When Is Sales Tax Due On Vehicles Sold In California?

California under its Sales And Use Tax Law, imposes sales tax on vehicles purchased and delivered in the State. This applies to new and used vehicles. The sales tax is based on the sales price of the vehicle without any reduction for trade-in value of a vehicle owned by the buyer. The California Department Of Tax And Fee Administration (CDTFA) is responsible for enforcing this law.

Sale Of Vehicle In California But Delivered Out Of State

Where a vehicle is purchased in California, but delivery is made out of state to the buyer. There are certain requirements that must be met in order for no California sales tax to be charged. Whether you are a buyer or a seller of a vehicle located in California it is very important that you follow these rules and retain the appropriate documentation. For sellers who failed to meet these requirements or fail to retain the required documentation, the seller will become liable to pay the sales tax along with penalties and interest.

Motor vehicle dealers (dealers) making vehicle sales to non-resident buyers for use outside the state must keep proper shipping and delivery documents when claiming the vehicles are exempt sales in interstate commerce. If you are a dealer making these types of sales, you may be responsible for the sales tax if you do not keep proper documentation. Even if you maintain such documentation, if the vehicle is actually delivered in California, you will be liable for sales tax on the transaction.

What If The Buyer Is An Out-of-state Limited Liability Company Or Other Legal Entity?

Even if the out-of-state LLC or other legal entity has members or entity-owners who are California residents, the sales tax exemption will still apply but the entity may still be responsible for the use tax if they bring the vehicle into California within 12 months of the purchase date.

Documenting the delivery of a vehicle to an out-of-state location

If you are a seller, you must keep records, such as delivery receipts, expense vouchers supporting delivery outside California, bills of lading, and transportation plans from the carrier making the delivery, to support that the vehicle was delivered outside California. When using a delivery service hired by you or your buyer, you can check the Federal Motor Carrier Safety Administration’s website to verify if the transport company is licensed for interstate transportation. If they are not licensed for interstate transportation, the CDTFA may consider the vehicle not delivered outside of California, and the transaction may be subject to sales tax.

If you are a buyer, you must retain documentation supporting continued use outside of California for at least the first 12 months from the purchase date.

When making vehicle sales for use outside California, sellers and buyers will generally complete CDTFA-447, Statement Pursuant to Section 6247 of the California Sales and Use Tax Law, and/or CDTFA-448, Statement of Delivery Outside California, to document the exempt sale. These forms though do not serve as a substitute for the underlying documentation so to avoid liability for tax on the vehicles you must still maintain the proper shipping documentation.

In order for your sale to be an exempt sale in interstate commerce, you must deliver the vehicle to your customer outside the state using your own delivery facilities (for example, your delivery truck) or by a carrier, customs broker, or forwarding agent.  Regardless of how the delivery is made, if at any time the vehicle is diverted in transit and not delivered outside California, you will be responsible for the sales tax due on the vehicle.

Example: You sold a vehicle to a Montana-registered LLC. You and your customer completed CDTFA-447, and you obtained a bill of lading from the shipping company, which you have on file. Your customer provided an out-of-state address on the form; however, the shipping company actually delivered the vehicle to your customer in California. You will be responsible for the sales tax on the vehicle as the sale is not an exempt sale in interstate or foreign commerce.

Impact Of Buyer Bringing A Vehicle Delivered Out Of State Back Into California.

When making sales without tax to out-of-state LLCs that have members who are California residents, please inform your customers that they may still be responsible for the use tax if they bring the vehicle into California within 12 months of the purchase date.  They must retain documentation supporting continued use outside of California.

Additionally, if the buyer registers the vehicle outside of California for the purpose of evading the payment of taxes, they will be liable for a penalty of 50% of the tax determined to be due on the purchase price of the vehicle.

Length Of Time To Retain Records And To Be Subject To Audit By The State.

Generally, the CDTFA has up to three years from the quarter that the sale occurred to audit the seller and verify that any transactions claimed exempt from sales tax qualify for such exemption. Since it may be more difficult to get documents from third parties, such as common carriers or freight forwarders years after a sale occurred it would be in your best interest to gather this information at the time the sale is made and keep it with the file documents for the sale. By doing that you can be assured that if later on you are contacted by the state, you have all the necessary documentation at hand to support the exemption.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. Federal and State Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you.  Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.