Could California use the eight-year limitations period against an unregistered co-owner after the registered joint venturer filed a vehicle registration return?

Plain-English summary

Two people jointly bought a classic vehicle for $28,000 to maintain, later sell, and share the profit. Only one registered the vehicle with DMV. That person falsely reported a $2,000 price and paid $130 of use tax. After the three-year assessment period had expired for the registered owner, the Board issued a notice to the unregistered co-owner on the theory that the eight-year no-return period applied.

Counsel treated the two owners as a joint venture with a business purpose. Under the Board's existing approach, a newly discovered joint venturer received both the benefits and burdens of the venture's filing history. The unregistered owner would ordinarily be liable for tax properly billed to the joint venture, but also received the benefit of the registration return filed by the other owner.

The filed return brought the unregistered co-owner within the same three-year limitations period. Because that period had expired, counsel concluded that the Board could no longer assess the full use tax measured by the $28,000 purchase price, absent a departmental finding of fraud in the underreporting.

What this means for you

Co-owners buying an investment vehicle

Registration in one owner's name did not erase the other owner's joint-venture status. That status carried both potential tax liability and the benefit of the filed return's limitations period.

Accountants and tax professionals

Identify the real purchasers and business arrangement, not only the DMV title. A fraud finding could materially change the limitations analysis.

Common questions

Q: What was the vehicle's actual purchase price?

A: $28,000.

Q: What price was reported to DMV?

A: $2,000, with $130 of use tax paid.

Q: Why did the three-year period apply to the unregistered owner?

A: The registered joint venturer's application counted as the venture's filed return, and the other venturer received its benefit.

Q: Was the unregistered owner otherwise liable for the tax?

A: Yes. Counsel said the owner otherwise would owe the full use tax measured by the $28,000 price.

Q: Was the limitations conclusion unconditional?

A: No. The memorandum expressly reserved the possibility of a fraud finding.

Citations and references

• California Revenue and Taxation Code §§ 6292(a), 6292(c), and 6487(a)
• California Sales and Use Tax Regulation 1610(c)(1)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0199
• Original supporting opinion: 585.0199 PDF

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Mr. Vic Anderson, Supervisor
Petitions Section (MIC:38)

From:

Charlotte Chyr
Tax Counsel

Subject:

--- [M]
S- -- XX-XXXXXX-010

585.0199
Date:

January 29, 1997

This is in response to your memorandum dated November 26, 1996 to Assistant Chief Counsel Gary J. Jugum regarding the applicable statute of limitations for the issuance of a Notice of Determination against an unregistered co-owner of a vehicle, --- [M]. Briefly, we note that --- [M] (“[M]”) and --- [C] (“[C]”) entered into an agreement to purchase a classic vehicle for $28,000. Only one of the purchasers, [C], registered the vehicle with the Department of Motor Vehicles (“DMV”). [C] falsely reported a purchase price of
$2,000 to the DMV, and paid use tax on the reported $2,000 purchase price in the amount of
$130. Since the three year statute of limitations had already expired with respect to the issuance of a Notice of Determination against [C], the Board issued a Notice of Determination against the unregistered co-owner, [M], believing that the eight year statute of limitations applied with respect to [M]. As you know, purchasers of vehicles from persons other than vehicle dealers generally must pay use tax to the DMV (acting for and on behalf of the Board) at the time of making application for registration, unless the purchaser establishes the tax is inapplicable or furnishes to the DMV a use tax exemption or tax clearance certificate issued by the Board. (Rev. & Tax. Code § 6292(a); Reg. 1610(c)(1).) Application for registration to the DMV by the purchaser relieves the purchaser of the obligation to file a return with the Board. (Rev. & Tax. Code § 6292(c).) For taxpayers filing such returns, every notice of a deficiency determination must generally be mailed within three years after the return is filed. (Rev. & Tax. Code § 6487(a).) In the case of the failure to make such a return, every notice of a deficiency determination must be mailed within eight years after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined. (Id.) Upon review of the agreement between [C] and [M], we note that [C] and [M] invested in a classic vehicle for $28,000 with the intention of maintaining it, selling it in the future, and sharing the profit. Both [C] and [M] were therefore engaged in a joint venture for which there was a business purpose. We have previously taken the position that in circumstances where a taxpayer may be operating as a joint venture unbeknownst to the Board, the newly discovered joint venturer would get the benefit of the joint venture having filed returns, even if the Board is

Mr. Vic Anderson

-2-

January 29, 1997
585.0199

unaware that a taxpayer may be operating as a joint venture. However, the newly discovered joint venturer would be liable for any tax properly billed to the joint venture. These principles were based on the rationale that the newly discovered joint venturer would take both the detriments and benefits flowing from his or her joint venture status. The benefit would occur where the joint venture has filed returns during the audit period. The eight year statute of limitations would not be applied against the newly discovered joint venturer. However, the newly discovered joint venturer would be liable for any tax properly billed to the joint venture. These principles would apply whether the return was filed in the name of the joint venture or a sole proprietor. Based on these principles, [M] would get the benefit of [C]’s filing of the registration, i.e. the return, but would be liable for the use tax due on the purchase of the vehicle, measured by its purchase price. The three year statute of limitations has expired with respect to [M] as with [C]. Thus, [M], who would otherwise be liable for the full amount of the use tax due (measured by the $28,000 purchase price) can no longer be held liable for the use tax on the purchase of the vehicle. In other words, absent your Department's finding of fraud in the underreporting of tax, we conclude that the three year statute of limitations has expired with respect to [M] as with [C], such that the Board is barred by the statute of limitations from issuing the Notice of Determination against [M]. Please write again if you have further questions.

CC:cl