Guide to the California Department of Tax and Fee Administration
In California, there are several different tax agencies that handle the administration of the state's taxes. They include the Franchise Tax Board (FTB), the Employment Development Department (EDD), the State Board of Equalization (SBE), and the CA Department of Tax and Fee Administration (CDTFA). Individuals almost all deal with the FTB because that entity collects sales tax, but if you run a business, you may end up dealing with all three of these entities.
This guide takes a look at the CDTFA. It looks at what this agency does. Then, it briefly outlines what taxpayers need to know about CDTFA taxes, registration, late payments, collections, and other issues. Need help with the CDTFA today? Then, reach out to a California tax pro. They have experience with this agency, and they can help you negotiate the outcome that is best for your situation. They can also answer your questions about your rights, how to appeal taxes, and more.
What is the California Department of Tax and Fee Administration?
The CDTFA is a state taxing authority focusing on sales, use, and special taxes. This agency collects revenue that California uses for essential services such as transportation, public safety, health, libraries, schools, social services, and natural resource management.
The California Department of Tax and Fee Administration (CDTFA) collects over $70 billion in taxes every year, and it administers sales and use tax as well as many other special taxes and fees. If you run a retail business in California, you will end up dealing with the CDTFA.
The agency's motto is that its purpose is to make life better for Californians. But when you're dealing with complex tax reporting and payment requirements of if you owe back taxes to the CA Department of Tax and Fees, it may not feel like they exist to make your life better. To help you get an understanding of what this agency does and how to deal with them, this guide provides an overview of this CA tax agency.
Where Are the CA Dept of Tax and Fees Offices?
The CDTFA has offices throughout the State of California. The agency also has offices in Houston, New York City, and Chicago to assist CA taxpayers who live out of state.
CDTFA Administered Tax & Fee Programs
The Business Tax and Fee Division of the CDTFA administers the state's sales and use taxes, and these taxes make up over 80% of CDTFA's tax revenue. This division also takes care of about 30 special taxes and fees. Some of these taxes support the state's general fund, but others are earmarked for special uses such as constructing highways or running local recycling programs. In some cases, the CDTFA works with other state agencies on these taxes.
Here is an overview of all the taxes administered by the CDTFA. If you're responsible for collecting and remitting any of these taxes, you will end up dealing with this CA tax agency.
CDTFA Sales and Use Tax
In California, sales and use tax include state, local, and district taxes. As of 2022, the state sales tax rate in California is 7.25%. Then, local areas can add on district sales taxes that range from 0.1% to 1%. In some cases, an address may be in multiple jurisdictions, so there may be multiple district taxes that stack on top of each other. For instance, in Beverly Hills, the sales tax rate is 9.50%.
Retailers must register with the CA Dept of Tax and Fees. Then, they must collect sales tax from customers, file sales tax returns with the CDTFA, and remit their collected taxes. Use tax is the same rate as sales tax, but it applies to sales that are not subject to California sales tax. For instance, if you order something online from another state and have it shipped to you in California, you may owe use tax.
