4.035 Transactions Not Subject to Use Tax

Chapter 4 Use Tax

4.035 Transactions Not Subject to Use Tax

There are two general types of transactions not subject to use tax, those not considered to be a retail sale and retail sales exempted from payment of use tax.

Transactions Not Considered a Retail Sale—The following transactions are not subject to use tax:

• Court Orders—Transfer of a vehicle/vessel made pursuant to any court order, such as a divorce decree or quiet title judgement.
• Dealer or Dismantler Vehicles—Transfer or original registration of a vehicle to a licensed dealer or dismantler, whether or not the vehicle is purchased for resale. The application must contain the dealer or dismantler occupational license (OL) number issued to the applicant by DMV.
• Dealer Out of State—Transfer of title into an out-of-state dealership’s name for a used vehicle purchased at an auto auction when their home state will not accept an Application for Replacement or Paperless Title (REG 227) form.
• Dealer Vessels—Transfer or registration of a vessel to a licensed vehicle dealer authorized as a vessel dealer, whether or not the vessel is purchased for resale. The application must show the CDTFA seller’s permit number issued which identifies the applicant as a vessel dealer.
• Dismantled Vehicle/Vessel—A vehicle/vessel reported as dismantled by a licensed dismantler.
  Use tax is due for a vehicle/vessel dismantled by other than a licensed dismantler.
• Gifts—Transfer or registration of a vehicle/vessel acquired by the applicant as a gift. The word “gift” must be entered on the back of the title (in lieu of a purchase price) and a REG 256 must be completed by the applicant.
  This does not apply to a transfer of contract as explained in the Transactions Subject to Use Tax section in this chapter.
• Inheritance—An application for transfer or registration of a vehicle/vessel bequeathed to the applicant must include either:
  • An Affidavit For Transfer Without Probate California Titled Vehicle Or Vessels Only (REG 5) form completed by the applicant. A REG 5 is not acceptable for nonresident vehicles. The out-of-state title must be transferred in the state of origin before California registration may be obtained.
  • A REG 256 from a surviving co-owner stating the vehicle/vessel was bequeathed to the applicant.
    Use tax exemption may not apply to a trust transfer. See the Transactions Not Subject to Use Tax section in this chapter
• Legal Owner Transfers—Transfer of the legal owner/lienholder only.
• Transfer on Death (TOD) Beneficiary—Transfer of a vehicle/vessel to the person named as the TOD beneficiary on the title.
• Vehicle Moved on a One-Trip Permit—New or used trailers or semitrailers moved on a Ten Day Trip Permit (REG 43) form issued by DMV (CR&TC §6410).

Retail Sales Transactions—The following transactions are not subject to use tax:

• American National Red Cross Vehicles—Registration or transfer to the American National Red Cross (aka American Red Cross), its chapters, or branches.
• Business to Sole Owner of the Business—Transfers from a business name to the name of the individual or an individual to a business name who is the sole owner of the business.
  This does not apply if the business is a corporation.
• California Vehicle Dealer Sales—Sales that include the appropriate dealer report of sale document and sales of American-made vehicles to foreign residents who obtain a Foreign Resident In-Transit 30-Day Permit. Sales tax is paid under the seller’s permit number (CR&TC §6366.2 and VC §6700.1).
• California Vessel Dealer or Manufacturer Sales—Sales by California vessel dealers or manufacturers. The dealer/manufacturer must submit a Vessel Dealer or Manufacturer’s Sales Tax Certification (BOAT 110) form with the application which is forwarded to BOE for review.
• California Dismantler Sales—Sales by licensed California dismantlers. The bill of sale must identify the seller as a licensed dismantler and show the acquisition number.
• Domestic Partner Transfers—Transfer of a vehicle/vessel between domestic partners and/or a natural or legally-adopted parent, grandparent, child, grandchild, or sibling (if the sale is between two minors related by blood or adoption).
• The application must include a REG 256 showing the relationship of the buyer to the seller. Do not request any documentation of the domestic partnership (CR&TC §6285 and California Family Code §297.5).
• Family Transfers—Transfer of a vehicle/vessel between spouses and/or a natural or legally-adopted parent, grandparent, child, grandchild, or sibling (if the sale is between two minors related by blood or adoption). The application must include a REG 256 showing the relationship of the buyer to the seller (CR&TC §6285).
  Domestic partner/family transfer exemptions cannot be claimed if the seller is engaged in the business of selling the type of property being transferred/registered.
• Federal Government Sales—Sales of vehicles by the federal government under California Government Code (CGC) §§201C or 481C. The Certificate of Release of a Motor Vehicle (Standard 97) form must show CGC §§201C or 481C or must be accompanied by a letter from the General Services Administration verifying the sale was made under one of these CGC sections.
  Use tax is due on all other government vehicle sales unless a CDTFA 111 is submitted.
• Foreign Consuls—Consular officers of foreign nations are exempt from tax pursuant to treaties and other diplomatic agreements with the United States. The U.S. Department of State issues tax exemption cards and a letter from the Office of Foreign Missions to foreign diplomatic personnel who are exempt from taxes.
• Government Agencies—Transfer or registration to a United States Government agency or an agency of the United States.
• California Native American Owned Trailer Coach or Vessel—A vehicle, vessel, or trailer coach delivered to a California Native American owner on a California Native American reservation. Delivery may be by a licensed transporter or dealer on the dealer license plate. A REG 256 must accompany the application.
• Insurance Company Vehicles—Vehicles purchased by, and registered to, an insurance company for business use. Refer the applicant to CDTFA for review of the application. CDTFA will issue a CDTFA 111, CDTFA 111B, or exemption letter, as appropriate. An exemption letter must be part of the application and cannot be accepted for registration to other than the insurance company.
• Leased Vehicles—Includes
  • Registration or transfer of a leased vehicle/vessel on which the lessor pays use tax directly to CDTFA based on the rental receipts. The application must include a REG 256 from the lessor stating use tax is paid to the CDTFA on rental receipts and the lessor’s CDTFA seller’s permit number.
  • Transfer from a lessor/lessee to the same lessor and a different lessee or to the lessor as the sole registered owner.
  • Rental vehicles when the vehicle rental company pays use tax directly to CDTFA based on the vehicle’s rental receipts. The vehicle rental company registration name does not have to include “rent-a-car “or “rental” in its name to use this tax payment option. Applications must include a REG 256 stating use tax will be paid to BOE based on rental receipts and the vehicle rental company’s CDTFA seller’s permit number.
  • Refer customers requiring more information on rental vehicles to CDTFA at cdtfa.ca.gov or the Taxpayer Information Section at 1-800-400-7115.

