Industry Topics for Motor Vehicle Dealers

General Information

Sales and Use Taxes in General

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, felt, or touched.

Use tax is a companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. Examples of taxable uses include oil, grease, gasoline, and parts that are used for company vehicles or service department vehicles. The cost of such items must be reported on your sales and use tax return under, "Purchases Subject to Use Tax."

Seller's Permit

As a motor vehicle dealer, you must obtain a seller's permit, and report and pay tax on your vehicle sales. Registering for a seller's permit is free, although in some cases a security deposit may be required.

If you have multiple locations, you must register each location with us. You can register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit or consolidated seller's permits using our online registration service.

Be sure to let us know about any changes to your business, or to your mailing or email address so that we can keep your records up-to-date and inform you of important changes in law, tax rates, or procedure. You can easily update your account information by contacting our Customer Service Center or any one of our field offices throughout the state. Contact information is available in the Resources section of this guide.

Sales for Resale

When making sales for resale, you must obtain a resale certificate from your customer in a timely manner. See section Resale Certificates under the Recordkeeping section for recordkeeping requirements.

If you sell or trade a used vehicle to another dealer for resale, you are not required to report tax on the sale. You must complete a Wholesale Report of Sale to report sales of used vehicles between dealers, wholesale transactions to out-of-state dealers, scrap metal processors, and dismantlers. The Wholesale Report of Sale is a controlled form that can only be obtained from the DMV Occupational Licensing Section.

Gasoline

Generally you are not liable for reporting tax on the gasoline that is in the vehicle at the time of the sale. Therefore you have two options:

• You may issue a resale certificate for gasoline you intend to be resold with the vehicle, or
• You may pay tax on the gasoline you purchase and claim a tax-paid purchases resold credit for gasoline in the vehicle at the time of the sale.

However, you generally owe tax on gasoline that you use for:

• Company cars, service cars, tow trucks.
• Vehicles that are being held for resale or lease and used prior to their sale.
• Vehicles whose use is taxable under the 1/40th or 1/60th formulas.
• Vehicles that are used as demonstrators only.
• Loaned vehicles that are taxable based on the cost of purchase or their fair rental value.

If the amount of gasoline you purchased with a resale certificate is more than the amount of gasoline sold with vehicles, you must report the difference on your sales and use tax return under "Purchases Subject to Use Tax".

If the amount of gasoline you purchased with a resale certificate is less than the amount of gasoline sold with vehicles, you may claim a deduction for the difference under "Tax-Paid Purchases Resold".

Sales of Vehicles

The majority of your vehicle sales will involve purchases made by individuals who will use the vehicle in California for personal or business use. Generally, these sales are taxable. Some sales are exempt from tax under the Sales and Use Tax Law. See "Specific Exemptions" below for more details. All exempt sales should be properly documented.

You are required to report and pay sales tax on your retail sales of tangible personal property; however, you may pass the cost of the sales tax onto your customer, provided it is agreed to as part of the sale. For more information, please refer to Regulation 1700, Reimbursement for Sales Tax.

Used Vehicle Dealers

Recently enacted legislation Assembly Bill (AB) 85, (Stats. 2020, ch.8), AB 82 (Stats. 2020, ch. 14), AB 176 (Stats. 2021, ch 256), and Senate Bill 1496 (Stats 2022, ch 474), requires certain used vehicle dealers, that hold a license issued pursuant to Vehicle Code, to pay sales tax on their retail sales of motor vehicles when the dealers submit a vehicle registration application to the Department of Motor Vehicles (DMV).

On January 1, 2021, new licensed dealers, dealers whose seller's permit were reinstated within the last two years, and dealers with a previous finding of underreporting within the last two years were required to pay sales tax directly to the DMV when submitting a motor vehicle registration application to the DMV.

Beginning January 1, 2023, dealers that currently do not pay sales tax to the DMV and did not make more than 300 retail vehicle sales in calendar year 2021, will be required to pay their tax directly to the DMV.

All other dealers will have their payment requirement postponed until January 1, 2026, unless otherwise notified by DMV.

