California's tax laws are contained within the state's Revenue and Taxation Code. This Code establishes the types of taxes to be imposed on California's residents and companies, the calculation of those taxes, the agency responsible for their collection and the penalties for fraudulent tax practices.
California's Definition of Tax Evasion
California defines tax evasion as any action in which a taxpayer "intentionally pays less than they owe." This includes not reporting all income earned, not filing a return, lying or making false statements on a return or claiming to be a resident of another state to avoid paying taxes in California.
Purview of the Laws
The Revenue and Tax Code applies to any resident or corporation that owes the state taxes. The type of tax -meaning income, vehicle, real estate or any other type- is irrelevant. Note that it is unimportant whether the corporation is headquartered or the individual lives in another state; it only matters that the taxpayer has a tax liability to the state of California.
Administrative Agencies and Investigations
The main tax agency in California is the Franchise Tax Board. This agency provides information to the public about the taxes that are owed and how to calculate tax liabilities for different types of taxes. However, the agency responsible for investigating claims of tax fraud depends on the type of tax in question.
- The Franchise Tax Board: This agency is mainly responsible for collecting income taxes. As such, its investigations division is responsible for handling all reports of income tax fraud.
- Board of Equalization: This agency collects sales and use taxes. Its investigations division is responsible for handing all reports of corporate sales or use tax fraud.
- Employment Development Department: This agency disburses employee benefits such as disability or unemployment. It investigates allegations that an employer is not properly paying taxes to support these benefits or that an employee or recipient is not paying taxes on their benefits.
The three different agencies handle investigations, but prosecutions or other legal actions are managed by the states attorney's office. Therefore, if the investigation reveals that violations of the tax code occurred, the agency will refer the case to the state attorney. Collection of taxes, fines and assessed interest are handled by the sheriff or marshal's office. Incarceration, when ordered by the court, is also managed by the sheriff or marshal's office.
California Tax Laws
Different chapters within the Code discuss different types of taxes, including alcoholic beverage taxes, licenses, cigarette taxes, corporate taxes, franchise taxes, sales and use tax, vehicle tax and income tax. Each chapter explains who must pay the tax, how the tax is assessed, how to calculate the amount of tax due and collection procedures.
Each chapter also states the punishments for not paying owed taxes or committing tax fraud. The punishments applicable to the types of taxes differ, but may include fines and interest assessments against the owed funds. Collecting on owed taxes usually includes a four step process:
- The collecting tax agency sues the taxpayer;
- The tax agency acquires a tax lien on the taxpayer's property from the court;
- The agency obtains a warrant for the property upon which a lien is owed;
- The agency requests that the marshal or sheriff seize and sell the property to which a lien is attached.
Usually, a taxpayer that promptly pays the taxes they are owed, including any fines or interest, stops the process from continuing. However, if severe, the authorities may decide to continue to prosecute the taxpayer.
A taxpayer may be subject to imprisonment if they intentionally commit tax fraud. Typically, taxpayers are incarcerated when they commit fraud over a several year period, the amount of money involved is significant and they attempted to cover up their actions.
Reporting or Defending Against Fraud
Individuals are not required to report others for possible tax fraud, but not doing so causes the state to lose tax dollars that may be used to benefit the state's entire population. If you believe that you know of a taxpayer committing fraud, report it to the appropriate authority.
Committing tax fraud is a serious criminal offense. Seek legal advice if you are being investigated or a lawsuit has been filed against you.