Did a dealer sell a stolen inventory vehicle by giving its insurer a bill of sale after receiving a total-loss payment?

Plain-English summary

An insurer paid an automobile dealer for a new car stolen from its inventory. The dealer gave the insurer a bill of sale because the Department of Motor Vehicles required registration and licensing so the vehicle could be identified if recovered.

California concluded that the dealer did not incur sales-tax liability. The parties did not intend a sale, and the administrative bill of sale did not make the insurance claim payment a sale under the Sales Tax Law.

The opinion added that if the vehicle was recovered, the expected salvage sale could support sale-for-resale treatment. It suggested retaining a resale certificate from the insurer plus records showing the payment was for a total loss under the policy.

Common questions

Did the bill of sale itself create a taxable transaction?

No. The opinion treated it as a registration and identification formality without sale intent.

Why did possible salvage matter?

The insurer stated that a recovered vehicle would be sold, supporting the alternative view that the transfer was for resale.

What records did the Board suggest?

A resale certificate and documentation that the insurer's payment covered a total loss under the policy.

Citations and references

• No numbered statute, regulation, or case citation appears in the official source

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/495-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0300.pdf

Original ruling text

495.0300

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

November 7, 1958
M--- I--- Corporation
G--- E--- I--- Corporation
XXXXX --- Avenue
--- --- X, California
Attention: Mr. W. C. M--Office Manager
Gentlemen:
This is in reply to your letter of October 30 in which you inquire concerning the application of sales tax when an insurance company which insures the new car stock of an automobile dealer pays the dealer for the value of a car that has been stolen. You state that the dealer gives a bill of sale to the insurance company for the car because of a requirement of the Department of Motor Vehicles that the vehicle be registered and licensed to be identifiable in event of recovery. We do not believe that the dealer incurs a sales tax liability under such circumstances. There was no intent to make a sale of the vehicle, and the giving of a bill of sale to the insurance company does not, in our opinion, constitute a sale within the meaning of the Sales Tax Law. In any event, since you state that if the car is recovered the salvage would be sold, the sale by the dealer would possibly be a sale for resale. You ask what documents the dealer will need to substantiate his not reporting sales tax on such a transaction. He might well obtain from the insurance company a resale certificate and in addition his record of receipt of payment from the insurance company for a total loss of the vehicle under the insurance policy would be sufficient to show the true nature of the transaction Very truly yours,

E. H. Stetson
Tax Counsel
EHS:tl
cc:

Long Beach - Administrator
Los Angeles – Review (PER)