Additionally, all used vehicle dealers (except used vehicle dealers who deal exclusively with wholesale transactions) were required to file their sales and use tax returns on a monthly reporting basis beginning January 1, 2021, even if their payment method has not yet been changed. You will be notified by the DMV when your payment method is scheduled to change. Once you have been transitioned to the DMV payment process, you will be required to:

• Report and pay sales tax, including any applicable district taxes, on your retail sales of motor vehicles directly to the DMV. Sales tax is generally due at the same time you submit a vehicle registration application.
• Provide additional information to the DMV, including your 9-digit Seller's Permit Number in the electronic Report of Sale system to ensure your sales tax payment is correctly applied to your CDTFA return. Note: 8-digit account numbers require a leading zero (e.g. 012345678).
• Ensure your dealer location address is correctly provided to the DMV for accurate local tax allocation.
• Continue to timely file your sales and use tax returns and submit additional information with your returns, including:
  • Your dealer license number, and
  • Sales transaction detail – Report of Sale number, Vehicle Identification Number (VIN), selling price reported to DMV, and sales tax and/or penalty amounts paid to the DMV.
    • Note: The selling price reported to DMV generally does not include other charges related to the vehicle (including, but not limited to document fees, smog certification fees, and mandatory warranties). These other charges must be reported on line 1, Total Sales.

Return instructions explain how to provide your sales transaction detail for your retail sales of vehicles.

For more information about your new reporting and/or payment requirements as a used vehicle dealer, please see our Frequently Asked Questions for Used Vehicle Dealers.

Used Vehicle Auctioneers

Effective January 1, 2021, the reporting basis of all used vehicle auction houses (except used vehicle auctioneers who deal exclusively with wholesale transactions) was changed to a monthly reporting basis. In addition to the change in reporting basis, an additional schedule detailing your wholesale transaction information may be required. Please call our customer service center if you have any questions.

Claiming a Tax-Paid Purchases Resold Deduction for Gasoline and Diesel Fuel

You are entitled to reduce the amount of sales tax that you owe on your vehicle sales by the amount of tax you paid when you purchased your gasoline (MVF) or diesel fuel when you sell the vehicle with fuel.

The sales tax rate for the sale of a vehicle is currently 7.25% plus applicable district taxes; however, the sales tax rate for gasoline is only 2.25% plus applicable district taxes. The sales tax on diesel fuel is 9.00% plus applicable district taxes.

Because the tax rate that applies to sales of gasoline and diesel fuel is different than the tax rate that applies to the sale of a vehicle, and the price you pay at the pump is a tax-included price, you will need to calculate the allowable amount of your deduction.

Some retailers file a CDTFA-401-GS return allowing them to properly recover the correct amount of tax paid on their purchases of gasoline or diesel fuel. For information on claiming your Cost of Tax-Paid Purchases Resold (TPPR) deduction on MVF or diesel on CDTFA-401-GS refer to the CDTFA-401-GSIN. Paper returns show the form number in top left hand corner. If you are filing an online return and your return has a Schedule G button, you are filing a CDTFA-401-GS return.

Sales to Leasing Companies

When you sell vehicles to leasing companies, you need to determine two important factors that affect how tax is reported:

• Is the vehicle a passenger vehicle or mobile transportation equipment (MTE),
• Does the lessor plan to report and pay tax on their rental payments?

Passenger Vehicles

You may accept a resale certificate from a leasing company when they purchase passenger vehicles and the leasing company will report tax based on the rental payments to the lessee. If the lessor purchases both tax paid and resale vehicles, you may obtain a blanket resale certificate and the lessor must indicate on their purchase orders whether each purchase is taxable or for resale.

Leased vehicles must be registered in the name of the lessor only or the lessor and lessee jointly. If the vehicle is registered in the name of the lessee only, the sale should be considered a retail sale subject to sales tax based on the selling price of the vehicle.

Mobile Transportation Equipment (MTE)

Generally, lessors of MTE are considered the users of these vehicles and you should report and pay tax on the sales price of the vehicle to the lessor. However, a lessor may issue a resale certificate if they indicate it is for the limited purpose of reporting tax based on the fair rental value of the MTE.

For more information please see Regulation 1660, Leases of Tangible Personal Property-In General or Regulation 1661, Leases of Mobile Transportation Equipment. See section Resale Certificates under the Recordkeeping section for recordkeeping requirements.

