Was the $39 state fee for a new vehicle's optional four-year smog-renewal extension subject to sales tax?

Plain-English summary

Under a program effective July 1, 1994, a new-vehicle or commercial-vehicle buyer could pay $39 to defer the first smog-certification renewal from two years after purchase to four years. Although choosing the extension was optional, the full fee became mandatory once the buyer elected it, and the dealer had to collect and remit the money to state funds.

The memorandum concluded that the $39 was excluded from the dealer's taxable gross receipts when separately stated on the sales contract and paid to the state. It distinguished an ordinary dealer charge for recovering its own certification costs, which would have been taxable as a business expense.

Citations and references

• California Revenue and Taxation Code section 6012(9), quoted as excluding a qualifying motor-vehicle fee or tax imposed by and paid to California (as printed in the supporting memorandum) — the live annotation cites section 6012(c)(9) without supplying an amendment or correction record
• California Senate Bill 198, described as creating the New Vehicle Biennial Smog Exemption effective July 1, 1994 and changing the smog-renewal methodology — bill session, chapter, text, enactment record, implementing rules, and application not reproduced in the official PDF
• June 15, 1994 Department of Motor Vehicles Vehicle Industry News issue, transmitted through a redacted company contact to Greg McNamee and included with Jack A. Infranca's July 1 cover letter — publication, faxes, cover letter, and attachments not reproduced in the official PDF
• John Evans's telephone conversation with a redacted Consumer Affairs statewide-hotline contact concerning the $7/$32 allocation, state remittance, Vehicle Inspection Fund, Bureau of Automotive Repair special fund, and high-polluter purpose — call notes, hotline guidance, fee schedule, fund authority, appropriation, and accounting records not reproduced in the official PDF
• Purchaser elections, applications for registration, $39 dealer collections, separately stated sales contracts, and remittances to the appropriate agencies — applications, contracts, invoices, receipts, and remittance records not reproduced in the official PDF
• August 1, 1994 internal memorandum to Van Nuys District Principal Auditor Jack A. Infranca, copied to district administrators and blind-copied to Joan Armenta Roberts of the Annotation Project — request beyond the missing cover letter, author name in the body, review record, and publication instruction not supplied
• The memorandum's statement that 'Annotation 294.1410 seems to need revision' — the live page is Annotation 295.1430 and the nearby prior smog annotation is 295.1410; no correction, revision, or cross-reference explanation supplied
• Official Annotation 295.1430's program terms, fund allocations, section 6012(c)(9) attribution, exclusion conditions, and August 1, 1994 date — annotation omits the VIN and fax provenance, hotline conversation, renewal-methodology change, earlier dealer-charge treatment, revision note, missing records, later outcome, and reliance status and supplies no additional proceeding record
• The memorandum's conditional conclusion — no identified dealer transaction, tax return, audit, assessment, refund claim, formal adoption record beyond the live annotation, appeal, or later outcome supplied

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/295-1430.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
295.1430
To:

Mr. Jack A. Infranca
Van Nuys District Principal Auditor

From:

Principal Tax Auditor

Subject:

Taxability of Biennial Smog Fee

Date:

August 1, 1994

With your cover letter faxed to me July 1, 1994, you included a copy of Vehicle Industry News (VIN) which was faxed to Mr. Greg McNamee (AC) by Mr. J--- E. K--- of U--- C--- N--Inc. VIN is a publication issued by the Department of Motor Vehicles on an “as needed” basis. This June 15, 1994, issue of VIN discussed the New Vehicle Biennial Smog Exemption which became effective July 1, 1994. This new exemption came about as a result of Senate Bill 198. Essentially, this program allows the purchaser of a new vehicle or a commercial vehicle to defer their first smog certification renewal from the current two years after purchase to four years by checking a box so marked on the application for registration and by paying an additional $39 at the time of the initial purchase. Any change in ownership would nullify this exemption, other than the removal of a lessor’s name from the registration of a leased vehicle. This legislation also changes the methodology for determining when a vehicle’s smog certification needs to be renewed from being based on the terminal digit of the vehicle identification number to two years from the initial registration date regardless of whether the terminal digit is odd or even. A member of my staff, Mr. John Evans, spoke with Mr. R--- I--- who was assigned to the Consumer Affair’s statewide telephone hot line; and he explained that the entire $39 goes to the state. Seven dollars goes to the DMV’s vehicle inspection fund, the same as the smog certificate fee in the regular program, even though no certificate is issued for this new extension; and the remaining $32 goes to a special fund created for this purpose and maintained by the Bureau of Automotive Repair. This fund is appropriated to repair or remove “high polluter” vehicles from the road. If the purchaser elects to purchase the extension, the dealer must collect the $39, include these charges on the sales contract, and remit each portion of the fee to the appropriate agency. Previous to this new legislation, a dealer was required to certify each vehicle; but there was not any requirement for the dealer to charge any fee to the customer for this certification. If the

Mr. Jack A. Infranca
Taxability of Biennial Smog Fee

-2-

August 1, 1994
295.1430

dealer chose to charge a customer for the initial smog certification, the dealer was considered to be recovering a part of their cost of doing business. Accordingly, this reimbursement of their cost is part of the dealer’s gross receipts. Section 6012(9) however, exempts from sales tax any motor vehicle fee or tax imposed by and paid to the State of California that has been added to or is measured by a stated percentage of the sales or purchase price. While purchasing this exemption is an option of the purchaser, once the purchaser elects to extend the intial smog certification renewal period to four years, the fee is mandatory. Since the entire $39 of this new smog fee renewal extension is imposed by the state as a fee added to the selling price of a new vehicle, the whole fee would be exempt from sales tax, assuming it is separately stated on the sales contract and paid to the state. If you have further questions, please let me know.

/ama
jde040.mem
cc:

District Administrators

bc:

Ms. Joan Armenta Roberts – Annotation Project
Annotation 294.1410 seems to need revision. Legislation originally imposed smog fees only in the South Coast Air Basin with other areas complying voluntarily. Only those areas with required compliance paid the certification fees to the state vehicle inspection fund maintained by DMV. However, currently, legislation imposes these fees in most counties and eventually all counties. All counties that mandate smog certificates are administered in the same manner.