Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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580.0000 VEHICLES

Annotation 580.0077


580.0077 Courtesy Deliveries for Lessor-Retailer. A company leases vehicles to subsidiary companies. These subsidiaries then provide the cars free of charge to certain employees for business use. The employees who drive the cars have the option of buying them after two years or after a certain number of miles are driven. If the employee declines the option, then the taxpayer may sell the car to other persons.

Taxpayer qualifies, and is licensed, as a lessor-retailer under Vehicle Code section 373(a) because it sells vehicles to persons other than the lessees or to persons other than those designated by the lessees to be the vehicles' drivers. The taxpayer purchases the cars from out of state manufacturers. The manufacturers deliver the cars to in-state auto dealers who are located nearest to the location of the employees who will drive them. Upon receiving the cars, the dealers prepare and deliver them to the employees in California. The in-state dealers report the sales to the California Department of Motor Vehicles (DMV) on their Reports of Sale (ROS). The taxpayer currently reports and pays state and local use tax on these lease transactions.

Under Regulation 1610(b)(1)(A), sales tax applies when the retailer is a lessor-retailer subject to the provisions of Vehicle Code section 11615.5. That section provides that it is unlawful for a person licensed under Vehicle Code section 11600 et. seq. as a lessor-retailer to make a retail sale of a motor vehicle without reporting and paying sales tax under Revenue and Taxation Code section 6451 if the lessor-retailer sells a motor vehicle and reports the sale by filing a ROS with the DMV. Since the above taxpayer leases the cars and does not file the ROS, Vehicle Code section 11615.5 does not serve to make the taxpayer liable for sales tax on these transactions even though the taxpayer is a lessor-retailer. Dealers, on the other hand, are licensed under Vehicle Code section 11700 et. seq. Under section 11713(l), it is unlawful for a dealer to participate in any sale of a motor vehicle reported to the DMV on a ROS without reporting and paying sales tax as required by Revenue and Taxation Code section 6451. Under the above fact pattern when the in-state auto dealer makes a courtesy delivery of a car on behalf of the taxpayer and reports the sale to the DMV, the dealer participates in the sale sufficiently enough to be required to report and pay sales tax on the transaction. Therefore, the local sales tax is reported to the local jurisdiction in which the dealer making the courtesy delivery is located. Because this is a sales tax transaction, use tax would not be due. 9/10/00; 4/5/02; 8/19/03. (2004–2).