If you receive a CDTFA notice showing penalties and interest, don't ignore it.
The good news is that in many cases, the situation is fixable. The key is acting quickly.
California sales tax penalties are typically triggered when:
A return was filed late.
A payment was made late.
A return was not filed at all.
Before doing anything else, verify:
Which filing period is affected.
Whether the return was actually filed.
Whether the payment was actually made.
Whether the CDTFA records match your records.
Sometimes the issue is as simple as a bookkeeping error or a filing that wasn't completed properly.
If a return is missing, file it as soon as possible through your CDTFA online account.
Website:
https://www.cdtfa.ca.gov
The longer a return remains unfiled, the more difficult the situation can become. CDTFA generally requires returns to be filed even when there were no sales to report.
If you owe sales tax, interest generally continues to accrue on unpaid balances.
Even if you cannot pay the full amount immediately:
File the return.
Make a payment.
Reduce the outstanding balance as much as possible.
This is usually better than waiting until you can pay everything at once.
I've seen business owners assume the notice was correct without reviewing it.
Check:
Reporting period
Tax amount
Filing date
Payment date
Calculations
Mistakes do happen.
It's worth verifying the information before simply paying the notice.
In certain situations, CDTFA may allow penalty relief when a taxpayer can demonstrate reasonable cause for failing to file or pay on time.
Examples might include:
Serious illness
Natural disasters
Circumstances outside the taxpayer's control
Every situation is unique, and supporting documentation is often important. CDTFA provides procedures for requesting relief when appropriate.
Most sales tax penalties I see stem from one of these issues:
The owner doesn't know how much sales tax was collected.
Sales tax isn't being tracked properly.
Deadlines are missed.
The money was used for operating expenses instead of being reserved.
Good bookkeeping helps solve all four problems.
For service-based businesses in Los Angeles, Whittier, Pico Rivera, Santa Fe Springs, West Covina, and surrounding areas, I recommend:
Reconcile bank accounts.
Review sales tax liability accounts.
Verify taxable sales.
Review return information before the deadline.
Confirm payment amounts.
Keep sales tax separate from operating cash whenever possible.
Save copies of filed returns.
Review CDTFA notices immediately.
The worst thing you can do is ignore a CDTFA notice.
I have seen business owners who:
Ignored one notice.
Ignored a second notice.
Planned to "deal with it later."
What started as a small issue became a much larger problem.
Addressing it early is almost always easier.
If you've received penalties and interest from CDTFA:
Determine what caused the issue.
File any missing returns.
Pay as much as possible.
Review the notice for accuracy.
Explore whether penalty relief may apply.
Improve your bookkeeping process going forward.
Most importantly, don't panic and don't ignore the notice.
The faster you respond, the easier the resolution tends to be.
If your sales tax account is behind, returns are missing, or you're unsure how much you owe, DJO Bookkeeping can help organize your QuickBooks records, reconcile accounts, identify sales tax liabilities, and get your books ready for accurate filing.
DJO Bookkeeping — Clean Books. Clear Answers. Less Stress.
Disclaimer: This article is for informational purposes only and is not accounting, tax, financial, or legal advice.