Everyone knows that there are penalties for failing to pay taxes. But in California, few know how severe the repercussions can be, especially when falling significantly behind in state tax obligations.
If you are in arrears in paying your state taxes in California, it is important to know what could await you in terms of penalties for this type of tax problem.
Top 500 past due balances
The State of California Franchise Tax Board (FTB) collects state income tax and corporate franchise tax throughout the state. As part of this role, the FTB publishes a detailed list of the state’s top 500 delinquent tax debtors. You or your corporation could be on the list when your tax debts exceed $100,000.
What does it mean to be on the FTB’s list?
Being on the FTB’s list can have serious consequences. The FTB’s website specifically enumerates the penalties:
Professional or occupational license suspension: Obviously, if you are a doctor, lawyer or other professional, losing your license would mean losing your career and income.
Driver’s license suspension: Although arguably not as serious as losing a professional or occupational license, losing your driving privileges is a real problem, especially in a place like Los Angeles, where a car is essential for getting around conveniently.
Ineligibility for state contracts: The FTB states it as such: “State agencies will not enter into contracts with the taxpayer to acquire goods or services.” For many companies in Los Angeles, state contracts are a critical – and sometimes the only – ongoing revenue source. The inability to enter into contracts with the state could be catastrophic.
Publicly published information: The FTB’s list of tax delinquents is publicly available and easily accessible to the public. If you are on the list, your name, address and tax debt information will be published for anyone to see. In cases involving LLCs and corporations, the FTB will publish the names and titles of every principal officer.
Obviously, you want to avoid being on the FTB’s list.
How to stay off the list
The first and most obvious way to avoid being included on the FTB’s list of delinquent taxpayers is to keep up with your tax obligations. Only the top 500 most delinquent taxpayers, and only those with an excess of $100,000 in state tax arrearages will be considered for the list. So, avoiding this type of arrearage is the best way to avoid inclusion.
If you are eligible, you will receive a letter from the FTB (Notice of Tax Delinquencies – FTB 4192). From the time you receive the letter, you will have 30 days to take steps to avoid being placed on the list. Obviously, the most effective step to take would be to clear up the problem by paying your outstanding tax debt.
If you are on the list, you can be removed from it by paying the outstanding debt and getting caught up with your tax obligations. The FTB does major updates on the list twice a year, but it will also update in between those times when taxpayers get their outstanding tax debts cleared.