Californias New Sales Tax Reporting For Used Car Dealers And Auctioneers
California is currently in the process of transitioning its sales tax reporting and payment process for used vehicles from the CDTFA to the Department of Motor Vehicles . Effective January 1, 2023, all used car dealers will pay their sales tax to the DMV. However, used car dealers will still file a sales and use tax return with CDTFA using schedule CDTFA-531-MV also note that California imposed a monthly filing frequency for all used vehicle dealers as of January 1, 2021. This change reflects the reality that the CDTFA often relies on DMV sales data to reconcile your sales tax reporting and identify gaps or other underreporting. You can review CDTFAs page of FAQs for more information on the new changes affecting used car dealerships.
Used vehicle auctioneers are also subject to the monthly reporting of their sales since January 1, 2021. The CDTFA may also require the submission of an extra schedule on your return that details wholesale transactions under certain circumstances.
What Rate Should I Be Charged
If you buy an item from a business located in an unincorporated county area, you will generally be charged the county sales tax rate on your taxable items. If the same item is purchased in a city with an additional district tax, you will be charged that city’s tax rate. If you purchase an item from outside of California for use in the city and/or county where you live, you owe use tax on that purchase. If you have not saved your receipts from such purchases, the Use Tax Lookup Table calculates how much you owe, and you can enter it as a line item when you file your income tax returns.
Incorrect Tax Amount Paid At The Dmv
If you believe you were charged and paid the incorrect amount of use tax at the DMV, please contact the CDTFA.
An incorrect tax amount may be collected if the wrong tax rate was charged or if tax was computed on the wrong purchase price. If you overpaid the use tax, you can file a claim for refund using the CDTFA’s online services and selecting Claim a Refund for Tax Paid to DMV/FTB under Limited Access Function. Or, you can complete form CDTFA-101-DMV, Claim for Refund or Credit for Tax Paid to DMV, and mail it to the address listed on the form.
If you erroneously reported a lower purchase price than your actual purchase price to the DMV and did not pay enough use tax, you may make an additional payment using the CDTFA’s online services and selecting the option to File a Return or Claim an Exemption for a Vehicle, Vessel, Aircraft, or Mobile Home under the Limited Access Functions.
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Do You Pay Sales Tax On A Private Party Used Car In California
Vehicles sold through private party sales in California are subject to a use tax. Similar to a sales tax, this is collected for the storage, use, and consumption of personal property which includes vehicles.
There are some instances where you may be exempt from a use tax. There is no use tax if:
- The sale occurs between family members related by blood or adoption
- The car is inherited
- The car’s ownership is transferred as part of a court order
- The car is a gift
Lets Talk About Car Taxes In California
Brace yourself because this is probably going to hurt just a little bit. But then, after that, it will hurt a lot.
Right off the bat, California will shank you for 7.5 percent. Remember that these are the California car registration taxes assessed upon initial purchase. This does not include the California car registration fees, nor does it include the smog check.
Also, this is only a flat fixed rate for the state and does not include whatever fees the county and local municipality will pile up on you. You can find a specific cost they intend to coerce from you by plugging in your location information at the California DMV website. If you are going to get fleeced, at least its nice to have an accurate figure.
From my exploratory research using the linked calculator, most counties and cities ended up averaging about ten percent in sales tax for an automobile. So for your very-average priced new car , you are going to pay somewhere in the order of $4,200. Ouch.
But it does not end there. Here is the breakdown of the California fee structure associated with your car or truck registration:
Standard registration fee: $60
$60,000 and up: $192
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What Is The Car Sales Tax In California
The state sales tax on a car purchase in California is 7.5%. Therefore, you will be required to pay an additional 7.5% on top of the purchase price of the vehicle. Lets say you are going to purchase a used truck from a dealership. The purchase price of the truck is $30,000. The sales tax will be 7.5% of the $30,000 price. That means that you will have to pay a total of $2,250. That brings the final purchase price of the used truck including tax to $3,225.
The Hidden Costs Of Buying A Car
When a car catches your attention, and the asking price seems within reach, it can seem too good to be true. Maybe you’ve dreamt of a vehicle for some time, and a specific example hits the market and is finally within your budget.
But the problem is the sales price will have hundreds or possibly even thousands of dollars in extra fees and taxes. Let’s take a look at the most common expenses and how much you can expect to pay.
