Times are tough for everyone, but especially small business owners. I have noticed a few e-mails and Facebook postings offering great discounts if you pay cash. Cash is king but promoting that you want to be paid in cash and will offer a sizable discount for it, is like waving a big red flag that says, “Turn me in for tax evasion!” 
The Board of Equalization, where businesses report and pay sales tax in California, has a long list of clues that help people report possible tax fraud. If you are not guilty of tax evasion, then take some steps to make sure you are in the clear. Cash is still a legitimate currency, of course.
1. Cash vs. Credit Cards
You, as a business owner, may offer a discount for using cash instead of credit cards to avoid the business fees that banks charge for using credit cards. Some businesses even offer to “pay the sales tax for you,” meaning they back the tax out of whatever price you pay. These days, that’s a pretty decent savings in most parts of California.
2. Receipts
As a legitimate, tax-paying business owner, you need to issue a receipt for cash or any other type of payment. Not issuing receipts is another red flag to the Board of Equalization.
3. Liquid Cash
It’s common when a store is liquidating its inventory because it is closing, that the management or the liquidators running the closing sale will ask for cash. A receipt is still necessary.
As a customer, be aware of businesses offering certain programs as cash only. They might not just be evading their taxes, they might be on the brink of going out of business. Don’t spend $60 cash on the day spa program that promises five visits with several services, that each usually cost more than $60–especially if they are selling it to you in the parking lot. Something’s wrong with that picture. They might be closing tomorrow leaving their customers with no recourse for the services or to get their money back.
When businesses avoid paying their taxes it puts a greater strain on city, county and state resources and may actually cause taxes to go up. 
Be a good corporate citizen: if you offer a discount for paying cash, and want to promote it to the masses, then make sure you follow the rules and keep yourself beyond reproach.

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