California Use Tax Registration - Qualified Exempt Organizations Must Register

As part of the emergency budget legislation last year, the California legislature added section 6225 to the Revenue and Taxation Code.  This new law requires a "qualified purchaser" to register for reporting its use tax with the Board of Equalization (BOE) by April 15, 2010.  Under this section, “qualified purchaser” means a person that meets all of these conditions:

1. It is not required to hold a seller’s permit pursuant to this part.
2. It is not required to be registered pursuant to Section 6226 (a retailer)
3. It is not a holder of a use tax direct payment permit as described in Section 7051.3.
4. It receives at least one hundred thousand dollars ($100,000) in gross receipts from business operations per calendar year.

Exempt organizations are not excluded from this requirement. BOE staff have indicated that they will look to Form 990, Item G Gross receipts in the heading section to determine if an organization has the requisite gross receipts. Organizations, such as churches, that don't file Form 990 would still have to register and report if they meet the qualified purchaser conditions above.

Although the BOE has sent out notices and automatic registration letters, an organization that is a qualified purchaser but has not received notice from the BOE must still register by the April 15 deadline. Another area of concern is that the BOE is asking for past due use tax returns for 2007 and 2008 to be filed as well, along with penalties and interest. The compliance burden could be quite significant.

It is difficult to say how this will affect nonprofits, but they need to be aware of the issue. A series of answers to Frequently Asked Questions regarding the use tax registration requirement is available on the Board of Equalization's website.