Sales of Previously Leased or Rented Vehicles

Tax applies to the total selling price of previously leased or rented vehicles regardless of any tax that may have been previously paid on the lease or rental receipts.

If a lessee chooses the purchase option as part of the lease agreement, tax generally applies to the purchase amount.

If you are licensed by the DMV as a lessor-retailer, the following special rules apply to your retail sale of a leased vehicle:

• If you sell the vehicle to the lessee, you are not required to file a report of sale with the DMV and you are not liable for the tax. The lessee will pay use tax directly to the DMV. If, however, you do file a report of sale, you will be liable for the sales tax.
• If you make a retail sale of a leased vehicle to anyone other than the lessee, you are required to file a report of sale with the DMV and report and pay the sales tax.

Sales of Company Vehicles and Demonstrators

Tax applies to the total selling price of company cars, parts and service department vehicles, tow trucks, and demonstrators as if it were a retail sale.

Repossessed Vehicles

If you transfer a repossessed vehicle to a third party who assumes the unpaid contract or sell it to a new customer, you must report and pay sales tax based on the total sales price.

Consignment Sales

If you sell a vehicle on consignment for another person, the transfer and sale are considered to be made by you, and you must report and pay sales tax on the sale.

Specific Exemptions

Some of your sales may qualify for an exemption from tax. You should still include these in your total sales on your sales and use tax return and then take the appropriate deduction. For more information regarding special exemptions related to vehicle sales refer to publication 34, Motor Vehicle Dealers.

Sales to United States Government Agencies

You must obtain and keep copies of government purchase orders or remittance advices to support your nontaxable sales to the United States Government.

Sales tax does not apply to:

• Sales to the United States government or its unincorporated agencies and instrumentalities.
• Sales to any incorporated agency or instrumentality of the United States owned wholly either by the United States or by a corporation wholly owned by the Unites States.
• Sales to the American Red Cross, it chapters and branches.

Generally, the following organizations are not considered exempt agencies of the United States and sales to these agencies are subject to tax:

• State, county, and city government agencies.
• American Legion Posts in federal areas.
• District agricultural associations.
• National Guard.

Sales of vehicles to federally owned banks are exempt from sales tax. Sales to other banks or credit unions are generally taxable.

For further information, please refer to Regulation 1614, Sales to the United States and Its Instrumentalities and publication 102, Sales to the United States Government.

Military Personnel

Sales of vehicles to members of the military who are on active duty may not be subject to sales tax.

For further information, please refer to Regulation 1610, Vehicles, Vessels, and Aircraft, or publication 52, Vehicles and Vessels: How to Request a Use Tax Clearance for DMV Registration.

Sales of Vehicles for Use Outside California

You generally do not have to report and pay California sales or use tax on a vehicle that is sold and delivered outside of California, for use outside California.

You must show evidence that the vehicle was delivered to the purchaser outside California (for example by an employee or common carrier) and that the purchaser did not take possession of the vehicle in California. See, "Required Documentation for Vehicles Delivered Outside of California" under recordkeeping for requirements.

Sales and Use Tax Exemption Requirements for Trucks and Trailers Used Exclusively in Interstate or Foreign Commerce

Beginning January 1, 2020, Assembly Bill 321 (Stats. 2019, ch. 226), amends the sales and use tax exemption for trailers and semitrailers provided by Revenue and Taxation Code (R&TC) section 6388.5 to also apply to certain new, used, or remanufactured trucks. The exemption applies to trucks delivered to both California residents and non-residents in California that are removed from the state within a specified time, and thereafter used exclusively out-of-state or in interstate or foreign commerce. The expanded sales and use tax exemption is operative from January 1, 2020, through December 31, 2023.

For more information on the new requirements, please see Special Notice, Assembly Bill 321 Expands Sales and Use Tax Exemption to Include Trucks Used Out-of-State or in Interstate or Foreign Commerce.

Sales of Zero-Emission Transit Buses to Qualifying Purchasers

Beginning October 9, 2019, through December 31, 2025, a partial sales and use tax exemption applies to eligible purchases and leases of zero-emission technology transit buses by the following qualifying purchasers:

• City, county, or city and county, or
• Transportation or transit district, or
• Public agencies that provide transit service to the public

As a motor vehicle dealer, your sales of eligible buses to qualifying purchasers are subject to tax at a reduced rate of 3.3125 percent (7.25 percent current statewide tax rate less the 3.9375 percent partial exemption) plus any applicable district taxes. The reduced sales or use tax rate is applied to the total selling price of the vehicle before any incentives are applied.

