Did a dealer owe use tax after withdrawing a nondealer trade-in from inventory for personal use?

Plain-English summary

A licensed dealer that acquired a trade-in from an individual who was not a licensed dealer owed use tax if it withdrew or used the vehicle personally. Demonstration or display use while holding the vehicle for sale was the stated exception.

Individuals normally paid use tax through the Department of Motor Vehicles when registering vehicles bought in occasional sales. Dealers did not register vehicles taken as trade-ins, but that administrative difference did not eliminate their tax liability. The memorandum therefore required the dealer to pay the use tax directly to the State Board of Equalization.

Citations and references

• The source states its occasional-sale and dealer-payment conclusions without identifying a statute or regulation

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/125-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/125-0080.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Sacramento – Auditing (CNW)

From:

Tax Counsel (LWR) – Headquarters

Subject:

Used Vehicles Withdrawn from Inventory for Personal Use

125.0080
Date:

May 12, 1966

Dealers withdrawing vehicles from their inventory for personal use when those vehicles were acquired from individuals who are not licensed dealers must pay the use tax on the use of those vehicles unless it can be shown that the use was for demonstration or display. Since August 1, 1965, the occasional sale of motor vehicles has been subject to the use tax. Occasional sales by dealers are to be included in the gross receipts subject to sales tax. Sales by individuals other than licensed dealers are not to be included in the gross receipts subject to sales tax, but instead are subject to use tax payable to the Department of Motor Vehicles when the vehicles are registered. Dealers, however, do not register vehicles taken from individuals as trade-ins. That does not mean that dealers are exempted from the liability for use tax; they are merely not included in the provision requiring that the use tax be paid to the Department of Motor Vehicles. Therefore, since the dealers are liable for the tax but are not required to pay it to the Department of Motor Vehicles, they must pay it to the State Board of Equalization.

LWR:md