Do I owe tax when buying out-of-state tobacco products? What forms are filed to get mortgage debt forgiveness on the short sale of a home?

This week, those questions get answered by state Franchise Tax Board expert Daniel Tahara.

To see more of his advice on state taxes or to get help from IRS tax expert Jesse Weller, go to "Ask the Experts" at: www.sacbee.com/ask.

That's where you'll also find free advice on investing, personal finances and wills/trusts.

The state sent me a notice that I owe excise and sales tax for the online purchase of tobacco products from out-of-state vendors. I feel violated. What will the state do if I do not pay?

The State Board of Equalization (BOE) is responsible for collecting excise, sales and use tax. I contacted Anita Gore, BOE's deputy director of external affairs, for a response:

"The taxpayer should not feel violated since most, if not all, Internet sellers include a statement on their invoices that they will be notifying the recipient's tax collection agency. When someone buys cigarettes online from an out-of-state seller, federal law requires the seller to notify the tax agencies in that state."

In California, BOE gets the invoice information from the seller and bills the buyer for excise, sales and use tax.

"We prefer voluntary payment," said Gore. But if taxpayers have difficulty paying the amounts in full, BOE "will work with our taxpayers to allow them to enter into a payment plan."

For more information, visit www.boe.ca.gov.

My son will receive an IRS Form 1099-C, Cancellation of Debt, from the short sale of his home in 2011. He will file IRS Form 982 to report the exclusion from gross income since the debt cancellation is from a qualified principal residence. Does he need to include a copy of his federal return when he files a California Form 540 to report the exclusion for state taxes?

I'm asking because my daughter had the same situation for 2010 when she filed her California Form 540. She attached a full copy of her federal return but it took 18 weeks to receive her California tax refund.

Yes, California taxpayers must include a complete copy of their federal return when they claim mortgage forgiveness debt relief on their state tax return. They also should attach IRS Form 982, "Reduction of Tax Attributes Due to Discharge of Indebtedness."

At each stage of processing, the information reported on a state tax return is being verified. If we are unable to verify information, the return is selected for additional review. Tax returns claiming cancellation of debt can fall into this category and are sometimes referred to our audit division for further analysis.

Without knowing all the facts of your daughter's return, I can say that attaching a copy of her federal return would not have slowed down processing of her refund. In fact, if her return was selected for additional review, it may have actually sped up the process since there would be no need to request a copy of her federal return.

For more on mortgage debt forgiveness, visit our website at www.ftb.ca.gov.

– Compiled by Claudia Buck

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