To report your sales of eligible zero-emission technology buses on your sales and use tax return, report the total selling price in your total sales. You may claim a partial exemption for eligible sales of eligible buses to qualifying purchasers as a Zero-Emission Transit Bus deduction on your return.

To document the partially exempt sale, you should obtain a timely partial exemption certificate from your customer. Form CDTFA-230-HB, Partial Exemption - Zero-Emission Transit Bus, can be used in documenting the partial exemption. For more information, see Regulation 1667, Exemption Certificates.

Sales of Zero-Emission Vehicles to Qualifying Purchasers

Recently enacted legislation, Senate Bill 1382 (stats. 2022, ch. 375), provides for a partial sales and use tax exemption on qualifying zero or near-zero (zero) emission motor vehicles (vehicles) purchased or leased by qualified buyers. The partial sales and use tax exemption is operative from January 1, 2023 through December 31, 2027. Eligibility for the exemption is based on the buyer's household income level, where they reside, and the vehicle leased or purchased.

The California Air Resources Board (CARB), in association with local air districts, administers the Clean Cars 4 All program (CC4A). The program is designed to provide incentives to lower-income California drivers to scrap their older, high-polluting motor vehicles and replace them with zero emission vehicles. The current CC4A program provides qualified buyers with grants of up to $9,500 for California residents who purchase or lease an eligible vehicle and meet certain residence and income requirements.

To qualify for the partial exemption, the purchaser must:

• Be a qualified buyer who has received an award letter from a participating air district, and
• Purchase a qualified motor vehicle for which a grant letter has been awarded to you under the Clean Cars 4 All Program.

CC4A qualification guidelines are set and maintained by the participating local air districts. For a listing of participating air districts, please visit the CC4A Implementing Air Districts webpage.

Dealers

Motor vehicle dealers are generally required to receive authorization from a local air district that has implemented the CC4A program to participate in the program. For information about becoming an authorized dealer, please contact a participating local air district. For a listing of participating local air districts, please visit the CC4A Implementing Air Districts webpage.

As a vehicle dealer, your sales of eligible vehicles to qualified buyers are subject to tax at a reduced rate of 3.125 percent (7.25 percent current statewide tax rate less the 3.9375 percent partial exemption) plus any applicable district taxes. The reduced sales or use tax rate is applied to the total selling price of the vehicle before any grants or incentives are applied.

To report your sales of eligible zero emission vehicles on your sales and use tax return, report the total selling price in your total sales. You may claim a partial exemption for qualifying sales of vehicles to qualified persons as a Zero-Emission Vehicle Exemption deduction on your return.

To document the partially exempt sale, you should obtain a timely partial exemption certificate from your customer. Form CDTFA-230-ZEV, Partial Exemption – Zero-Emission Vehicle, can be used in documenting the partial exemption. For more information, see Regulation 1667, Exemption Certificates.

Special Pricing and Incentives

Trade-ins

If you accept a trade-in on the sale of a vehicle, you must still report the total selling price of the vehicle in your gross receipts. You cannot deduct the allowance for the trade-in.

For example, you sell a car for $20,000 and accept a trade-in for a credit of $4,000. You must report and pay tax on the $20,000 selling price.

If you allow a trade-in value higher than the fair market value of the vehicle, you cannot treat the excess as a discount or otherwise deduct the additional amount. If you allow less than the fair market value, the CDTFA will presume the allowance agreed upon is the fair market value.

Discounts

When you offer a customer a discount, you are only required to report tax on the total selling price of the vehicle.

For example, you sell a $20,000 car and offer a 10 percent discount. Your tax is based on the $18,000 selling price.

The sales records should clearly show the discount, the taxable amount, and the tax reported and paid. If you offer a discount and take a trade-in on the same sale, the records must clearly show the amount of each allowance. Otherwise, the discount may be considered an over allowance and the total sales price will be taxable.

Dealer-purchased Incentives

Dealerships are consumers of free incentives offered to customers.

Tax applies to the dealership when they purchase supply items necessary to offer these incentives.