First up is state sales tax, which varies across the country. On a $30,000 vehicle, you could be paying anywhere from $0 in Alaska to more than $2,000 in California.
Next is getting the car registered, which also ranges in price depending on where you live. Some states charge a flat registration fee, while others base it on a car’s year of manufacture, value, or weight.
Having auto insurance is a requirement in every state except Virginia and New Hampshire, though it’s a good idea to have it wherever you live. Like other automotive-related expenses, auto insurance rates vary widely depending on the coverage you select, your driving history, and the type of vehicle insured.
Many sellers charge documentation fees to compensate them for the time spent filling out paperwork. While some states put a cap on how much a seller can charge, it’s good to know what you’ll be paying before closing your deal.
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Is Sales Tax On A Car Based On Where You Live Or Where You Buy The Car
First, the vehicle sales tax is dependent on where you buythe vehicle. Sales taxes will get applied during purchase, lease, or ownershiptransfer due to purchase, and the tax rate is determined by the state in whichthe vehicle was purchased. However, if you are buying in a different statewhere there is no vehicle sales tax, you might be able to take advantage oftax-free car sales.
Second, aside from vehicle sales taxes, you may findyourself paying personal property taxes on vehicle ownership. Unlike sales tax,personal property taxes paid on vehicles is dependent on where you live, notwhere the car was purchased. These taxes are paid annually and typically whenyou renew your vehicle registration. The good news is that the personalproperty taxes paid are based on car resalevalue, which will decrease yearly as your car depreciates and loses resalevalue.
What If A Smog Check Is Needed
We come to the added dimension that California car registration is well known for the smog check. The California Air Resources Board is the lead agency for the smog check program in the state. So here is the rundown on the smog program for the state.
Another sunny day in LA!
The following cars are exempt from smog testing in California:
Vehicles 8 years old or newer when paying a Smog Abatement Fee
Hybrid and electric cars
Gas cars 1975 and older
Diesel cars 1997 and older
Diesel vehicles weighing over 14,000 lbs
Natural gas vehicles weighing over 14,000 lbs
For vehicles that are eight years old and newer, lucky you! You get out of the mandatory smog check. According to the California DMV:
If your vehicle is less than 4 model years old, you can pay a smog abatement fee instead of getting a smog inspection for the first 8 years that your vehicle is registered.
But, why again do you have to pay a fee for a service they dont require? Asking for a friend. Also, the exemption of motorcycles seems odd considering their hard-line stance on red sticker bikes.
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How To Calculate California Sales Tax On A Used Car
You can calculate the sales tax in California by multiplying the final purchase price by .075%. Going back to the example in the previous paragraph. You can take the purchase price of the used track at $30,000 and multiply that price by .075. The equation will look like the following:
$3,000 x .075 = $225
Vehicles Assigned To Other Employees
When you assign vehicles to employees other than salespersons, it is presumed it is for business purposes or personal use unless you can clearly establish otherwise.
If a vehicle is assigned for 12 months or less, you must report and pay use tax on the fair rental value, computed at 1/40th of the purchase price for each month the vehicle is in use.
If you assign the vehicle for longer than 12 month, you must report and pay use tax on the cost of the vehicle.
If you do not know how long the vehicle will be used, you can report based on the fair rental value for the first 12 months at 1/40th of the purchase price on the 13th month you must pay use tax based on the cost of the vehicle minus the tax previously reported.
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And If I Fail The Smog Check
Good news: if you fail the smog check, you get to spend more money. But dont worry, you are not alone: about ten percent of cars fail.
What this means for you is that, before you can do anything else, you need to pay that cheddar and fix your whip. Considering the complexity of modern emissions systems, you will probably need to have a shop do it this isnt like throwing a set of Cherrybomb glass packs on your 85 K-10.
But dont worry, you dont have to get to it immediately: the infinitely reasonable State of California will grant you a generous 60-day temporary operating permit , for a nominal fee of $50, of course.
How Can I Avoid Paying Sales Tax On A Car
Legally, you do have a few options if you want to learn howto buy a car tax-free. Most tax-free options are not genuinely avoiding taxpayments, but act as more of reimbursement of taxes paid. Here are the threemost common ways to “avoid” paying sales tax on a car:
- Buy in one of the states with no sales tax oncars.
- Take advantage of sales tax exemptions.
- File for tax credits.
