Beginning January 1, 2015, for taxable years beginning on or after January 1, 2014, any business entity that files an original or amended tax return prepared using tax preparation software is required to electronically file (e-file) their return with the FTB unless a waiver is obtained for one of the following reasons:      

Waiver requests may be submitted directly to the FTB by an online fillable form on the FTB’s website: https://www.ftb.ca.gov/professionals/busefile/Business_eFile_Waiver_Request.asp

For this purpose, “business entity” means a corporation, including an “S” corporation, an organization exempt from tax pursuant to Chapter 4 (commencing with Section 23701) of Part 11, a partnership, or a limited liability company.

A penalty for failing to file electronically will be assessed against the taxpayer (not the preparer) for returns filed for taxable years beginning on or after January 1, 2017.The penalty is $100 for an initial failure and $500 for each subsequent failure unless the failure is due to reasonable cause, and not willful neglect.

California Assembly Bill (AB 1245) (Chapter 222, Statutes of 2015) requires all employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to the EDD. This law became effective for employers with 10 or more employees January 1, 2017, and for all employers January 1, 2018.

Penalties - Filing paper returns instead of electronically filing when required will result in the following penalties:

Waiver - Employers may request a waiver from the electronic filing mandate due to:

The E-file and E-pay Mandate Waiver Request (DE 1245W) can be downloaded at: www.edd.ca.gov/pdf_pub_ctr/de1245w.pdf

Waiver requests, which cannot be filed retroactively, must be received by the final filing date of the quarter for which the taxpayer is requesting that the waiver begin. Requests received after the due date for the quarter requested will be processed for the subsequent quarter. An approved waiver will be valid for four consecutive quarters beginning with the effective quarter, and to avoid a non-compliance penalty when the waiver expires, an employer must start to electronically file and pay, or submit a new waiver request.

The amount of above-the-line health insurance premiums deductible for California income tax purposes is the same as the amount deductible for federal income tax purposes, so no California adjustment is required. (R&TC Section 17201.1)

Since California does not allow an education credit, a sole proprietor’s business-related education expenses would be deductible only on Sch. C for CA.

No California Unemployment Insurance, Education Training Tax or State Disability Insurance (SDI) is required for wages paid to children under age 18 employed by a parent (or partnership of parents only), a spouse employed by a spouse, or a parent employed by a son or daughter. They are subject to personal income tax withholding and may apply for elective SDI coverage.

SB 87, passed by the legislature on Feb. 22, 2021 and approved by the governor on Feb. 23, 2021, provides grants of up to $25,000 for qualified small businesses (a sole proprietor, independent contractor, 1099 employee, C corporation, S corporation, cooperative, limited liability company, partnership, or limited partnership) with annual gross revenue in 2019 of more than $1,000 and less than $2.5 million. Initial funding for this program was exhausted by April 2021 but additional money was provided in the 2021-2022 budget enacted in July 2021. As of June 2022, the program is closed, although according to the website referenced below funding is still available for existing eligible applicants that have not yet been funded. These businesses will be contact by Lendistry, the sole entity designated as the Intermediary of the California Small Business COVID-19 Relief Grant Program. Refer to https://careliefgrant.com for updates and additional information.

Although these payments are exempt from California tax, they are taxable for federal.

Under R&TC Sec 6225 a “qualified purchaser” is required to register with the California Department of Tax and Fee Administration (CDTFA) and report and pay use tax directly to CDTFA when the tax was not paid to a retailer required to collect the tax or to a retailer the qualified purchaser reasonably believed was required to collect the tax. Section 6225 does not apply to the purchase of a vehicle, vessel, or aircraft.

The primary purpose of the registration is to ensure that businesses pay use tax on out of state purchases. Thus, anyone meeting the registration requirement cannot pay their use tax with their Form 540 and instead must electronically file an annual use tax return with CDTFA and make payment by April 15 of the subsequent year.

Prior to January 1, 2024, a “qualified purchaser” was defined as a person that received at least $100,000 in gross receipts, from both their in-state and out-of-state business operations, per calendar year and was not otherwise required to be registered with CDFA, which was someone: Not required to hold a seller’s permit or certificate of registration for use tax;

Beginning January 1, 2024, and through December 31, 2028, AB 1097 (Stats. 2023, ch. 355) revised the definition of a “qualified purchaser” under R&TC Section 6225 to eliminate the requirement that the person receives at least $100,000 in gross receipts per calendar year from business operations. It instead requires that the person makes more than $10,000 in purchases subject to use tax (excluding vehicles, vessels, or aircraft) per calendar year where the use tax imposed on those purchases has not otherwise been paid to a retailer engaged in business in California or authorized to collect the tax.

As of January 1, 2029, the definition of a “qualified purchaser” will revert to a person receiving at least $100,000 in gross receipts per calendar year from business operations and is not otherwise required to be registered with the CDTFA. A qualified purchaser may register for a use tax account on the CDTFA’s web site – https://www.cdtfa.ca.gov/taxes-and-fees/qualified-purchaser.htm#Registration

New registrants also need to file returns for at least the two prior years. While the statute of limitations is 8 years for use tax, the state generally does not require the filing of returns going back that far, unless they have reason to believe that the amount of unpaid use tax is substantial. Penalty and interest apply to late-filed returns and payments received after the due date of each return period. The returns are filed electronically on the CDTFA web site.

Taxpayers may be granted relief of penalty charges, but not interest, if it is determined that a person's failure to file a timely return or payment was due to reasonable cause and circumstances beyond the person's control. Form CDTFA-735, Request for Relief of Penalty, is used to request relief of penalty charges. For additional information regarding interest and penalties, please see Publication 75, Interest, Penalties and Fees, available at the CDTFA website: www.cdtfa.ca.gov.

A qualified purchaser is required to file a return reporting the total sales price of tangible merchandise purchased that is subject to use tax during the preceding calendar year, and for which tax was not paid to a retailer required to collect the use tax. A return must be filed even if no tax is owed. However, after returns showing zero use tax have been filed for three consecutive years, the CDTFA will automatically close out the qualified purchaser’s account. If the taxpayer makes purchases in the future that are subject to use tax, he or she will be required to re-register.