You can face a 40 percent civil penalty on the unremitted amount, and the conduct can also be a crime. Violating California’s Sales and Use Tax Law is generally a misdemeanor, and it becomes a felony under Revenue and Taxation Code section 7153.5 when it is done with intent to defeat or evade the reporting, assessment, or payment of the tax and the unreported tax liability reaches $25,000 or more in any 12 consecutive months.

Why the law calls it “reimbursement”

California’s sales tax is imposed on the retailer, “for the privilege of selling tangible personal property at retail” (Revenue and Taxation Code section 6051). Whether a retailer may add “sales tax reimbursement” to the price depends solely on the terms of the sale agreement, and the parties are presumed to have agreed to it if the agreement expressly provides for it, if it is shown on the sales check or other proof of sale, or if the retailer posts or prints a notice that it will be added (Civil Code section 1656.1). The tax is generally due quarterly, by the last day of the month after each quarter (Revenue and Taxation Code section 6451).

The 40 percent penalty for collected, unremitted tax

Under Revenue and Taxation Code section 6597, a person who knowingly collects sales tax reimbursement (or use tax) and fails to remit it on time to the California Department of Tax and Fee Administration (CDTFA) is liable for a penalty of 40 percent of the amount not timely remitted. The limits matter:

  • Small amounts. For determinations made on or after January 1, 2025, the penalty does not apply if the unremitted liability averages $1,500 or less per month, or does not exceed 25 percent of the total tax liability for which reimbursement was collected for the period, whichever is greater. Before Senate Bill 1528 (Stats. 2024, ch. 499), those lines were $1,000 and 5 percent.
  • Reasonable cause. You are relieved of the penalty if the late remittance was due to reasonable cause or circumstances beyond your control and occurred despite ordinary care and without willful neglect. The statute’s examples include a death or serious illness, an emergency as defined in Government Code section 8558, a natural disaster affecting the business, CDTFA sending returns to the wrong address, a single late remittance in three years (or in a shorter period in business), and correcting earlier errors and paying the amount owed before CDTFA contacts you about them.

Separately, if any part of a deficiency determination is due to negligence or intentional disregard of the law or regulations, a 10 percent penalty is added (section 6484); if any part is due to fraud or intent to evade, the added penalty is 25 percent (section 6485).

The criminal provisions

  • Misdemeanor. Any violation of the Sales and Use Tax Law, except as otherwise provided, is a misdemeanor punishable by a fine of $1,000 to $5,000, up to one year in county jail, or both (section 7153). Failing or refusing to file a required return is specifically made a misdemeanor punishable the same way (section 6452(c)).
  • False returns. Making a false or fraudulent return with intent to defeat or evade the determination of an amount due, or willfully helping prepare a return that is fraudulent or false as to a material matter, is a misdemeanor with the same punishment (section 7152).
  • Felony. A person who violates the Sales and Use Tax Law “with intent to defeat or evade the reporting, assessment, or payment of a tax” is guilty of a felony when the unreported tax liability adds up to $25,000 or more in any 12-consecutive-month period. Each offense is punishable by a fine of $5,000 to $20,000, imprisonment for 16 months, two years, or three years, or both (section 7153.5).

The felony line is written in terms of unreported tax liability and intent to evade, so what the returns reported and why the money was not paid are central facts. A prosecution under these penal provisions must begin within five years after the offense or within two years after it is discovered, whichever is later (section 7154).

How far back CDTFA can assess

For taxpayers who do not file annually, a notice of deficiency determination generally must be served within three years after the last day of the month following the quarter, or within three years after the return was filed, whichever is later. If no return was filed, the deadline is eight years, and the three-year limit does not apply in a case of fraud or intent to evade, for which section 6487 sets no deadline (section 6487).

If there is a conviction

Restitution a court orders in a Sales and Use Tax Law prosecution can be collected the same way as a delinquent sales and use tax liability, including by an earnings withholding order and a recorded state tax lien; it can accrue interest, payments are not refundable, and the law’s collection time limits do not apply (section 7157).

Records matter

CDTFA’s recordkeeping publication warns that if an audit finds your records inadequate, the agency will use standard accounting methods to determine the tax you should have paid, and that “a lack of complete, accurate records may be considered negligence or intent to evade the tax on your part” (CDTFA Publication 116).

Federal law

There is also a federal evasion felony, 26 U.S.C. section 7201, for willfully attempting to evade or defeat a tax imposed by the Internal Revenue Code, punishable by up to five years in prison.

What matters in your case

  • How much is unremitted and over how many months, which bears on the 40 percent penalty’s small-amount limit and the felony’s $25,000 line.
  • Whether the collected tax was reported on your returns, and whether returns were filed at all.
  • Why it happened: a bookkeeping or software error, a cash-flow decision, or something concealed on a return.
  • What sales and remittance records exist, and whether errors were corrected and paid before CDTFA raised them.

If CDTFA has contacted you, or you are worried about collected sales tax that was not remitted, a white collar crime attorney at the Law Offices of David S. Chesley can examine your filing and payment history before you respond. Call (800) 755-5174 to discuss your next steps.