Factory-dealer Incentives

Sometimes a vehicle manufacturer will offer a discount to dealerships on a vehicle that allows you to sell that vehicle at a lower price.

Only the actual selling price of the vehicle must be reported for sales tax purposes. You do not have to include the discount received from the manufacturer in the total taxable selling price of the vehicle.

Third-party discount or rebate programs

Sometimes a third party, such as a vendor or the manufacturer will pay you directly or offer rebates to your customer that they pass back to you in the sales transaction.

When you receive rebates from third parties, you must include that amount received as part of the total taxable selling price of the vehicle.

For example, a manufacturer offers a $1,000 rebate to your customer on the purchase of a car. The customer then assigns the rebate to you as part of their down payment on the vehicle. You must report and pay tax on the $1,000 rebate.

For more information on these topics, please refer to Regulation 1671.1, Discount, Coupons, Rebates, and Other Incentives.

Special Charges Related to Motor Vehicle Sales

There are many common charges associated with vehicle sales. Tax applies differently to each type of charge and may change depending on whether they are listed separately or grouped together.

Sales tax does not apply to license fees that you collect and remit to the DMV, unless you collect an amount in excess of the fee required by the DMV. Excess amounts collected are taxable.

Documentation Fees

Charges for preparation of documents you make in connection with a sale are taxable.

Financing, Interest and Insurance Charges

When you sell a vehicle on credit, you should show the sales price separate from charges for insurance, interest, financing, or for carrying the contract. When you do not separate out these charges they are taxable.

Smog Certifications

The fees determined by the Department of Consumer Affairs (DCA) for smog certification are not taxable. Amounts charged in excess of the DCA fee are taxable. Other charges, such as inspection charges are taxable if done for a vehicle you plan to sell.

Broker's Fees and Commissions

If you use a broker acting on your behalf, commissions paid to the broker are taxable. If the broker is acting on behalf of the customer, the broker fee is not taxable.

Dealer — Free Full Tank of Gas

When you sell a vehicle with a full tank of gas, and do not itemize a charge for the gasoline, you are not liable for reporting the tax on the gas and may purchase the gas with a resale certificate. If you make a separate charge for the gas, you are liable for the tax. You must keep adequate records to support gas purchases made using a resale certificate.

Modifications to Accommodate Persons with Disabilities

Sales tax does not apply to the sales price of the portion of a vehicle that has been modified to accommodate physically handicapped persons when the vehicle is sold to the physically handicapped person. For example, you sell a car to a physically handicapped person for $20,000 and $5,000 is attributable to modifications of the vehicle, sales tax is due on $15,000.

Tax does not apply to the sale or installation of items and materials that:

• Are used to modify a vehicle so that a person with disabilities can operate it or when such items and materials are necessary to enable the vehicle to be used to transport a physically handicapped person or persons, and
• Are incorporated into, attached to, or installed on the vehicle.

Sales of tools and materials that are not incorporated into the vehicle are taxable.

Self-consumed Items

If you use items for personal or business use that you purchased without paying tax, you owe use tax measured by its purchase price. Some of the most common items you may owe use tax on are listed below.

Oil and Grease

You must report and pay use tax on oil and grease used in company cars, service cars, loaner cars, tow trucks, and any vehicles subject to tax under the 1/40th or 1/60th formulas.

Parts and Accessories

You must report and pay tax on the cost of parts and accessories installed on the following vehicles:

• Loaner cars whose use is subject to tax based on the cost of purchase.
• Company cars, service cars, and tow trucks.

You are not required to report or pay use tax on the cost of parts and accessories installed in the following:

• Vehicles held for resale or taxable lease, including vehicles used for demonstration and display.
• Vehicles whose use is subject to tax under the 1/40th or 1/60th formulas.
• Loaner cars whose use is subject to tax based on the fair market value.

When you use oil, grease, or parts and accessories that you remove from inventory without paying tax on, you must report theses on your sales and use tax return under "Purchases Subject to Use Tax".

Tools and Equipment

You may not issue a resale certificate for tools and equipment purchased for use in your business. You must pay tax when you purchase these items.

Vehicles Used for Other Than Resale

If you purchase a vehicle for resale or lease, without paying tax, and use it for other than demonstration and display, you generally owe use tax for such use based on either the vehicle's cost or its fair rental value.

