Inside the Statewide Compliance and Outreach Program

If you didn’t already know, California sales tax auditors have made a commitment to personally visit every single business in California. Notwithstanding the logistical difficulty in such a task, business owners should be concerned that these personal visits by a government agent can be followed by an audit recommendation. If you have been recently contacted by an agent from the State Board of Equalization, it is highly likely that a request for additional information will follow.

The program is called SCOP, which stands for the Statewide Compliance and Outreach Program. According to the Board of Equalization, the purpose is to make sure business owners understand their reporting requirements so that they are able to report properly. But, if you look closer at the actual employee SCOP guides, it becomes clear that another purpose is to gather information for an audit. Chances are, if your ZIP code is within any of the Board’s targeted groups, you may have already been visited.

Follow up contact usually comes by a letter, “Request to Furnish Information.” (BOE-1332-A) This means that an agent (or agents) have visited your place of business, observed operations, and made recommendations that additional information is required to ensure you are meeting your sales tax responsibilities. In short, you are now being audited. You should not ignore this letter and should contact a tax attorney to discuss how to respond to such request for information.

If you do have a sales tax account with the State Board of Equalization, the follow up request will include demands for quarterly business records and other documents, which they may use to prove your sales tax returns were not accurate. The sales tax auditor will review the records and may determine that the business records justify a higher liability than was initially reported on the tax return, and this can result in additional penalties and interest, and in some cases, may result in a criminal investigation.  Given the sensitive nature of a sales tax audit resulting from this program, it is essential that you contact a tax attorney to review your account and to determine the best strategy for your case.

If you did not have a sales tax account with the Board, and the agent determines you should have one, they will open an account for you on the spot. This puts a taxpayer in a very precarious position, as it is likely that no sales tax has been paid to the State Board of Equalization.  You should discuss whether it is necessary to have a sales tax account with a qualified tax attorney.

Sales tax assessments can be steep. The Board uses the same interest rate used by the IRS. Like the IRS, they also backdate the interest from when the liability was due. This means that if you are assessed tax on a tax year that was 3 years ago, you will owe three years of interest on the balance. If not paid within 90 days, a collection cost recovery fee is also assessed. This is in addition to the 10 percent penalty for failing to file a return on time, or a 10 percent penalty for making a late payment. If the business is large enough, a pre-payment penalty may apply as well. Because sales tax balances and penalties are very serious, it is essential that you involve a tax attorney in this process before the account is referred to collections.

Business owners have the right to be represented by a tax attorney before the State Board of Equalization.  We encourage all taxpayers to speak with a tax attorney before discussing his account with the State Board of Equalization to ensure that his rights are protected and that the information represented is true and accurate.

If you are concerned about your sales tax compliance and have been contacted by an SCOP employee, or if you have received the follow up letter, “Request to Furnish Information,” contact an experienced tax attorney at Dallo Law Group for a free consultation.