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Chapter 4: Use Tax
4.040 Transactions Subject to Use Tax
Chapter 4 Use Tax
4.040 Transactions Subject to Use Tax (CR&TC §6001 and VC §§4300.5, 4750.5, 9858.5, and 9928)
Use tax is due on all original registration and/or transfer applications for vehicles/vessels purchased from someone other than a licensed California dealer, manufacturer, or dismantler, unless the:
• Transaction is specifically exempted from payment of use tax.
• CDTFA issues the applicant a CDTFA 111 or a CDTFA 111B form (CR&TC §6422.1).
DMV must withhold registration and/or transfer if the applicant does not pay the required use tax or submits a CDTFA 111 or CDTFA 111B.
Applicant Claims Use Tax is Not Due—Follow the procedures below when it appears use tax is due but the applicant claims use tax is not due:
|If the Applicant
|Requests the application processed immediately
|• Collect the use tax and any other fees due.
• Have the applicant complete a REG 256, explaining why a refund is requested.
Refer to the Refund of Use Tax section in this chapter.
|Does not want to pay the use tax due
|• Collect any other fees due on a report of deposit of fees (RDF) to avoid penalties.
• Advise the applicant to contact CDTFA for a CDTFA 111 or CDTFA 111B.
|Does not want to pay any fees
|• Return the application to the applicant.
• Advise them of the last penalty-free date to pay the fees due.
|Requires further information
|Refer them to the CDTFA Taxpayer Information Section at 1-800-400-7115.
|Resides in an unincorporated area and is exempt from additional city use tax
• REG 256 with their residence address.
• Letter on city letterhead stating city use tax is not due.
• CDTFA 111or CDTFA 111B.
Exempt and Government Exempt Vehicles/Vessels—Use tax is:
- Due on vehicles/vessels purchased by the state or an exempt agency from someone other than a California dealer or dismantler unless an exemption is established.
- Not due on sales of exempt vehicles/vessels between state agencies.
Gifts From or To a Corporation or Partnership—An applicant who gives or acquires a vehicle/vessel as a gift to or from a corporation or partnership must pay use tax or submit a CDTFA 111 or a CDTFA 111B.
- If an application for transfer of a vehicle/vessel contains Letters Testamentary or Letters of Administration:
- Use tax or a CDTFA 111 or CDTFA 111B is due.
- If the co-owners are joined by “or” or “and/or”, the vehicle/vessel may be transferred to the surviving co-owner(s) with:
- The signature of one surviving co-owners.
- Affidavit of Transfer Without Probate California Titled Vehicle Vessels Only (REG 5) form.
- Use tax is not due.
- If the co-owner(s) is joined by “y”, the vehicle/vessel may be transferred to the surviving co-owners with:
- REG 5 (use tax is not due), Letters Testamentary, or Letters of Administration (use tax or a CDTFA 111/CDTFA 111B is due for either types of letters).
- The signature for the deceased co-owner from the:
- Heir (with a REG 5).
- Administrator (with Letters of Administration).
- Executor (with Letters Testamentary).
- If “Tenants in Common” follows the names of the co-owners, the interest of the deceased co-owner reverts to their estate. The vehicle/vessel may be transferred with one of the following
- REG 5 (use tax is not due).
- Letters Testamentary (use tax or a CDTFA 111/CDTFA 111B is due).
- Letter of Administration (use tax or a CDTFA 111/CDTFA 111B is due).
- If “COMPRO” (Community Property) follows the names of co-owners, the interest of the deceased co-owner passes to the:
- Heir (use tax is not due with a REG 5).
- Administrator (use tax or a CDTFA 111/CDTFA 111B is due with Letters of Administration).
- Executor (use tax or a CDTFA 111/CDTFA 111B is due with Letters Testamentary).
- If the vehicle/vessel is transferred to someone other than the surviving/bequeathed co-owner(s), use tax or a CDTFA 111/CDTFA 111B is due.
Leased Vehicles (CR&TC §6277)—When the lessee buys the vehicle from the lessor:
- At the end of the lease agreement, use tax is due on the balance owed.
- And sells it to a third party within 10 days from the date the lessee acquired title from the lessor, use tax is due only from the third party.
- And sells it to a third party after 10 days from the date the lessee acquired title from the lessor, use tax is due from the lessee y the third party.
Transfer dates are important. The lessee may be contacted by the CDTFA.
Lien Sales—Use tax is due on a vehicle/vessel sold at lien sale. If the applicant:
- Purchased the vehicle/vessel at lien sale, use tax is due based on the purchase price shown on the registration application or bill of sale.