CDTFA Special Taxes and Fees
Again, the California Department of Tax and Fee Administration collects several special taxes. Here is an overview of the special taxes and fees:
- Alcoholic Beverage Tax
- California Tire Fee
- Cannabis Tax
- Childhood Lead Poisoning Prevention Fee
- Cigarette & Tobacco Products Licensing Program
- Cigarette & Tobacco Products Tax
- Cigarette Tax Stamp Program
- Covered Electronic Waste Recycling Fee
- Diesel Fuel Tax
- Emergency Telephone Users (911) Surcharge and Local Charges
- Energy Resources (Electrical) Surcharge
- Fire Prevention Fee
- Hazardous Waste Disposal Fee
- Hazardous Waste Environmental Fee
- Hazardous Waste Facility Fee
- Hazardous Waste Generator Fee
- Integrated Waste Management Fee (Solid Waste & Wood Waste)
- International Fuel Tax Agreement (IFTA) and Interstate User Diesel Fuel Tax
- Interstate User Diesel Fuel Tax
- Jet Fuel Tax
- Lead-Acid Battery Fees
- Lumber Products Assessment
- Marine Invasive Species (Ballast Water) Fee
- Motor Vehicle Fuel Tax
- Natural Gas Surcharge
- Occupational Lead Poisoning Prevention Fee
- Oil Spill Prevention and Administration Fee & Oil Spill Response Fee
- Tax on Insurers
- Timber Yield Tax Program
- Underground Storage Tank Maintenance Fee
- Use Fuel Tax
- Water Rights Fee
How to Register With the CDTFA
If you open a business that collects one of the CDTFA taxes, you will need to set up an account. You can also do that online. You need your ID, Social Security Number, email address, and supplier name and address. You also need to provide personal references and the name and contact details of your bookkeeper or accountant if you have one. Additionally, you will need your organization's Federal Employee Identification Number, the California Secretary of State Entity Number, and details about your officers, members, or partners.
For special taxes, you may need additional information to register. For instance, if you're registering to pay Alcoholic Beverage Tax, you will need your Alcoholic Beverage Control (ABC) License. Or if you're registering for the hazardous waste and environmental fees, you will need your Environmental Protection Agency (EPA) Number and your CA Employment Development Department (EDD) number.
As indicated above, the CDTFA works with other agencies on some special taxes. If you want to register for the following taxes, you shouldn't register with the CDTFA. Instead, you should register with the agency listed after the tax below:
- Childhood Lead Poisoning Prevention Fee — CA Department of Public Health
- Hazardous Substances Taxes (Disposal and Facility Fee) — Department of Toxic Substances Control
- Integrated Waste Management — CA Department of Resources Recycling and Recovery (CalRecycle)
- Insurance Tax — California Department of Insurance
- Water Rights Fee — State Water Resources Control Board
There is no online registration for the Marine Invasive Species Fee. If you owe this tax, you don't have to register. CDTFA will have your information from the California Marine Exchanges.
How to File a Tax Return With the CA Dept of Tax and Fee Administration
You can file CDTFA tax returns online. You need your CDTFA account number and details about sales, purchases, or transactions during the filing period. For instance, if you're filing a sales tax return, you need to know your sales for the filing period. You cannot file without that information. However, in some cases, you may need to make an estimated payment before you have the final numbers. In this situation, you should use historic numbers to guide you.
You can also make payments online. You can use a bank account or a credit card. Card tax payments incur a 2.3% service fee, with a minimum of $1. If you don't want to pay online, you can file online, print out a payment voucher, and then mail in a check or money order. If you want to pay in cash, you need to contact your local office and ask for an exception — usually, the CDTFA doesn't accept cash.
The due date for your return and payment varies based on the type of tax, and it can also vary based on the volume of sales. For instance, some retailers file and pay sales tax monthly, while others pay quarterly.
What If You Can't Pay Your Taxes in California?
When you can't pay your taxes to the CDTFA, you will incur penalties on your account. You need to reach out to the agency and make arrangements to pay your tax debt. The CDTFA has the right to enforce collections through liens, wage garnishments, and asset seizures, but the agency prefers to work with taxpayers rather than take these actions.
If you can't afford to pay your taxes to the CDTFA on time, you can meet with a supervisor to talk about the taxes. You can request hard copies of your file. You can also request a hardship hearing if the tax bill is creating economic hardship.
What Happens If You Don't Pay California Sales Tax?
You can face severe consequences if you don't register, file returns, or pay sales tax. The CDTFA can asses penalties on your account. The department can issue tax liens against you. But most significantly, you can lose your business license or permits. If you're struggling with unpaid sales tax, you should contact a tax pro with experience in CA to help you.
