MISCELLANEOUS TAXES

MISCELLANEOUS TAXES

Sales and Use Tax

The California State Sales Tax is imposed upon retailers for the privilege of selling tangible personal property
at retail. The retailer is liable for this tax whether or not collected from customers.

The Use Tax is imposed upon the storage, use, or other consumption of tangible personal property purchased or
leased under certain conditions from a retailer. Use Tax is the liability of the purchaser and that liability is not
extinguished until the tax is paid to the state unless it was paid to, and a receipt for the tax was obtained from, a
retailer who is registered with and authorized by the state to collect the tax from the purchaser. Sales or Use
Tax also applies to certain leases of tangible personal property under specific conditions. The State Board of
Equalization administers these taxes.

A real estate broker may be concerned with the tax on sale of personal property. The tax applies to transfers of
buildings and the personal property which may convey with the sale of a house and which are not considered
occasional sales under the law if, pursuant to the contract of sale, the buildings are to be severed by the seller. If
the contract of sale requires they be severed by the purchaser, the transaction is not taxable as a sale of tangible
personal property. The tax may also apply to the value of machinery, equipment and fixtures that do not
constitute occasional sales, when included with the sale of a building.

Where a business which required a seller’s permit is being sold, the purchaser may be held liable as a successor
for tax owed by the seller. If there is any question, sufficient money should be held in escrow to cover possible
sales tax liability until a tax clearance is received from the State Board of Equalization.

Real Estate Broker and Mobilehome Sales

A real estate broker who sells mobilehomes as a retailer is required to hold a seller’s permit and report to the
Board of Equalization the sales or use tax applicable to these transactions. When such a broker sells a new
mobilehome for occupancy as a residence, the broker is classified as a retailer-consumer and is required to
declare and pay tax on 75% of the broker’s purchase price of the mobilehome . Unattached furnishings and
other items that are not part of the mobilehome unit remain subject to tax at the full retail selling price unless
otherwise exempt.

A real estate broker who sells used mobilehomes as a retailer is also required to hold a seller’s permit. The
application of tax to sales of used mobilehomes depends on whether the unit is subject to property tax or is
exempt, but sales tax would apply to any accessory items sold that are not a component part of the mobilehome
unit. For mobilehome units sold that are not subject to property tax, sales tax applies. When a real estate broker
acts as agent only, the purchaser is subject to use tax. If the mobilehome is subject to property tax, neither the
sales or use tax applies.

Any questions should be referred to the nearest office of the Board of Equalization.

Real estate salesperson and broker exclusion. Services performed as real estate salespersons and brokers are
excluded from covered employment for purposes of UI, ETT, DI and PIT withholding, if all of the following
conditions are met:

1. The individual must be a licensed real estate broker or salesperson;

2. Substantially all of the remuneration paid to the individual is based on sales or other output rather than by
the number of hours worked by the individual; and

3. There is a written contract between the individual performing the services and the person for whom the
services are performed; which contract provides that, for purposes of state taxes, the individual performing
the services will not be treated as an employee.

State Tax Lien Law

Under applicable State law, any tax liabilities which become due and payable, including penalties and interest,
together with any costs, constitute an enforceable State tax lien on all real property located in this State.
However, the lien is not valid against:

1. a successor in interest of the taxpayer without knowledge of the lien;

2. a holder of a security interest;

3. a mechanic’s lienor; or

4. a judgment lien creditor where the right, title, or interest was acquired prior to the recording of the State tax
lien.

(Government Code Sections 7150-7229)

Unemployment Insurance Tax

The California Unemployment Insurance (UI) Code requires contributions by employers for a national system
of unemployment insurance. Employers must also pay an employment training tax (ETT) and withhold state
personal income tax (PIT) and disability insurance (DI) from employees’ wages.

Real estate salespersons and brokers who are employees under common law rules and whose services are not
excluded, are subject to UI, ETT, DI and state PIT withholding. For further information about services in
excluded employment or in determining if an individual is an employee or an independent contractor, contact
the State Agency Employment Development Department.

California worker’s compensation law. An employer’s statutory liability toward an employee injured on the
job is covered by worker’s compensation insurance. While not technically a tax, it is included in this section
because it does involve payments by the employer. This insurance provides for weekly benefit payments to
employees unable to work as the result of an industrial injury or illness, as well as payment of all medical and
hospital costs in connection therewith.

Since California law is very specific about which employees must be covered, employers should be familiar
with Sections 3351-3700 of the California Labor Code. Problems are most likely to arise in the areas of
independent contractors and part-time employees. Additional information about the law and coverage can be
obtained from State Compensation Insurance Fund.