Was a licensed vehicle dealer's sale of a privately owned car to the dealer's child exempt as a family transfer?

Plain-English summary

A parent who held a DMV vehicle-dealer license proposed selling a privately owned vehicle to the parent's child. The vehicle did not come from dealer inventory.

Board counsel said the family exemption still did not apply. Section 6285 required the parent not to be engaged in selling the type of property transferred. A person holding or required to hold a DMV dealer's license was engaged in the business of selling vehicles, and all motor vehicles were the same type of property for this test.

The memorandum used a Toyota dealer's sale of a Volvo as an example: the sale to the dealer's child was taxable even though the brands differed and the Volvo was not inventory. By contrast, a vehicle dealer's sale of a vessel or aircraft to a child could qualify because those were different types of property. A vessel dealer's sale of a vehicle could similarly qualify, while that dealer's sale of a vessel could not.

What this means for you

Licensed dealers transferring personal property to family

Removing an item from business inventory did not create the exemption. The inquiry focused on the type of property the parent was in the business of selling.

Accountants and tax professionals

Check the transferor's dealer-license status and compare the broad property categories. The memorandum treated different vehicle brands as the same type.

Common questions

Q: Did it matter that the car was privately owned?

A: No. The dealer's business status, not inventory classification, controlled the family-exemption analysis.

Q: Were a Toyota and a Volvo different property types?

A: No. The memorandum treated both as motor vehicles.

Q: Could a vehicle dealer transfer a vessel to a child under the exemption?

A: Yes, under the memorandum's example, because a vessel was not the same type of property as a motor vehicle.

Q: What if the parent should have held a dealer license but did not?

A: Counsel treated a person who held or should hold the license as engaged in the vehicle-selling business.

Citations and references

• California Revenue and Taxation Code §§ 6051, 6275(b), 6283, 6284, and 6285(a)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0022
• Original supporting opinion: 585.0022 PDF

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum

To :

Ms. Oveta L. Riffle, MIC:37
Consumer Use Tax Section,

From :

Stephen M. Smith
Tax Counsel

Subject:

585.0022

Date:

November 28, 2001

Telephone: (916) 324-2616

CalNet 454-2616

Sales & Use Tax Section 6285 – Family

This is in response to your memorandum dated October 19, 2001, in which you inquire about the application of Revenue and Taxation Code section (hereafter Section) 6285. Specifically, you asked for an explanation for how Section 6285 applies to a transfer of a vehicle from a parent to a child when the parent is a dealer and the vehicle does not come from the inventory of the dealer but is privately owned. As a starting point, persons required to hold a seller’s permit by reason of the number, scope, and character of their sales of vehicles must report and pay tax to this Agency measured by the gross receipts from such sales. (Rev. & Tax. Code, §§ 6283, 6051, 6284.) When a parent sells a vehicle to his or her child, that sale is exempt only if the parent “is not engaged in the business of selling the type of property for which the exemption is claimed.” (Rev. & Tax. Code, § 6285, subd. (a); Cal. Code Regs., tit. 18, § subd. (b)(2)(A).) Based on the language of Section 6285, subdivision (a), there are two factors to be examined. First, is the parent “engaged in the business of selling?” Second, what is the “type of property” that the parent is in the business of selling? With respect to the family exemption under Section 6285, the Board has considered that a person is engaged in the business of selling vehicles if the person holds a DMV dealer’s license or should hold a DMV dealer’s license. (See Rev. & Tax. Code, § 6275, subd. (b).) The issue relevant to your inquiry, however, is how strictly to limit the type of property that is excluded from the exemption. Under the statute, the sale of a motor vehicle from a person holding a DMV dealer’s license to that person’s child is not exempt, regardless of whether the vehicle comes from the inventory of the dealer. For example, if a Toyota dealer sells a Volvo to his or her child, that sale is not exempt because Toyotas and Volvos are the same type of property. However, if the Toyota dealer sells an aircraft or vessel to his or her child, that sale would be exempt because a vehicle is not the same type of property as a vessel or aircraft. Similarly, a

Ms. Oveta L. Riffle

-2-

November 28, 2001
585.0022

vessel dealer’s sale of a motor vehicle to his or her child is exempt, but the sale of a vessel to his or her child is not exempt. I hope this answers your question. Please feel free to contact me if you have any further questions.

SMS/ljt