or more hours or if CAS was involved in the prior audit.

5. Replacing Credit Methods 1, 2 and 3 with one recommended approach to handling credits in a statistical sample. The subsection (AM 1303.25) currently lists three types of credit methods that can be used for a statistical sample. The CDTFA now only recommends one credit method for use in a stratified statistical sample, which is referred to as “Method 1” in the current AM text. When auditors review electronic data, attempts should be made to match credit invoices to original invoices (including partially) if it is certain that the credit invoices are related to the original invoice. For all credit memos that are not matched to original invoices, those credits will be removed from [...]

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Governor Newsom Announces New Relief for Remitting California Sales Tax

by Charles Moll, III, Troy M. Van Dongen, Marcy Jo Mandel and Elle Kaiser | Dec 1, 2020 | California, Interest and Penalties, Nationwide Importance, Sales Tax

On Monday, November 30, 2020, Governor Gavin Newsom announced that California will provide temporary tax relief for eligible businesses impacted by restrictions imposed to control the COVID-19 pandemic.

The announcement indicates that the Governor will direct the California Department of Tax and Fee Administration (CDTFA) to:

Provide an automatic three-month extension for taxpayers filing less than $1 million in sales tax on the return and extend the availability of existing interest- and penalty-free payment agreements to companies with up to $5 million in taxable sales;
Broaden opportunities for more businesses to enter into interest-free payment arrangements; and
Expand interest-free payment options for larger businesses particularly affected by significant restrictions on operations based on COVID-19 transmissions.

No information was provided as to how the CDTFA will expand interest-free payment options for larger businesses, or what constitutes “significant restrictions” on a business’ operations for purposes of this temporary tax relief. Nevertheless, we applaud the governor’s move to initiate this relief for California’s taxpayers, and we will keep readers up to date as additional details are revealed for this program.

What Can You Do About Your California Property Tax Payment – COVID -19’s Impact on California Property Tax Deadlines and Planning Considerations

by Charles Moll, III, Elle Kaiser and Troy M. Van Dongen | Apr 3, 2020 | California, Nationwide Importance, Property Tax

In the wake of the COVID-19 pandemic, certain California taxing officials have acted swiftly to provide state taxpayers with some much needed relief. On March 13, for example, the Franchise Tax Board (FTB) extended the corporate and personal income filing and payment tax deadlines to June 15, and then again on March 18, FTB further postponed the deadlines to July 15. The California Department of Tax and Fee Administration (CDTFA) and the California Office of Tax Appeals (OTA) also has acted to implement measures aimed at supporting taxpayers amid the COVID-19 outbreak. The Office of Tax Appeals granted an automatic 60-calendar-day extension of the deadline for appeals that have a briefing or other deadline that falls between March 1, 2020 and May 18, 2020. In addition, CDTFA published a statement on its website indicating that sales tax relief including return and payment extensions and penalty and interest waivers may be available to taxpayers upon request.

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