California hopes to collect $631 million in use tax revenue from service businesses over the next three years, according to a recent Los Angeles Times article by Cyndia Zwahlen.

“The use tax was added so out-of-state vendors not subject to California’s sales tax didn’t have a price advantage over in-state retailers who did have to pay the tax.”

While the use tax laws have been in effect since the 1930’s, it’s only recently that California’s Board of Equalization (BOE) has made a concerted enforcement effort. In addition – and this is indicative of California’s financial fix – laws have changed so that service businesses such as legal and accounting firms, Lasik eye surgery centers and child care companies that bring in more than $100,000 in annual revenue can be included in the use tax enforcement efforts.

BOE has sent out 164,000 letters to small businesses to date.

“The tax board is looking for out-of-state purchases, especially of expensive equipment, fixtures or software that might be subject to the levy, known as ‘use tax.’”

Businesses receiving a letter from BOE are required to register with the tax board. Then — and here’s the education part — they must report and pay use taxes dating back three years, or show why they’re exempt from the tax. These taxes are due by April 15, 2010.  If a business does not respond to the letter, BOE will, by February, register them automatically.