Vehicles Assigned to Salespersons

A salesperson specifically refers to employees who directly participate in negotiating sales. The following information assumes you purchased the vehicle in question with a resale certificate. Vehicles can be assigned, rented or sold to the salesperson.

If you assign a vehicle for 12 months or less, you must report and pay use tax on the vehicle's fair rental value, calculated at 1/60th of the purchase price for each month used.If you assign the vehicle for longer than 12 months, you must pay and report use tax based on your cost for the vehicle.

If you do not know how long the vehicle will be used, you can report and pay tax based on the fair rental value for the first 12 months at 1/60th 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.

If you rent a vehicle to a salesperson, you must report and pay use tax on the rental receipts.
If you sell a vehicle to a salesperson, you must report and pay use tax based on the amount paid by the salesperson.

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.

Vehicles Assigned to Non-employees

If you assign a vehicle to a person other than an employee or officer of the dealership, you generally will pay and report use tax based on the cost of the vehicle.

The vehicle is not presumed to be held for resale. However, if such loans are 30 days or less, the tax you must report and pay may be based on the fair rental value.

Loaner Vehicles

As a motor vehicle dealer (dealer), you may choose to provide courtesy vehicle loans (loaner vehicles) to customers in various situations. How tax applies depends on how you obtain the vehicle and under what circumstances you loan the vehicle to your customer.

When you buy a vehicle to be used exclusively as a loaner vehicle for your customers while you service or repair their vehicles, it is considered a company vehicle and you cannot issue a resale certificate when purchasing the loaner vehicle. Tax applies to the sale of the vehicle to you, or, if you purchased the vehicle without paying tax, you owe use tax based on your purchase price of the vehicle. If you later resell the vehicle, you are responsible for the tax, based on the selling price of the vehicle, since the sale is a separate sales transaction.

However, there may be instances in which you buy or lease a vehicle to loan to customers, and the vehicle is not used exclusively as a loaner vehicle. Typically you would obtain the vehicle without tax from one of the following:

1. Resale or lease inventory, or
2. Leased from a third-party lessor (i.e., car rental agency), or
3. Purchased or leased under a special accommodation program (explained below).

Special Accommodation Programs:

Many vehicle manufacturers offer incentives to dealers to participate in "Special Accommodation Programs." Under these programs, dealers are required to maintain an inventory of a certain number of vehicles as courtesy loans to customers who wait for their leased and/or owned vehicles to be repaired or serviced. Generally, dealers purchase these courtesy loan vehicles under a resale certificate. Distributors sell vehicles to dealers under special accommodation programs with the understanding that the dealer will use the vehicle exclusively as a courtesy loan for a certain period of time. After that period, the dealer may sell the vehicle and collect tax reimbursement from their customer.

In many cases, the transaction between the distributor and dealer involves a finance company (generally related to the distributor) in which the vehicles purchased by the dealer are immediately sold to the finance company which leases the vehicles back to the dealer. In most cases, the lease from the finance company to the dealer is actually a sale at inception (an agreement to purchase the leased vehicle at fair market value at the end of the lease term). Under these circumstances, tax is not due on the sale when the dealer purchases the vehicle under a resale certificate under the special accommodation program.

However, in some instances, the lease between the financing company and dealer may be a true lease in which the financing company collects tax reimbursement from the dealer measured by the lease payments.

How Tax Applies

The following explains how tax applies to three different types of courtesy loans when the vehicles are not from your tax-paid loaner vehicle inventory.

1. Customer is provided a loaner vehicle as a favor

   When you loan a vehicle to your customer solely as a courtesy or favor (for example, your customer's vehicle is being repaired or serviced under an optional warranty or your customer is awaiting delivery of their new vehicle) you are making a use of the vehicle. In general, you owe tax as follows:

   Loaner vehicle is from resale or lease inventory

   You owe tax based on the fair rental value for the duration of the loan. The fair rental value is the amount that you charge to rent similar vehicles for similar periods to persons other than your customers awaiting delivery of their new vehicle.

   Loaner vehicle is from third-party lessor (a car rental agency)

   You may not issue a resale certificate to the lessor. If the third-party lessor charges you tax on the lease payments, you may not claim a tax-paid purchase resold credit on your sales and use tax return and you may not file a claim for refund for the tax paid on the lease.

