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BizIPEsq.
BizIPEsq., Attorney
Category: Business Law
Satisfied Customers: 996
Experience:  I am a business attorney. I represent individuals and companies with all business related matters.
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I am half owner (stock holder) in a C corp that ran a SCUBA

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I am half owner (stock holder) in a C corp that ran a SCUBA Diving shop. After a few years of poor sales and an increase in rent we closed the doors. My partner who actually ran the shop (I work full time elsewhere) kept the inventory at his house in his garage, shed and backyard covered with tarps. He attempted to sell it online for a few years with no real sales to show. The business has operated at a loss for at least 4 years. My partner died while diving last year. After several years of operating at a loss, an aging inventory (no new inventory has been ordered for 4 years) and no one to run the business, I disolved the business last year. The State Board of Equalization contacted me and said I owe tax on the inventory. I tried to sell it to a few shops with no luck but one agreed to seel it if we divided the profit. He has collected sales tax on the little he has sold in the last year. I'm not sure why but my partner had the inventory valuated for tax and insurance purposes at about $100,000. From the inventory list it is more like $75,000 at original cost. With aging neoprene and outdated styles I'd guess I could get $25-$50K if I had time or a place to sell it. I have not been able to even get an offer from any of the shops I checked with to get a minimum value although I'm still trying to get a number. I would be happy to get $10k as a whole lot.
My questions are:
1. If the shop I have the inventory at is collecting sales tax do I still need to pay use tax (the business has been officially closed)?
2. Assuming I finally get a valuation from one or more dive shops, can I use that as a valuation or do I need to pay for a formal valuation?
3. If I get a new business license can I avoid paying sales/use tax until it actually sells?
4. Is there some other way to make this go away? I'd rather destroy the inventory and save $10k of tax and have to try and sell the inventory to get my money back.

BizIPEsq. :

Hello, I will be assisting you

BizIPEsq. :

Generally speaking, all businesses with annual gross receipts of at least $100,000 are required to file annual use tax returns with the SBE. Once the business has sales of $100,000 in one year, is it required to file the use tax return every year thereafter until the business is dissolved.


BizIPEsq. :

The question whether you used a resale certificate when you purchased your inventory. If you haven't then the state most likely believes that you purchased the good for self you and if purchased out of state then the company is liable for use tax. Therefore:

BizIPEsq. :

1. If the shop that is selling the inventory is collecting sales tax generally you would not have to pay the use tax but the burden of proof is on you that this is in-fact the merchandize that you purchased in the past and that the transaction between you and the shop selling the gear now was done with the resale certificate of the store

BizIPEsq. :

2. As noted you should nto have to pay the use tax however in general to reduce the value of the good you can apply the standard depreciation scale that the IRS may have for such goods in addition to using the final sales price as the ultimate value.

BizIPEsq. :

3. A new business license will not cancel the existing obligations of the 'current' business

BizIPEsq. :

4. realistically you need to straighten the filings that were made (or should have been made) in connection with the goods when they were initially purchased for resale. You may need to file an amended use tax returns or submit an appeal to the board. This is fairly advanced so you should retain an accountant or a tax attorney. I realize that this will cost however the existing liability will not go away. In fact you will not be able to dissolve the company if there is an existing tax liability.

BizIPEsq. :

Thank you for allowing me to assist you

BizIPEsq. :

Please rate my service. Without your rating I do not get compensated for my work.

Customer: Thank you. This was very helpful. The original inventory was bought with a business license and the shop now selling also has a license. My partner was very careful to report to the State BOE and we paid hundreds of dollars a year with less then $1,000 in sales for the past few years.
Customer: Now I won't go in to the SBE blind.
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