The Myth about Car Dealer Sales Tax in California.
August 7, 2013 2 Comments
You often hear people talking about how car dealers bring sales tax revenue to cities from the sale of vehicles. While there is some truth to it, there are special rules for the allocation of a portion of the tax that discourages shoppers from choosing an out-of-town retailer with a lower sales tax rate.
Further, Government Code section 53084 has discouraged local entities from providing financial assistance, including sales tax rebates to car dealers and big box retailers that are in another jurisdiction: “. . . a local agency shall not provide any form of financial assistance to a vehicle dealer or big box retailer, or a business entity that sells or leases land to a vehicle dealer or big box retailer, that is relocating from the territorial jurisdiction of one local agency to the territorial jurisdiction of another local agency but within the same market area.”
Further, people think that all the sales tax revenue goes to a local agency, when just a portion of the sales tax goes to a local entity. Of the 7.5 percent base rate in California, the Board of Equalization states:
“Local Tax” is the general term for sales and use taxes imposed under the Bradley-Burns Uniform Sales and Use Tax Law. The basic statewide sales and use tax rate is 7.50% and is divided as follows:
0.75% Local Jurisdiction (City or county of place of sale or use)
0.25% Local Transportation Fund (County of place of sale or use) [Emphasis added]
In addition to the “Local Tax,” many California local entities have special taxing districts which impose a sales and use tax by adding to the current 7.5 percent. In the California Board of Equalization Publication 34, dated January 2013, entitled Motor Vehicle Dealers, Pages 28-29:
If you sell or lease a vehicle to a customer who registers the vehicle in a special tax district, you are considered “engaged in business” in the district. As a result, you must report and pay the applicable special district tax.
You are located in Alameda County, where there are three districts, each funded by a 0.50 percent rate. You sell or lease a vehicle to a customer who will register the vehicle in the same county. You report and pay the standard statewide rate of 7.50 percent plus 1.50 percent for the three special tax districts in effect in the county, for a total rate of 9.00 percent.
You are located in Los Angeles County and sell a vehicle that will be registered in Kings County, where there are no special tax districts. You report and pay only the statewide rate of 7.50 percent.
You are located in Kern County and sell a vehicle that will be registered in Alameda County, where there are three special tax districts. As with the first example, you will report and pay tax at the total rate of 9.00 percent (the standard statewide rate of 7.50 percent plus 1.50 percent for the three districts).
Leases are a little different. Revenue and Taxation Code section 7205.1 says that a California lessor, other than a new motor vehicle dealer or a leasing company, for a lease exceeding four months, the local tax is allocated from the California dealer’s sales location.
Certainly, even without certain sales tax revenue on sales, vehicle dealers are attractive to local California entities because they provide jobs, services for residents, and both local and special district taxes on parts, for example. However, since motor vehicles are big ticket items, people mistakenly think that the special district taxes are based on the location of the dealer, when in California it is based on registration.