Could California require a foreign-vehicle distributor to report California buyers even though it was no longer a DMV dealer and did not collect use tax?

Plain-English summary

Ms. K--- A. W---'s absent December 19, 1988 letter argued that Regulation 1687 excused a redacted foreign-vehicle distributor from section 7055 reports previously requested by the Deputy Director of Business Taxes.

Board staff later told counsel that the distributor had been a California DMV dealer but cancelled that license effective April 1, 1988 when its California dealership became a separate corporation. It therefore was no longer a dealer under section 6292 and was neither required to collect nor collecting California use tax on European vehicle deliveries.

California said this made timely information reports especially important. Section 7055 allowed the Board to require any person holding information about taxable use of tangible personal property to report purchaser names and addresses, sales price, sale date, and other requested information.

The distributor argued that Regulation 1687 limited that authority. California disagreed. The regulation restricted information-return demands directed to people who solicited orders for certain sellers; it did not prevent the Board from requiring reports from the distributor itself. Because the distributor held information needed to identify California residents bringing European-delivered vehicles into the state for use, counsel affirmed the filing request.

The source attributes lost revenue and delayed assertions to a 90-day actual-European-use threshold and three-year audits, or longer audits with waivers, but identifies no governing authority or supporting audit data for those statements. An unsigned note appended after the signed letter cites an absent April 5 DMV letter, questions two printed Government Code references as a regular-report basis, and proposes another attempt to persuade distributor counsel. No reply, filed report, enforcement action, appeal, or later outcome is supplied.

What this means for you

Vehicle distributors and tax professionals

Ending dealer status or lacking a use-tax collection duty does not necessarily eliminate a separate information-reporting duty. Track purchaser identity, sales price, sale date, delivery location, and intended California use.

Common questions

Q: Did the distributor have to collect use tax as a DMV dealer?

A: No, not after it cancelled its dealer license on the described facts.

Q: Did that eliminate its reporting duty?

A: No.

Q: Why did Regulation 1687 not protect the distributor?

A: California read its limitation as applying to people soliciting orders, while section 7055 independently authorized reports from the distributor itself.

Citations and references

• California Revenue and Taxation Code section 6292 — cited for dealer status and collection on European deliveries; complete text, definitions, versions, exemptions, and later history not supplied
• California Revenue and Taxation Code section 7055 — quoted for reports from information holders, required fields, and other requested information; complete text, report mechanics, enforcement, versions, amendments, and later history not supplied
• California Sales and Use Tax Regulation 1687 — described for reports from order solicitors and read not to excuse the distributor itself; complete text, definitions, versions, enforcement, amendments, and later history not supplied
• Unidentified 90-day actual-European-use threshold and usual three-year audit period, longer with waivers — governing authority, computations, audit population, waivers, purchaser records, revenue measures, and other support not identified or reproduced
• December 19, 1988 counsel letter, Deputy Director request, and Board staff's April 1, 1988 license-cancellation and spin-off information — requests, communications, licenses, corporate records, deliveries, purchasers, reports, returns, and supporting evidence not reproduced
• April 11, 1989 Senior Tax Counsel Donald J. Hennessy letter — no reply, report form, filing, notice, audit, assessment, payment, appeal, enforcement, or later outcome supplied; blind copies sent to four named staff members
• Unsigned appended note, April 5 Jack Warner DMV letter, printed Government Code “Sectios15,617 and 15,618,” and proposed Ms. Wilkinson reply — author, addressee, letter, response, complete or corrected authorities, communications, and result not reproduced
• Official Annotation 310.0200's distributor, dealer and business status, reporting, consumer, dealer-purchase, and April 11, 1989 rules — annotation omits the request provenance, staff source, spin-off, European-use facts, authority analysis, unsigned note, missing records, later outcome, and reliance status and supplies no additional record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 310.0200
• Original supporting opinion: 310.0200 PDF

Original ruling text

310.0200

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

April 11, 1989

Ms. K--- A. W--Law Offices of A---, D--- & H--XXX W. --- Street
--- ---, CA XXXXX

