Did an employee owe use tax when a company used its fleet discount as the employee's agent and registration later moved from company to employee?

Plain-English summary

Companies with fleet-buying power sometimes purchased cars for employees at a fleet discount. The vehicle was initially registered to the company, but the employee paid for it, arranged all financing, and took delivery directly from the dealer.

Staff preferred an agency analysis. The company acted as purchasing agent for the employee, who was the principal. If the dealer collected sales tax on the fleet purchase, transferring registration from company to employee did not trigger another use tax, and a tax-clearance form could issue.

If no sales tax had been paid—such as a possible out-of-state purchase—no clearance should issue. The employee had to present proof of tax paid to the dealer.

The memorandum rejected a less suitable alternative under which the company would claim a tax-paid resale credit and the employee would pay use tax, because DMV's vehicle-license-fee value might omit extras and create a lower measure.

What this means for you

Employers helping employees buy fleet-price cars

The historical no-second-tax result depended on genuine agency facts and prior sales-tax payment, not merely changing the registration name.

Accountants and tax professionals

Preserve the dealer invoice, sales-tax receipt, employee payment and financing records, delivery proof, agency arrangement, and registration transfer.

Common questions

Q: Who actually paid for the vehicle?

A: The employee.

Q: Who arranged financing and took delivery?

A: The employee arranged financing and took delivery directly from the dealer.

Q: Why was no second use tax due?

A: The company acted as the employee's agent and sales tax had already been paid.

Q: What proof was required?

A: Evidence that the dealer collected tax on the original fleet purchase.

Citations and references

• The memorandum applies an agency analysis and historical tax-clearance procedure without citing a specific statute.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0460
• Original supporting opinion: 585.0460 PDF

Original ruling text

State of California

585.0460

Board of Equalization
Legal Division

Memorandum
To

: Long Beach – Compliance (MMS)

From

: Tax Counsel (RHA) – Headquarters

Date :

November 23, 1964

Subject : Automobile Use Tax - - Fleet Purchases

This is with reference to our telephone conversation several days ago regarding the application of use tax on passenger cars that are purchased by companies having fleet price purchasing powers. The automobiles are sometimes purchased for employees. This memo is written in lieu of sending a photocopy of my letter to A written on November 7, 1963. The letter related to a similar inquiry. Vehicles sold to companies with fleet discounts are registered to the company and sales tax is paid by the dealer making the sale. The employee, however, actually pays for the vehicle, makes all financing arrangements, and takes delivery directly from the dealer. A problem arises when the registration is transferred from the company to the employee and the question is whether use tax is due from the employee-transferee. Two approaches to the use tax question have been advanced. One, the company may take a tax-paid purchases resold credit and the employee then pays the use tax when the vehicle registration is transferred to the employee. This is not the best solution, however because the sales tax may be greater than the use tax since the use tax is measured by the vehicle license fee figure which admittedly does not take into account any “extras.” The second approach is the agency theory. The company is, in fact, acting as an agent for the employee when it makes the purchase on the employee’s behalf. Thus, when sales tax has been paid, a BT-111 may be issued on the transfer from the company (agent) to the employee (principal). Where sales tax was not paid on the fleet-priced purchase, no BT-111 should be given. This may arise where the vehicle is purchased out-of-state. Thus before a BT-111 is issued, the employee (applicant for transfer of registration) should present proof that tax was paid to the dealer when the vehicle was purchased. RHA:md