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The majority of people who own rental properties consider themselves passive or hands-off investors. In California, even little things—such as being involved in short-term rentals or listings for furnished units—can put you on the hook for sales tax.

Failing to pay these may lead to high penalties, liens, and suspension of your driver’s license. Find out what must happen when California sales tax is owed and how you can make sure things don’t get worse.

1. When Rental Activity Triggers Sales Tax

The Overlooked Risk:

Renting a home in the usual way for over a year does not incur sales tax. However, offering short-term rentals, leasing furnished apartments, or providing services for which you charge tax (such as cleaning, parking, and utilities) may subject your rental business to taxes under California law.

What You Need to Do:

Figure out if your place falls under the transient occupancy rules according to the California Revenue and Taxation Code. If you find there are taxes, you are expected to collect them and report them to the appropriate authorities, the CDTFA, or your municipality. Not getting a seller’s permit or filing forms correctly will make you noticeable to CDTFA.

2. Consequences of Owing Sales Tax in California

The Financial Fallout:

If sales tax is owed and you haven’t paid or reported, the CDTFA does not delay in taking action. There is a chance you might encounter the following:

• You will need to pay penalties and interest starting on the original loan date—often, these charges add on quickly.
• When tax liens are attached to your property, they may prevent you from selling and might reduce your credit score.
• Sending a demand to your bank or employer to take a portion of your money to settle your debt.
• The chance the authorities could cancel or suspend your right to rent out your place.

Even if you didn’t realize you had a sales tax obligation, the CDTFA will make you personally responsible if you handled the company’s finances.

3. The Need for Coming Clean With CDTFA

The Smart Move:

If you notice past errors in filing sales tax, see to them as soon as possible. The Voluntary Disclosure Program in California lets eligible business owners admit mistakes and pay back taxes to keep some punishments at bay.

Things You Should Follow:

Retain an experienced CDTFA dispute professional to assist you. Get ready to reveal:

• The country has flouted rules for a long time.
• The wages you get and the cash you get.
• All of the transactions and services performed are kept on record.

Filing corrected income tax returns and requesting a payment plan can lower the risk for you. The goal is to do something about it before actions are taken to enforce the law.

4. How to Maintain Compliance Going Forward

The Strategic Advantage:

Experienced landlords can also find it difficult to tell the difference between reporting their rental income taxes (on Schedule E) and their sales tax requirements at the state level. If you hire a California tax-law expert from a financial advisor or enrolled agent, they can create leases and manage operations that protect you from risks and costly taxes.