M--- B--- of N--- A---, Inc.
SZ --- XX-XXXXXX

Dear Ms. W---:
I apologize for this late response to your letter of December 19, 1988, addressed to Mr. Vic Day of the Board’s Sacramento staff, which was referred to me for reply. Your letter concludes that M--- B--- of N--- A--- (M---) is not required to file the reports required by Revenue and Taxation Code Section 7055 because of the limitation contained in Sales and Use Tax Regulation 1687. M--had been requested to file such reports by the Deputy Director of Business Taxes. The delay in responding was partially caused by difficulty in ascertaining the facts as to the
---, California dealership you refer to in your letter. If this California dealership, which is registered as a dealer with the Department of Motor Vehicles (DMV), was actually part of M---, then it appeared to me that, within Revenue and Taxation Code Section 6292, M--- should be collecting use tax on --- deliveries of vehicles to California residents for use in California. This would do away with the Board’s need for reports from M--- pursuant to Section 7055 of the Revenue and Taxation Code. I have now been informed by the Board staff that M--- was a registered dealer, but cancelled its license with the DMV as of April 1, 1988, when the --- dealership was spun off into a separate corporation. This now results in M--- not being a “dealer” within Section 6292. Therefore, M--- is not required to, nor does it collect, California use tax on European deliveries.

Ms. K--- A. W---

-2-

April 11, 1989
310.0200

This is precisely the situation in which the Board staff needs the reports contemplated by Section 7055, which states as follows: “Reports relative to use tax liability. In administration of the use tax the board may require the filing of reports by any person or class of persons having in his or their possession or custody information relating to sales of tangible personal property the storage, use, or other consumption of which is subject to the tax. The reports shall be filed when the board requires and shall set forth the names and addresses of purchasers of the tangible personal property, the sales price of the property, the date of sale, and such other information as the board may require.” In administering the use tax, the Board staff informs me that there is a substantial amount of revenue being lost because of their inability to quickly determine the identity of purchasers from M--- who take delivery in Europe and bring the cars into California for use prior to there being more than 90 days of actual use in Europe. The usual audits conducted by the Board for three-year periods (or for more than three years if waivers are given) do not supply the Board staff with the information quickly enough. The Board staff is left to assert use tax against such European purchasers on some sales which are three or more years old. This leads to lost revenue and no end of problems. We therefore require, and hereby are affirming the request by the Deputy Director of Business Taxes, that M--- begin filing the reports required by Section 7055. Your letter of December 19, 1988 reaches the conclusion that M--- is not required to file reports pursuant to Section 7055 because of Sales and Use Tax Regulation 1687 (Title 18 of the Code of California Regulations). We disagree that Regulation 1687 is a limitation on Section 7055, as far as M--- is concerned. Regulation 1687 requires information returns to be filed by all “persons” who solicit orders for a “seller” who does not hold a Certificate of Registration – Use Tax, unless the seller is engaged in business in California and holds a seller’s permit. The Board staff is not requesting those “persons” who solicit orders for M--- to file the returns required by Regulation 1687. If the Board staff were doing so, I would be inclined to agree with you that such “persons” could legitimately argue that they need not file such returns because of Regulation 1687. This is the only limitation we believe Regulation 1687 places on Section 7055. Here the Board is requesting M--- itself to file the reports required by Section 7055 and M--is in precisely one of the situations which Section 7055 was enacted to cover, i.e., has information essential to the efficient collection of the use tax on autos purchased in Europe for California use. We do not believe M--- can argue that, because the Board has placed a limitation in Regulation 1687 on the requirement of returns from M---’s personnel who actually solicit the orders, that, therefore, M--- itself is relieved of supplying the information specifically contemplated by Section 7055. We, therefore, request you advise M--- to file such reports with the Board staff. If you have further questions, feel free to write or phone me.

Ms. K--- A. W---

-3-

April 11, 1989
310.0200

Sincerely,

Donald J. Hennessy
Senior Tax Counsel
DJH:jb

bc:

Mr. R. Nunes
Mr. Glenn A. Bystrom
Mr. Jim Caldwell
Mr. Jack Warner

Given Jack Warner’s letter to the DMV of 4-5-89, a copy of which you and I received, I am inclined to take another crack at trying to convince M--- B---’ counsel that they should be filing information reports with us. I don’t think we can make a convincing case out of Government Code Sectios15,617 and 15,618. The former arguably applies only to property tax assessments, and both sections clearly entitle us to conduct audits of the taxpayers, but I don’t think they can be read as requiring the regular filing for reports with us. I think that I would rather see Ms. Wilkinson’s reply to the above argument that Regulation 1687 is not a limitation on Section 7055, as to M--- itself.