This is when the CDTFA audits your sales tax returns for accuracy. The CDTFA may randomly select your returns for audit, or the agency may audit your returns because it sees a red flag.
How Does the CDTFA Assess Taxes?
In most cases, you report numbers to the CDTFA, and your tax bill is based on that. However, in some cases, the CDTFA may assess a tax against you. For instance, this may happen if the agency audits your account and decides that you owe more tax than shown on your return. In other cases, you may receive an assessment notice if you didn't file a return and the department believes that you should have.
Receiving an unexpected tax assessment can be unsettling. If you're not sure how to respond or if you don't agree with the tax amount shown, you should reach out to a tax professional. They can outline your options, and if applicable, they can help you appeal the assessment.
CDTFA Collections Process
The CDTFA has the right to use many different collection tactics. The department will always try to work out things amicably with taxpayers, but if a tax debt goes unpaid for a long time, the CDTFA may use write-off collections, tax liens, wage garnishments, or asset seizures. In California, this department can also send the sheriff to your business and demand payment or auction off your business assets if you don't pay.
Tax Liens From the CDTFA
The CDTFA can issue a tax lien against you or your business if you have unpaid taxes. This typically only happens in cases where you don't make arrangements on your tax debt, but CDTFA may be able to issue a lien at its discretion even if you have a payment plan set up.
A tax lien attaches to your assets. If you try to sell the asset, the CDTFA has a right to the proceeds from the sale. This also makes it hard and sometimes impossible to take out loans against your assets. However, there are ways to get liens released. You may also be able to subordinate liens if you want to take out a loan against the asset. Both of these tasks require you to contact the CDTFA. A CA tax pro can help you.
Penalty Relief From the CDTFA
If you fail to file your returns or make your tax payments on time, the CDTFA can assess penalties on your account. The penalties can be high, but you can apply for penalty relief. In particular, the CDTFA may be willing to remove penalties when you show that you filed or paid late due to reasonable circumstances or issues outside of your control.
When you owe back taxes or penalties, interest accrues on your balance. In most cases, the agency will not remove interest. However, if a CDTFA employee caused the error or delay, you may be able to get the interest abated. You can get both interest and penalties abated (waived) if you were in a disaster area.
Once a tax goes unpaid for more than 90 days, the CDTFA applies a collection cost recovery fee. You can also get this fee removed if you can show reasonable cause.
To remove any CDTFA fees, you must first pay the tax. You can request an extension if you know that you can't afford to pay or file on time. You get a one-month extension, and the agency won't charge you with late filing or payment penalties. You can request penalty relief through your online account, but you may want to have a CA tax pro help you.
Tax Fraud With the CA Dept of Tax and Fee Administration
There is a fraud investigation team at the CDTFA. They look for tax fraud and evasion, and they help prosecute taxpayers who break the tax laws administered by this department. The most common types of tax fraud in relation to this department include cannabis tax evasion, cigarette and tobacco products tax evasion, fuel tax evasion, and sales tax evasion.
If you have been accused of tax evasion or fraud in California, do not deal with this issue on your own. Contact an experienced tax attorney and get help. They can talk with you about your situation and help you ensure that your rights are protected.
Taxpayer's Rights Advocate Office
If you can't resolve a tax issue through the CDTFA's usual procedures, you may want to reach out to the TaxPayer's Rights Advocate Office. You can contact this office about issues such as the following:
- Your rights were violated during an audit.
- Your rights are violated when the CDTFA enforces collection actions against you.
- Your small business needs help resolving tax compliance issues.
Get Help Dealing With the CDTFA
Dealing with the CDTFA can be confusing and frustrating. Here's the good news — you don't have to deal with this agency on your own. There are CPAs, tax attorneys, and enrolled agents who have extensive experience with this agency. Using TaxCure, you can search for a California tax pro and filter your results based on the tax problem you have or the solution you want. Don't let taxes stress you out or hurt your finances — get help from a tax pro today.