Could California use the eight-year no-return period against an unregistered co-owner when the other joint venturer had registered the vehicle with DMV?

Plain-English summary

California legal staff concluded that the Board could not use the eight-year no-return assessment period against an unregistered co-owner of a classic vehicle, absent a fraud finding.

Two people jointly invested $28,000 in the vehicle to maintain it, resell it, and share the profit. Only one registered it with DMV. That person reported a $2,000 purchase price and paid $130 in use tax. After the three-year period had expired for the registered owner, the Board issued a determination against the unregistered co-owner on the theory that the eight-year period applied because that person had not filed a return.

The memorandum treated the two owners as joint venturers. Under staff's stated approach, a newly discovered joint venturer receives both the benefits and burdens of the venture's filing: the other owner's DMV registration counted as the venture's return, while both venturers could still be liable for properly assessed venture tax.

Because the three-year period had already expired, staff said the unregistered co-owner could no longer be assessed for use tax measured by the full $28,000 price. The conclusion was expressly limited to the absence of a Board fraud finding concerning the underreported price.

Common questions

Why did the unregistered co-owner benefit from the DMV filing?

Because staff treated both purchasers as joint venturers and the registration as the venture's return.

Would the co-owner otherwise have been liable for the full use tax?

Yes. The memorandum says joint-venture status carried liability as well as the filing benefit.

Did the source rule out fraud?

No. It conditioned the limitations conclusion on the absence of a fraud finding.

Citations and references

• California Revenue and Taxation Code section 6292(a), (c) — DMV payment and registration-as-return provisions cited
• California Revenue and Taxation Code section 6487(a) — three-year filed-return and eight-year no-return periods cited
• California Code of Regulations, title 18, regulation 1610(c)(1) — vehicle use-tax payment rule cited

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0193.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82
Telephone (916)323-3787

170.0193

Memorandum
To:

From:

Subject:

Mr. Vic Anderson, Supervisor
Petitions Section (MIC:38)

Date:

January 29, 1997

Charlotte Chyr
Tax Counsel
REDACTED TEXT
This is in response to your memorandum dated November 26, 1996 to Assistant Chief Counsel Gary J. Jugum regarding the applicable statute of limitations for the issuance of a Notice of Determination against an unregistered co-owner of a vehicle, REDACTED TEXT. Briefly, we note that REDACTED TEXT and REDACTED TEXT entered into an agreement to purchase a classic vehicle for $28,000. Only one of the purchasers, REDACTED TEXT, registered the vehicle with the Department of Motor Vehicles (“DMV”). REDACTED TEXT falsely reported a purchase price of $2,000 to the DMV, and paid use tax on the reported
$2,000 purchase price in the amount of $130. Since the three year statute of limitations had already expired with respect to the issuance of a Notice of Determination against REDACTED TEXT, the Board issued a Notice of Determination against the unregistered co-owner, REDACTED TEXT, believing that the eight year statute of limitations applied with respect to REDACTED TEXT. As you know, purchasers of vehicles from persons other than vehicle dealers generally must pay use tax to the DMV (acting for and on behalf of the Board) at the time of making application for registration, unless the purchaser establishes the tax is inapplicable or furnishes to the DMV a use tax exemption or tax clearance certificate issued by the Board. (Rev. & Tax. Code § 6292(a); Reg. 1610(c)(1).) Application for registration to the DMV by the purchaser relieves the purchaser of the obligation to file a return with the Board. (Rev. & Tax. Code § 6292(c).) For taxpayers filing such returns, every notice of a deficiency determination must generally be mailed within three years after the return is filed. (Rev. & Tax. Code § 6487(a).) In the case of the failure to make such a return, every notice of a deficiency determination must be mailed within eight years after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined. (Id.) Upon review of the agreement between REDACTED TEXT and REDACTED TEXT, we note that REDACTED TEXT and REDACTED TEXT invested in a classic vehicle for $28,000 with the intention of maintaining it, selling it in the future, and sharing the profit. Both REDACTED TEXT and REDACTED TEXT were therefore engaged in a joint venture for which there was a business purpose. We have previously taken the position that in

Mr. Vic Anderson

-2-

January 29, 1997
170.0193

circumstances where a taxpayer may be operating as a joint venture unbeknownst to the Board, the newly discovered joint venturer would get the benefit of the joint venture having filed returns, even if the Board is unaware that a taxpayer may be operating as a joint venture. However, the newly discovered joint venturer would be liable for any tax properly billed to the joint venture. These principles were based on the rationale that the newly discovered joint venturer would take both the detriments and benefits flowing from his or her joint venture status. The benefit would occur where the joint venture has filed returns during the audit period. The eight year statute of limitations would not be applied against the newly discovered joint venturer. However, the newly discovered joint venturer would be liable for any tax properly billed to the joint venture. These principles would apply whether the return was filed in the name of the joint venture or a sole proprietor. Based on these principles, REDACTED TEXT would get the benefit of REDACTED TEXT’s filing of the registration, i.e. the return, but would be liable for the use tax due on the purchase of the vehicle, measured by its purchase price. The three year statute of limitations has expired with respect to REDACTED TEXT as with REDACTED TEXT. Thus, REDACTED TEXT, who would otherwise be liable for the full amount of the use tax due (measured by the
$28,000 purchase price) can no longer be held liable for the use tax on the purchase of the vehicle. In other words, absent your Department's finding of fraud in the underreporting of tax, we conclude that the three year statute of limitations has expired with respect to REDACTED TEXT as with REDACTED TEXT, such that the Board is barred by the statute of limitations from issuing the Notice of Determination against REDACTED TEXT. Please write again if you have further questions.

CC:cl