California SB 86 is Now Law: An Analysis of California SB 86 (signed on March 24, 2011) and its wide-ranging compliance and enforcement initiatives


On March 24, 2011 Governor Brown approved Senate Bill No. 86 which has three, apparently independent, statutory regimes. A common denominator of all three is California’s effort to maximize revenues and minimize tax avoidance mechanisms.

The new laws (1) implement changes to the Sales and Use Tax Law (USE Tax); (2) create a Financial Institution Record Match System (FIRM) which requires financial institutions to match a list of delinquent taxpayers with their own account holder lists and report matches back to the Franchise Tax Board (FTB) and (3) create a voluntary compliance initiative (VCI) applicable to abusive tax avoidance transactions and unreported income from the use of offshore financial arrangements. This note briefly discusses these three provisions.

Use Tax

Currently, a California use tax is imposed on anyone who purchases tangible personal property for use, consumption, or storage in California if the purchase is not otherwise subject to sales tax. Generally, use tax is owed when a purchase of tangible goods is made outside of California (whether online or off line) and the item is used in California. For example: A personal computer is purchased online from an out of state retailer by a California buyer for use in California.

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