Form 656-B online Costa Mesa California 2024-2025

Form 656-B online Costa Mesa California: What You Should Know

The Sales and Use tax on purchases of services occurs when they amount the person pays for services exceeds the amount of that person's gross income (defined as gross income before other income) minus the amount the person paid to the seller of such services, divided by four. The “gross taxable income” is gross income before deductions for: • Expenses paid directly to an employee to procure his labor or services (and not including self-employment income to the extent it is included in gross income); • Deductions for mortgage interest, taxes on real estate and transportation, charitable contributions, unemployment compensation, employee welfare benefits, retirement incomes and Social Security benefits, and state programs for the elderly; and • Other deductions. “Gross income” includes gross receipts; gross earnings; and the net income on which deductions are allowed. Gross income is calculated under the basic principles defined in the Internal Revenue Code. Sales and use tax is the basis for the tax and for collecting the tax. When a purchaser of services sells his services and uses these proceeds as taxable income, the sales and use tax will be assessed against the sales proceeds. Tax is assessed on gross receipts, not net income. Net income is profit after the deductions for expenses and taxes. For taxpayers with an interest in real property, the sales and use tax includes the portion of the tax due under the principle that the seller owes the tax on the real estate. A taxpayer who has received taxable sales and use receipts on his real property may elect to recognize the tax only on this portion of the tax due on the real property. The tax on the remainder of the tax due on the portion of the sale or use tax due on the real property is not paid. Example: Assume that a resident of Texas with taxable sales and use receipts has an interest in a property from which the sales proceeds from a property sale (the seller's gross sales proceeds) exceed the buyer's expenses (the buyer's gross expenses), and that the buyer has no income from rental activity and receives the property free (no payment for use). Because the property has a taxable sales and use tax, the seller must use the tax as the basis for computing the net taxable income of the property purchaser. In this case, the purchaser's gross taxable income is calculated using the sales and use tax basis of the property purchaser. Because sales and use receipts result in the sales and use tax, any tax attributable to these receipts is taxable income to the purchaser.

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