- Conducted the lien sale and retained ownership, use tax is due based on the amount shown on the Certification of Lien Sale for Vehicle Valued over $4000 or From a Self-Service Storage Facility (REG 168) or Certificate of Lien Sale for Vehicle Valued $4000 or Less (REG 168 A) form.
Note: Use tax is not due when the buyer:
- Is a licensed retailer.
- Completes the application as a title only or transfer only.
- Submits a CDTFA 111 or CDTFA 111B.
Multiple Transfers—DMV only collects use tax on the last transfer. However, CDTFA may request payment of unpaid use tax from the previous owner(s).
Never apply the use tax paid by another owner to fees due for the current owner.
Repossessions—Use tax is due upon sale of a repossessed vehicle/vessel unless the repossessor (legal owner) can furnish an exemption or the vehicle/vessel is being registered to the repossessor.
Trades—Use tax is due when a vehicle/vessel is traded to anyone other than a licensed dealer or dismantler for anything of value (labor, goods, etc.), even though no money exchanges hands, unless an exemption is established.
Transfer of Contract—Use tax is due when a registered owner’s equity in a vehicle/vessel financed under a conditional sales contract or mortgaged under a chattel mortgage is transferred to another unless an exemption is established.
Trust Transfers (CR&TC §6285)—Use tax is not due when the current registered owner is transferring the vehicle/vessel into or out of their own trust or a vehicle/vessel is being transferred into or out of a trust as a gift. When use tax is not due on a vehicle/vessel being transferred into or out of a trust, the application must contain:
- A Statement of Facts (REG 256) form for use tax exemption from the current registered owner stating they are transferring their own vehicle into or out of their own trust.
- The word “gift” or “0” (zero) entered on the back of the title when a vehicle/vessel is being transferred into or out of a trust as a gift.
Do not refer applicants to CDTFA for a use tax clearance.
Trust Transfer Business Entities—Use tax is due for transfer of a vehicle/vessel into or out of a trust when a legal entity is the current registered owner or will be the new owner. A legal entity may include, but is not limited to a:
- Sole proprietor.
- DBA (doing business as).
- Company or partnership.
- Inc (corporation).
- LTD (limited company status).
If use tax is being paid for the transfer, use tax clearance is not required. Accept the use tax payment and clear as normal.
If the applicant believes the transfer is exempt from use tax, refer the applicant to CDTFA for a CDTFA 111 or CDTFA 111B. Use tax cannot be waived with a REG 256 form for a transfer into or out of a trust when a legal entity is involved.
Vehicle/Vessel Purchased Out of State (CR&TC §6248)—Use tax or a CDTFA 111/CDTFA 111B is required for vehicles or vessels purchased outside California on or after October 1, 2008, and brought into California within 365 days from the purchase date.
For previous use tax collection periods, see the CDTFA website at cdtfa.ca.gov.
Refer to the Credit For Tax Paid To Another State section in this chapter.
Strict adherence to the “date of purchase” definition in this chapter is required. The applicant must write the date of entry into California, date of delivery to them, and all similar data on the application. A REG 256 completed and signed by the applicant is required for any alteration to the date of entry or date of purchase.
Referral to CDTFA is required if:
- The vehicle/vessel was purchased out of state and stored for a period of time before entering California.
- The applicant maintains the application date is different from their date of actual physical possession.
Vehicle Purchased Out of State—California Resident—When a California resident purchases a vehicle from an out-of-state dealer and finances the use tax amount with the purchase price of the vehicle, the out-of-state dealer issues a check payable to California DMV for the use tax amount.
- Complete a REG 256, signed by the registered owner and forward to DMV with the vehicle information and “Payment of use tax, please allocate to CDTFA,” written in Section G.
- Forward the REG 256 to the Accounting Special Funds Unit, MS E 107.
Yacht and Ship Broker Vessel Sales (VC §9858.5)—All yacht and ship broker sales are subject to use tax.
Brokers who are not authorized vessel agents must give the documents to the buyer. DMV will collect any use tax due when the buyer presents the application. Brokers who are authorized vessel agents may collect the use tax and registration fees from the buyer and transmit those fees to the DMV with the registration application or they may submit the registration application with the registration fees only to the DMV headquarters for collection of use tax.
If an applicant states use tax was paid to the broker, accept a REG 256 completed by the applicant y send the application to the Registration Processing Unit (RPU) II—Vessel Section in DMV headquarters. The RPU determines if a copy of the application will be sent to CDTFA.
Youth Group Vessels—Use tax is due on a vessel purchased by a youth group organization. Use tax is not due on a vessel received as a gift by the organization.