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Taxable Purchases That Were Not Properly Taxed
This is the use tax part of the audit. If you purchased something for personal consumption instead of resale, use tax is due.
A dealer should be familiar with the use issue presented by questions regarding whether the dealer or their family members own their own cars or whether they drive cars off the lot.
Although a dealer may already be both aware and compliant that family members are not to use dealer license plates for personal use, the dealer may not be aware of certain circumstances in which they may be liable for use tax for personal use of a vehicle they drive.
These penalties also apply to cars that a dealer might lend to an employee or even loaner cars given to customers while their vehicles are being serviced. It is important to go into the initial interview well prepared and ready.
At some point, the auditor may come to the dealership and take a tour of the lot. The auditor will be looking for anything out of the ordinary. They will be making an evaluation on whether the sales tax collected is reasonable based on the size and activity of the dealership.
The auditor may also peek into windows and examine car interiors. The auditor may examine the interiors of the vehicles to determine whether any of the cars in inventory are being driven for personal use.
Transferring Titles And Selling Your Car
This part of the smog check process is somewhat painless. So, if you have a car and hold the title, you do not need to undergo a smog check so long as it is 1) four years old or newer or 2) eight years old or newer and you have been paying your smog abatement fee. The buyer will, of course, have to pay the $8 smog transfer fee.
You will have to provide a passing smog check in selling your car. Oh, and by the way, the valid passing inspection must be within the last 90 days. So, even if you just conducted your biennial smog check five months ago, it is invalid. And guess what? If it mysteriously went from passing to failing, you guessed it you have to get it fixed and pass the smog check before you can sell it. In California, the land of equality, the onus is entirely on the seller rather than the buyer assuming any cost or risk whatsoever.
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Is There A Sales Tax On Used Cars
Yes, theres a sales tax involved in buying used cars. In fact, theres a sales tax involved when buying or leasing any car. This goes to the state and its Department of Motor Vehicle. If youre purchasing a car in California, the sales tax will be collected by the California DMV. The sales tax is billed on the receipt you receive from the previous buyer. Then the seller pays the tax to the government.
It is mandatory that the seller provide this bill of sale to the DMV. This is irrespective of whether you buy the car from a dealer or directly from the seller. It should show the sale price, and the DMV representatives will deduct the taxes from the total amount accordingly.
To curb misuse in the form of mutually lowering of price on paper to save money, certain states require the sale price to be linked to the blue book value for the car.
Tax Guide For Motor Vehicle Dealers
New Information: On June 29, 2020, California passed Assembly Bill 85 and AB 82 . Beginning January 1, 2021, certain used vehicle dealers are required to pay the applicable sales tax on their retail sales of vehicles directly to the Department of Motor Vehicles. For more information about new reporting and/or payment requirements for used vehicle dealers, please see our Frequently Asked Questions for Used Vehicle Dealers.
Helping your business succeed is important to the California Department of Tax and Fee Administration . Taxes you collect and pay to the state help fund state and local services and programs important to you and your community. We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so you can focus on starting and growing your business.
To help you better understand the tax obligations specific to car dealerships, we have created this guide detailing the tax issues and information important to your business.
If you have a repair or service center, you may also want to see our Auto Repair Garages guide.
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Dealer Vs Broker Purchase
In general, if you purchase your vessel from a dealer who has a California seller’s permit, the dealer is responsible for paying the sales tax to the CDTFA, unless the dealer is acting as a broker. However, if you purchase your vessel through a broker, the broker may, but is not required to, collect and report the tax to the CDTFA. If the broker does not collect any amount for sales or use tax, you are required to report and pay the use tax to the CDTFA.
A broker is a person who arranges transactions between buyers and sellers, and who does not have the power or authority to transfer title of the vessel to the purchaser. A broker is not considered the retailer, and therefore is not responsible for the payment of tax. If the broker collects and reports the correct amount of tax to the CDTFA, you have no additional liability. However, if the CDTFA determines that an insufficient amount of tax was collected and reported, you will be billed for the additional tax. For example, if the broker incorrectly collects tax based on an 8 percent tax rate when the applicable tax rate was really 9 percent, you will be billed for the additional remaining tax due.
If the broker collects an amount for sales or use tax but fails to report it to the CDTFA, you will be credited for the amount of tax paid to the broker provided you have a receipt from the broker showing the amount of tax paid to the broker.