• Minibikes—Minibikes sold by a minibike business. Payment of sales tax must be verified from an invoice or sales receipt showing the minibike’s vehicle identification number (VIN). Remember to return the original invoice or sales receipt to the applicant.
• Out-of-State Purchases Brought into California—Refer to the Transactions Subject to Use Tax section in this chapter.
• School Districts—An application for registration or transfer of a vehicle/vessel acquired by a school district from the Surplus Property Division of the State Board of Education.
• State Agencies—An application for registration or transfer of a vehicle/vessel acquired by a state agency from another state agency.
• Stolen Vehicle/Vessel—Transfer of an unrecovered stolen vehicle/vessel to the insurance company that was the insurer.
• Title Only—An application for “title only” of a vehicle.
• Transfer Only—An application for transfer of a “title only” or “transfer only” vehicle not currently licensed or registered at the time of purchase by the applicant and not subject to registration renewal.
  Use tax is due if the purchase date is before the registration expiration date.
• U.S. Marshal Sales—Sales by a U.S. Marshal pursuant to a federal court order or CGC §§201C or 481C (CR&TC §6402).
• Unincorporated Area City Use Tax—An application for registration or transfer of a vehicle/vessel for residents and businesses in unincorporated areas of certain cities may be exempt from paying a special city use tax approved by registered voters.
  One of the following must be submitted:
• A REG 256 from the owner stating the residence address at the time of purchase, the address is outside city limits, and they are exempt from the special sales and use tax imposed on that city.
• A letter on city letterhead stating the city use tax is not due.
• A CDTFA 111 or CDTFA 111B from CDTFA.
  • Regular use tax is still due, unless the owner or vehicle/vessel is otherwise exempt.

Although the zip code of a city and an unincorporated area may be the same, the city use tax applies only to residents living within the city limits.

• Attach the appropriate document to the application. If either a letter on city letterhead or a CDTFA 111 is submitted, a separate REG 256 is not required.
• If the application is a report of deposit of fees (RDF), verify that the appropriate document is with the application before clearing the transaction.
• If the customer states the city use tax was paid on a completed transaction, refer the customer to CDTFA online at cdtfa.ca.gov, by telephone at 1-800-400-7115, or by mail at:
  
  California Department of Tax and Fee Administration
  PO Box 942879
  Sacramento, CA 94279-0037
• Vehicle/Vessel Purchased Out of State by Military Personnel (CR&TC §6249)— A member of the armed services on active duty and their nonresident spouse who purchase a vehicle prior to the effective date of their reassignment to a military installation in California is not subject to use tax.
• The applicant must present CDTFA with evidence, such as a copy of the orders to be issued a CDTFA exemption certificate. There is no a military tax exemption for vessels.
• Vessels Used in Interstate Commerce—Vessels engaged in transporting persons or property in interstate commerce for compensation. The applicant must complete a REG 256 certifying the vessel:
  • Was delivered outside California to the purchaser.
  • Entered California while engaged in interstate commerce.
  • Will be used thereafter exclusively in interstate commerce.

Vehicles acquired or purchased by insurance companies are exempt from use tax. CDTFA Sales and Use Tax Regulation §1567 states that use tax does not apply to the storage, use, or other consumption in this state by insurance companies of tangible personal property. This includes the following:

• Vehicles/vessels acquired by an insurance company after settling with a registered owner on a total loss of a vehicle/vessel and transferred the vehicle/ vessel into the company name.
• Unrecovered stolen vehicles/vessels transferred to the insurance company that was previously registered to the insurer.
• Vehicles purchased by, and registered to, an insurance company for business use.

The above transactions do not require the Certificate of Vehicle, Mobilehome, or Commercial Coach Use Tax Clearance (CDTFA-111) or Vehicle/Vessel Use Tax Clearance (CDTFA-111-B) form to complete the transfer process

Application for Refund—If a refund is requested after the application has cleared:

• The applicant may complete a REG 256, with the complete vehicle/vessel description, the date use tax was paid (include the office and cashier number, if available), and why the refund is requested.
• Forward the REG 256 to DMV headquarters with the field office miscellaneous work for referral to the CDTFA or the applicant may mail the application directly to:
  
  Consumer Use Tax Section, MIC: 37
  California Department of Tax and Fee Administration
  PO Box 942879
  Sacramento, CA 94279-0037