Can anyone help me understand the implications of the Business Tax papers I've just received from the City of Oakland? I've taught private lessons and small group classes since 1985. I've paid my state and federal taxes religiously (and exhorbitantly), as well as a licensed tax preparer, who I've assumed was watching over my tax liabilities. Suddenly I've gotten papers from the City of Oakland saying they found me through my tax payment to the state,and that I need to send them the amounts of gross receipts for all years I've done business in Oakland so they can send me my bill for back taxes and penalties. I am in a terrible state of alarm, living very close to the bone, as I do, to be with my child. Does anyone have a helpful thought for me to be focusing on? They want the papers back from me in A WEEK.
One huge question for me: in one place on the form they ask specifically about gross receipts for 2000 to 2003, so I thought perhaps I could limit my responses to those years. But in another place it asks for the Business Start Date. Can I put 2000 anyway?--that is the year I organized my teaching into its present form. But even though it's a very different business in practice from what it was before, the business name has been the same since the beginning. Is it really possible that they would have me pay taxes back to the 1980's? Or for seven years if there's some kind of limitation? Is there any possibility that I'm not actually liable for this? Does it seem odd that my tax preparer would never have mentioned such an obvious omission from my state and federal taxes?--I assume that all relevant years would have to be re-calculated to take into account a whole new set of tax payments, for example. Am I scaring myself for no reason? For good reason?
Thanking anyone in advance for thoughts or advice.
In Oakland, you are required to have a business license if you run a business (which it sounds like you have been doing). You should go down there and get the forms. Review the requirements and the exemptions to see if any of those apply to you. Also, you should determine your past tax liability and find out who to talk to about an offer to compromise for less than what you owe. The business tax in Oakland is not all that high, $3.60 per $1,000 of gross receipts. So if you took in $20K in a given year, you would only owe $72. It isn't nearly the amount that you pay for state or federal tax so this probably is not as big a problem as you are thinking right now. Also, there is probably some statute of limitation as to how far they can go back to collect. As an example, you might consider agreeing to pay the tax liability for the last 4 years and asking them to waive the interest and penalties for failure to file/pay. Good luck.
Another Oakland Small Business
I an in a very similar position so I understand your concern. Perhaps someone will be able to comment on the statue of limitations issue. However, in general, I think one good piece of advice (which I plan to do as well) is to speak to an attorney or tax person familiar with this issue (my tax person missed it also). I am also interested in what others will say. However, the clear rule in things like this seems to be very careful not to misstate things. That moves you from being uninformed, which is costly, but not a crime, to making false statements, which they do not like at all. One last note: I spoke to the Oakland business tax people and they said that they do NOT negotiate the amount due. I don't know if this is true or not (even the IRS negotiates!) but perhaps a tax person would know the answer to this as well.
Best of luck!! - in the same pot
Last time I checked (4 years ago), the statute of limitations for Oakland business tax was 3 years. That is, if you didn't know of the tax's existence and the city comes after you just now, they can only tax you for the past 3 years - that is why this is all they're asking for on the info request form.
Yes, the tax rate is low, but there is $60 minimum tax (basically on the first $1 of gross receipts), there is a 25% penalty if you 2 months late to pay, there is a requirement to prepay it for one full year, and there is a no-maximum interest charged on tax and penalty @ 1% per month, forever till you paid. And yes, you can have a loss and owe tax on every dollar of your gross receipts - because it's not an income tax, it's a gross receipts tax on business.
Which brings me to my next point. If you, as you say, used services of a licensed CPA, then your contract definitely did specify which tax returns were being prepared. The universe of different taxes (all required to be filed and paid every year!) is so vast, no professional would ever enter into a contract to take care of all your possible tax liabilities. Do you file your use tax return every year with the state? What about business property tax return with the county (not personal, not real property)? There is such great variety of who could impose taxes on you, that it is unreasonable to blame your tax preparer for not having done what you never hired them to do.
And the answer to you last question - no, you will not need to redo any of your past year's tax returns. As a cash basis taxpayer, you will deduct whatever amount of Oakland business tax you pay, in the year you pay this tax (not in the year FOR which you pay this tax). Penalties are not deductible.
Not in the business of preparing city business tax returns,
Maria Ku, CPA