California Passes Assembly Bills No. 82 and 85
New Sales and Use Tax Structure for Used Car Auto Dealers. Summary of the New Sales Tax Law for Car Dealerships:
- Beginning January 1, 2021, some California used car dealers, must pay the “sales and use tax” on retail sale of used vehicles directly to the Department of Motor Vehicles.
- The Bills apply to used vehicle dealers falling within the following criteria and will be impacted on January 1, 2021, by the Bills:
- (a) a dealer licensed in the last two years;
- (b) a dealer who reinstated their Seller’s Permit in the last two years;
- (c) a dealer who had a finding of underreporting in the last two years; and
- (d) a dealer who is not in the Business Partner Automation Program.
- These dealers must still file a return with the California Department of Tax and Fee Administration.
- For these dealers, the filing frequency with the CDTFA is changed to a monthly reporting basis.
On June 20, 2020, the California Legislature passed Assembly Bills 82 and 85 (Bills) to assist in addressing California’s budget deficit caused by the Covid pandemic. Some changes are scheduled to take effect January 1, 2021. These changes require that some used vehicle dealerships pay sales and use tax directly to the California Department of Motor Vehicles (DMV). Further, as a result of the Bills, used vehicle dealers’ filing frequency with the CDTFA is being changed to a monthly reporting basis.
California’s used vehicle dealers, as well as just about all other merchants in the State of California, must pay a “sales and use tax” on the sale of merchandise within the State of California or on out-of-state items purchased without paying California tax, which includes used vehicles. California’s sales and use tax applies to the use, storage, or other consumption of items in the State of California. Sales and use tax, as it is currently codified, is paid directly by the Seller to the California Department of Tax and Fee Administration (CDTFA). Currently, the easiest way to report and pay the sales and use tax is online at the CDTFA website by creating a username and password. Beginning January 1, 2021, a used vehicle dealer will be required to report and submit the sales tax to the DMV within thirty (30) days from the date the retail sale occurred and will be paid with the DMV application. The Bills impose penalties and interest if the used vehicle dealer makes an application to the DMV that is not timely, fails to pay the sales tax, or fails to timely file the return required by the Sales and Use Tax Law with CDTFA.
The Bills also require the DMV to withhold the registration or the transfer of registration of any vehicle sold at retail on and after January 1, 2021, to any applicant by any used vehicle dealer holding a license issued under the Vehicle Code until the used vehicle dealer pays the sales tax and any penalties. Used vehicle dealers will continue to file sales and use tax returns with the CDTFA reporting total retail sales of vehicles. The used vehicle dealer’s license number must be provided as well as sales transaction details within the sales and use tax returns even if the used vehicle dealer is not required to pay tax to the DMV.
For a more detailed description of the rollout of the Bills, please see the DMV’s Express Terms in Article 4.2. Beginning January 1, 2021, sales and use tax returns must contain the vehicle identification number (VIN), report of sale number, selling price, and tax and/or penalty amounts paid to the DMV for the retail sales of used vehicles.
Licensed new vehicle dealers will not be required to pay sales tax directly to the DMV, even if they make retail sales of used vehicles.
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The amendment to Section 6295 of
the Revenue and Taxation Code is listed below
SEC. 9.
Section 6295 of the Revenue and Taxation Code, as proposed to be added by Assembly Bill 85 of the 2019–20 Regular Session, is
amended to read:
6295. (a) When a vehicle is required to be registered
under the Vehicle Code is sold at retail by any dealer holding a license issued
pursuant to Chapter 4 (commencing with Section 11700) of Division 5 of the
Vehicle Code, the dealer shall pay the applicable sales tax to the Department
of Motor Vehicles acting for and on behalf of the California Department of Tax
and Fee Administration pursuant to Sections 4456 and 4750.6 of the Vehicle
Code.
(b) If the dealer makes an application to the Department of Motor Vehicles that is not timely, and is subject to a penalty
because of delinquency in effecting registration or transfer of registration of
the vehicle, the dealer shall also be liable for penalty as specified in
Section 6591, but no interest shall accrue.
(c) Application to the Department of Motor Vehicles by the dealer shall not relieve the dealer of the obligation to file a return with
the California Department of Tax and Fee Administration under Section 6452. The
dealer shall file a return as specified in Section 6453.
(d) If the dealer fails to make an application to the Department of Motor Vehicles, fails to pay the amount of sales tax due, or
fails to timely file a return with the California Department of Tax and Fee
Administration under Section 6452, interest and penalties shall apply with
respect to the unpaid amount as provided in Chapter 5 (commencing with Section
6451).
(e) For purposes of this section, “dealer” shall not include a new motor vehicle dealer as defined by Section 426, a manufacturer or remanufacturer holding a license issued pursuant to Chapter 4 (commencing with Section 11700) of Division 5, an automobile dismantler holding a license and certificate issued pursuant to Chapter 3 (commencing with Section 11500) of Division 5, or a lessor-retailer holding a license issued pursuant to Chapter3.5 (commencing with Section 11600) of Division 5, and subject to the provisions of Section 11615.5.
(f) The Department of Motor Vehicles shall, through the adoption of regulations, establish any additional requirements for the implementation of this section.(g) This section shall apply to sales of vehicles occurring on and after January 1, 2021.