Report Suspected Tax Fraud Activity
At the California Department of Tax and Fee Administration (CDTFA) we have an Investigations team whose job it is to identify tax evasion problems, identify new fraud schemes, and actively investigate and assist in the prosecution of crimes committed by individuals who are violating the laws administered by the Department. Tax fraud hurts everyone, so help us help you.
Types of evasion:
Under the California Revenue and Taxation Code, any person who willfully evades or attempts in any manner to evade the reporting, assessment or payment of the cultivation tax, the cannabis excise tax, or the sales tax that would otherwise be due is guilty of cannabis tax evasion or sales tax evasion. Violators are subject to fines and/or jail time. See the Special Taxes and Fees Tax Rates page for current cannabis tax rates. For the current sales tax rates, see the Sales and Use Tax Rates page.
Cannabis tax evasion hurts honest businesses in the regulated cannabis industry. Cannabis or cannabis products can be sold at a lower price when the taxes are not paid, which allows the seller to gain more customers and illegally earn increased profits. Additionally, when cannabis taxes are not paid, those dollars are not available for the various programs such as, among other programs, research on the impacts of cannabis on public health, the effectiveness of cannabis use for treatment, and youth education.
Examples of cannabis tax evasion include, but are not limited to:
Distributors collect the cultivation tax from cultivators or manufacturers but intentionally fail to report and pay the cultivation tax to the CDTFA.
Distributors collect the cannabis excise tax from cannabis retailers but intentionally fail to report and pay the cannabis excise tax to the CDTFA.
Any person that is required to be licensed as a cannabis distributor and intentionally does not collect the cultivation tax or the cannabis excise tax and pay the cannabis taxes due to the CDTFA.
In general, the distributor is responsible for collecting the cultivation tax based on the weight and category of harvested cannabis from cultivators or manufacturers, along with reporting and paying the cultivation tax due to the CDTFA. Additionally, the distributor is responsible for collecting the 15% percent cannabis excise tax from cannabis retailers based on the average market price of the cannabis or cannabis products sold in a retail sale, along with reporting and paying the cannabis excise tax due to the CDTFA. Additional information can be found on the Tax Guide for Cannabis Businesses.
Any person who intentionally evades the reporting, assessment or payment of cigarette or tobacco products taxes that would otherwise be due is guilty of cigarette or tobacco products tax evasion. And as of 2004, any retailer, wholesaler, or distributor of cigarettes and tobacco products and any manufacturer or importer of cigarettes that does not comply with the licensing requirements of the Cigarette and Tobacco Products Licensing Act (CTPLA) of 2003 may receive fines up to $5,000 per offense, imprisonment up to one year in county jail, or both fines and imprisonment.
Tax evasion hurts all of us by reducing the amount of revenue available for essential state and local services. Nearly 90% of the taxes collected on cigarettes and tobacco products are earmarked to fund important programs such as breast cancer research, health education, hospital and physician services, research, public resources, and county-run projects for child health and development.
Cigarette and tobacco products tax evasion also hurts the honest business owner. Unscrupulous sellers of untaxed cigarettes and tobacco products can undercut the prices charged by the legitimate businessperson. And evasion is accompanied by an increase in thefts, hijackings, cross-border smuggling, and other organized crimes.
Cigarette or tobacco products tax evasion includes such actions as:
Sale of unstamped cigarettes or untaxed tobacco products.
Intentionally importing tobacco products from outside the state without remitting the appropriate California State tobacco products taxes.
Sale of cigarettes with counterfeit or reused tax stamps.
Possessing, owning, storing or selling untaxed cigarettes or tobacco products (unless licensed as a distributor, manufacturer or importer).
Violations of the Cigarette and Tobacco Products Licensing Act of 2003 include such actions as:
Sale or distribution of cigarettes or tobacco products without a license.
Not obtaining and maintaining a valid license for each location selling cigarettes or tobacco products.
Not displaying your license in public view.
Not maintaining purchase or sales records, as required.
Refusing access of purchase or sales records to authorized inspectors or enforcement staff.
Selling cigarettes or tobacco products to individuals under 21 years of age (STAKE Act).
Selling cigarettes or roll-your-own (RYO) tobacco in California that are not listed in the California Tobacco Directory.
Under the California Revenue and Taxation Code, any person who intentionally evades the reporting, assessment or payment of fuel taxes that would otherwise be due is guilty of fuel tax evasion. Violators are subject to fines and/or jail time. See the Special Taxes and Fees Tax Rates page for current fuel tax rates.
Fuel tax evasion hurts honest businesses. Fuel can be sold at a lower price when the tax is not paid, which allows the seller to gain more customers and illegally earn increased profits. When fuel taxes are not paid, those dollars are not available for a variety of transportation uses; primarily for the construction and maintenance of our roads and highways.
Examples of fuel tax evasion include, but are not limited to:
Using dyed (untaxed) diesel fuel in a vehicle operated on California highways without being licensed to remit the tax.
Intentionally importing fuel from outside the state without remitting the appropriate California State fuel taxes.
Blending taxable fuel with an untaxed product to increase volume without paying tax on the increase.
Fuel tax evasion is bad for the environment. Illegally blended fuels can cause increased soil and air pollution. These result from poor combustion and contamination from toxic or waste chemicals used as blending agents. In addition, illegally blended fuels often cause increased engine wear and can lead to vehicle breakdowns.
Under the California Revenue and Taxation Code, any person who intentionally evades the reporting, assessment or payment of sales taxes that would otherwise be due is guilty of sales tax evasion. Violators are subject to fines and/or jail time.
Examples of sales tax evasion include, but are not limited to:
Retailers collect sales tax reimbursement from their customers on sales but intentionally fail to report and pay the tax collected.
Retailers intentionally fail to report all retail sales on which sales tax is due.
In general, retail sales of tangible personal property in California are subject to sales tax. The responsibility for paying the sales tax is upon the seller (retailer). The sales tax rate varies statewide; however, the statewide tax rate base is 7.25 percent. Sales taxes are higher in locations where voters have approved additional "district taxes." See the Sales and Use Tax Rates page to find the current sales tax rate for your location.
Sales tax supports a broad range of state services, from parks to prisons. In addition, sales tax is a major source of revenue for many cities and counties, which depend on the income for police and fire service, courts, roads, health care, and more. Tax evasion hurts all of us by reducing the amount of money available for these essential services, and honest businesses are placed in a competitive disadvantage by deceitful sellers who do not pay the tax they owe.
Beware of Tax Collection Scams
The CDTFA has received reports of threatening scam attempts to fraudulently collect alleged tax debts. The CDTFA investigates all reported scam attempts. Follow this link for information about these scams or to report a suspicious telephone call or other communication attempt.