Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 215.0401


215.0401 New Vehicles. An importer and distributor of new automobiles purchases automobiles from the manufacturer for resale to independent new car dealers in the United States. The distributor makes no retail sales. In an effort to promote market awareness of the automobile it imports, the distributor will make demonstrator automobiles available for test drives by potential customers at their home or place of business. Several of these demonstrator automobiles will be temporarily based in California at the office of an independent company who will be responsible for coordinating the test drives by potential retail customers. All retail sales inquiries resulting from the test drives will be referred to a local independent dealership since the distributor makes no retail sales. These vehicles will be used for limited mileage (between 5,000 to 8,000 miles) and will be subsequently wholesaled by the distributor to automobile dealers. Cars generally will not be used in test drive programs for greater than six months. At all times, these cars will be available for sale, at the specific request of authorized dealers, while being used as demonstrator vehicles.

When a purchaser purchases tangible personal property for resale and uses the property solely for demonstration or display while holding it for sale in the regular course of business, the purchaser is not required to pay tax on such use. (Regulation 1669.5(a).) Under the facts stated above, the distributor is using the vehicles only for demonstration and display. Accordingly, if no other use is made of the vehicles purchased for resale by the distributor, no tax applies to its use of the vehicles for demonstration and display. 4/3/96.