After years of operating your rather successful retail business, steadily rising in profits, suddenly you receive a letter from the California Board of Equalization (BOE) (as of May 2018 now called the California Department of Tax and Fee Administration (CDTFA)) stating that your account is switched from a quarterly filer only to a monthly prepay account.
First of all, congratulations, as this means that you’re making at least an average of $17,000 in taxable sales per month! Secondly, you may be wondering what a sales tax prepayment is and how to pay it.
Well, worry no more! Here’s everything you need to know on prepayments and the deadlines.
What is a Prepayment?
While every business operating under a seller’s permit is required to pay sales taxes, as mentioned above, only businesses surpassing a threshold of $17,000 in monthly sales are required to pay through prepayments. Even then, eligible businesses should only submit prepayments if they are notified by the tax agency directly via mail.
For the first, third, and fourth calendar quarters – as well as the first prepayment of the second quarter – all prepayments must be either 90% of the month’s tax liability, or 1/3 of the tax liability measure for the previous year’s quarterly period multiplied by the effective tax rate when the prepayment was made (provided you and/or your predecessor were in business during that quarter).
For the second prepayment falling within the second quarter (based on sales from May 1st – June 15th), prepayments must equal either 135% of the tax liability in May, 90% of May’s liability plus 90% of the first fifteen days in June, or at least 1/2 the tax liability measure for last year’s quarterly period multiplied by the tax rate in effect.
Sounds complicated, right? To make it easy, we usually recommend looking at the tax collected in the period, and scheduling the prepayment for that amount.
When is a Prepayment Due?
Simply put, prepayments are due on the 24th of each month you do not file a tax return. For example, during the first calendar quarter (January – March), the first prepayment would be due on February 24th, the second on March 24th, and then the quarterly returns is filed by April 30th. If the due date falls on a weekend or holiday, the amount is due the next business day.
With that rule in mind, the upcoming prepayment for the month of April is currently due by May 24th and will be the first prepayment for the second quarter.
(All information was gathered from this article by the Board of Equalization.)
