Were police purchases of replacement vehicles exempt because they were paid from sales of forfeited vehicles?

Plain-English summary

A police department seized vehicles connected with drug activity, sold them through an auctioneer, and used the proceeds to buy smaller, less conspicuous vehicles. Board staff asked whether the asset-forfeiture statutes exempted those replacement purchases.

The memorandum separated three events. First, vesting title to a seized vehicle in the law-enforcement agency was nontaxable because no sale occurred and the agency paid no consideration. The cited statutes merely enabled the title transfer.

Second, when the agency sold forfeited vehicles, the sales were taxable to the same extent as other transactions. Third, the agency's purchases of replacement vehicles with the auction proceeds were also subject to the ordinary tax rules and procedures. The source of the purchase money did not create an exemption.

Citations and references

• California Health and Safety Code sections 11473.2 and 11473.3(c) (as cited)
• Jan. 25, 1993 Compliance memorandum to Gordon Adelman asking about BT-111 forms for police vehicles bought with asset-forfeiture proceeds — memorandum, forms, and supporting records not reproduced in the official PDF
• Declarations or judgments of forfeiture filed with DMV to convey clear vehicle title to a law-enforcement agency — statutory procedure described; declarations, judgments, DMV filings, titles, and registration records not reproduced in the official PDF
• Police seizure of drug-related vehicles, auctioneer sales, and purchases of smaller, less conspicuous vehicles using the proceeds — facts supplied; seizure, forfeiture, auction, sale, purchase, invoice, payment, title, and tax records not reproduced in the official PDF
• Official Annotation 295.0427's law-enforcement purchase, forfeited-property-sale proceeds, ordinary-transaction tax treatment, and April 14, 1993 date — annotation omits the Jan. 25 memorandum, BT-111 forms, seized-vehicle vesting, declarations or judgments, DMV procedure, auctioneer, statutory analysis, missing records, and later outcome and supplies no additional transaction record
• Possible BT-111 issuance, vehicle registration, forfeiture, auction, replacement purchase, return filing, audit, assessment, refund claim, appeal, or other later agency action — not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0427.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

X------------------------X-------------- Compliance

From:

Thomas Cooke
Tax Counsel

Subject:

X-------------------------

295.0427

Date:

April 14, 1993

Gordon Adelman has requested that I respond to your memorandum to him dated January 25, 1993 concerning the above subject. In your memorandum, you state that the X-------------- Police Department has asked for BT-111's to register vehicles purchased with funds obtained through asset forfeiture laws. The police department seizes certain vehicles involved in drug dealing. The vehicles are sold through an auctioneer. The auctioneer purchases smaller and less conspicuous vehicles with the proceeds of the earlier vehicle sales. You ask if Health and Safety Code sections 11473.2 or 11473.3(c) provide a sales tax exemption for the police department in this situation? Health and Safety Code section 11473.2 states that seized vehicles may be placed in the name of the law enforcement agency for use in its law enforcement program. The statute provides that a copy of a declaration, or judgment of forfeiture, filed with DMV shall constitute authority to convey clear title to the law enforcement agency. Health and Safety Code section 11473.3(c) provides a similar procedure to vest title to seized property in general in the law enforcement agency. The forfeiture of vehicles and the vesting of title to those vehicles in a law enforcement agency is nontaxable because there was no sale and therefore there was no consideration paid for the transfer. Health and Safety Code sections 11473.2 and 11473.3(c) are merely enabling statutes permitting DMV to transfer title to the agency. If the law enforcement agency sells the forfeited vehicles, tax applies to the sales to the same extent as in any other transaction. The agency's purchase of less conspicuous vehicles with the proceeds from the sale of the forfeited vehicles will be subject to tax to the same extent (and subject to the same procedures) that the agency purchases vehicles in general.

TC:wk
cc:

Mr. R. A. Slater