In our continuing series about tax liens, we would like to talk about how the California Board of Equalization handles them. While there are similarities between how the IRS and the various California tax agencies pursue, impose, and release tax liens, there are some important differences that every tax payer should be aware of.
Overview of the Board of Equalization
The Board of Equalization administers the sales and use tax for the state of California.
Sales tax is imposed on individuals and businesses in exchange for the privilege of selling goods in California. It is measured by subtracting non-taxable sales from the business’s gross receipts. In general, sales tax is passed along to the consumer. A “use tax” is paid by the purchaser on an item obtained for use inside the state from an out-of-state retailer.
The BOE acts in two phases: Assessment and Collections.
The Assessment Phase is when the BOE will try to assess as many people as possible to increase the number of collection targets.
In the Collections Phase, the BOE will send collections officers who often demand large payment amounts from businesses by threatening to place a lien against personal property. Anyone involved with a corporation, whether or not he or she holds ownership in it, can be held personally liable for the amount of sales tax owed. The BOE also has the power to revoke the seller’s permit.
The Process of Placing a Lien
- The BOE invokes a lien against your property.
- The lien encumbers your California property, preventing you from refinancing, selling, or transferring it through escrow.
- The credit bureaus record the lien on your credit record, where it will remain for seven years.
- The BOE has the legal right to enforce collections, including bank levies and other asset seizures.
How to Remove a Lien
To have a lien removed, you must create a plan that will help you pay off your tax liability. Your first step is to pay as much as possible immediately to minimize interest and penalties. Then determine the most expedient way to discharge the debt and pay any additional penalties.
What your plan should include:
- A request for the consideration of a short-term (less than 12 months) or long-term (12 months or more) payment proposal.
- Filing current tax returns and prepayments on time.
- Presenting a complete financial statement and formal request for payment plan.
- Making payments on time and in full each period.
Be diligent about making all installment plan payments on time and in full. An installment agreement can be terminated due to:
- Late payments
- Delinquent or partial payments
- Failure to disclose assets or income on the financial statement
- Failure to increase payment levels as requested on new assets or income
- Failure to comply with a review of financial status
The BOE provides a lot of flexibility in payments. You can pay online, by credit card, and through automatic withdrawal. Interest will continue to accrue until the debt is paid off.
Disputing a Lien
You can dispute a lien if you feel it has been placed in error. To dispute a lien, communicate with the BOE as soon as possible by phoning or writing to the BOE office that sent the bill, or by visiting the nearest BOE office.
Consequences of Non-Payment of Taxes
The consequences of neglecting to pay taxes either by the filing date or through an installment plan can be devastating. The Board of Equalization is allowed to do the following:
- Encumber California property
- Place bank levies and seize other asset
- Intercept your state tax refund
- Issue a civil warrant (”till-tap” or “keeper” warrant) allowing the California Highway Patrol or local sheriff to enter your business and collect the gross receipts or contents of the cash register (till-tap). A keeper warrant allows a representative to remain at the business for one to ten days to continue to collect proceeds.
How to Have a Lien Released
To have a lien released and remove the encumbrance on your properties and bank accounts, you must pursue one of these actions.
- Pay your taxes in full: You must submit payment for the entire tax debt plus interest and other charges. Then the taxing jurisdiction sets the bill balance to zero.
- Partial Release: You can obtain the partial release of a tax lien on a specific piece of property if the amount of taxes and penalties due is secured by other property under lien.
- Request Relief: Contact the BOE as soon as possible. File all past due returns, even if you cannot pay. Pay as much as possible to avoid additional interest. If you have already paid your tax debt, you may be eligible for relief from the penalty, interest, or fees.
- Offer in Compromise: Request to pay less than the amount due so you can settle liabilities that cannot be paid in full due to a specific set of circumstances.
You may be eligible for an Offer in Compromise for if you meet all of the following criteria:
- You have a final tax or fee liability on a closed account
- You are no longer associated with the business that incurred the liability
- You do not dispute the amount of tax or fee you owe
- You cannot pay the full amount you owe in a reasonable amount of time
The Board of Equalization is empowered to place a lien on personal property for the non-payment of sales and use tax. If you are a retailer within the state of California or if you purchase goods from outside the state, you must file and pay the appropriate taxes on all items sold.
If the BOE places a lien on your property because you paid none or partial taxes, you can get it released by paying your taxes and penalties in full through an installment payment program or by requesting relief or Offer in Compromise. The help of an experienced tax attorney can expedite the matter.
The next post will explain how the Franchise Tax Board handles liens.