   Loaner vehicle is purchased without tax under a special accommodation program

   You owe tax based on the fair rental value for the duration of the loan.

   Loaner vehicle is leased from finance company under a special accommodation program and dealer pays tax to finance company measured by lease payments

   No additional tax is due. You may not claim a tax-paid purchase resold credit on your sales and use tax return and you may not file a claim for refund for the tax paid on the lease.

2. Customer's vehicle is being repaired or serviced under a mandatory warranty, standard manufacturer's warranty or mandatory safety recall

   When you loan a vehicle to a customer whose vehicle is being repaired or serviced under a mandatory warranty, standard manufacturer's warranty or mandatory safety recall, generally, no additional tax is due. The loan is considered part of the original vehicle sales contract that includes the mandatory or standard manufacturer's warranty. A mandatory safety recall is treated like a mandatory warranty and is considered covered as part of the original sales contract.

   Loaner vehicle is from resale or lease inventory

   No additional tax is due.

   Loaner vehicle leased from a third-party lessor (a car rental agency)

   No additional tax is due. You may issue the third-party lessor a timely resale certificate (that is, within the normal billing cycle, or any time prior to delivery of the property).

   If you do not issue a timely resale certificate to the third-party lessor and pay tax to the lessor measured by the lease payments, you may claim a tax-paid purchase resold credit on your sales and use tax return or file a claim for refund for the tax paid to the third-party lessor on those lease payments for the period(s) of nontaxable use.

   Loaner vehicle is purchased without tax under a special accommodation program

   No additional tax is due.

   Loaner vehicle is leased from finance company under a special accommodation program and dealer pays tax to finance company measured by lease payments

   No additional tax is due. You may claim a tax-paid purchase resold credit on your sales and use tax return or file a claim for refund for the tax paid to the finance company on those lease payments that are for the period(s) of nontaxable use.

3. Customer's leased vehicle is being repaired or serviced or customer is awaiting delivery of their newly leased vehicle

   When you loan a vehicle to a customer whose leased vehicle is being repaired or serviced or to a customer awaiting delivery of their newly leased vehicle, generally, no additional tax is due if the customer's regular lease payments continue to accrue. The loan is considered part of the original vehicle lease contract to your customer.

   Loaner vehicle is from resale or lease inventory

   If the customer's regular lease payments continue to accrue on the lease of their vehicle, no additional tax is due.

   Loaner vehicle leased from a third-party lessor (a car rental agency)

   If the customer's regular lease payments continue to accrue on the lease of their vehicle, no additional tax is due. You may issue the lessor a timely resale certificate (that is, within the normal billing cycle, or any time prior to delivery of the property).

   If you do not issue a timely resale certificate to the third-party lessor and pay tax to the lessor measured by the lease payments, you may claim a tax-paid purchase resold credit on your sales and use tax return or file a claim for refund for the tax paid to the third-party lessor on those lease payments for the period(s) of nontaxable use.

   Loaner vehicle is purchased without tax under a special accommodation program

   If the customer's regular lease payments continue to accrue on the lease of their vehicle, no additional tax is due.

   Loaner vehicle is leased from finance company under a special accommodation program and dealer pays tax to finance company measured by lease payments

   If the customer's regular lease payments continue to accrue on the lease of their vehicle, no additional tax is due. You may claim a tax-paid purchase resold credit on your sales and use tax return or file a claim for refund for the tax paid to the finance company on those lease payments for the period(s) of nontaxable use.

For additional information, see Regulation 1669.5, Demonstration, Display, and Use of Property Held for Resale –Vehicles.

California Tire Fee Account

If you sell new tires with your vehicle, you must register for a California Tire Fee Account to collect and pay the California Tire Fee on every new tire sold. New tire sales include separately sold tires, new tires included with the sale/lease/rental of new or used motor vehicles, recreational vehicles, trailers, construction equipment, or farm equipment.

The fee of $1.75 per tire is not taxable. You may keep one and a half percent of the fees you collect as reimbursement for your related costs. If you charge any amount higher than the $1.75 per tire, you are required to report tax on the excess amount. For more information, see publication 91, California Tire Fee.