BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2618 HEARING: 6/20/12
AUTHOR: Ma FISCAL: Yes
VERSION: 4/18/12 TAX LEVY: Yes
CONSULTANT: Miller
SALES & USE TAX: AUCTION VEHICLES
Limits who can acquire salvage certificate vehicles to
those persons that are licensed dealers, dismantlers, auto
repair dealers, or scrap metal processors.
Background and Existing Law
Existing state law imposes a sales tax on retailers' gross
receipts for the privilege of selling tangible personal
property unless specifically exempted. The state also
imposes a complementary use tax on tangible personal
property which the consumer is required to pay.
When a seller receives a resale certificate from another
person engaged in the business of selling tangible personal
property that holds a permit under the sales and use tax
law, the original seller is not required to collect the
sales tax. A person engaged in sales at auction is
considered a retailer for the purposes of collecting the
tax or not paying the tax under the provisions described.
Both the revenue & taxation code and the vehicle code
require that taxes are paid on vehicles either at the time
of sale (sales tax) or at the time of registration (use
tax).
A "salvage certificate vehicle" is a vehicle that has been
wrecked or damaged, and which the owner, insurance company,
financial institution or leasing company considers too
costly to repair. At this point, the certificate of
ownership, license plates, and a required fee are generally
forwarded to the DMV. The DMV then issues a salvage
certificate for the vehicle and the vehicle is excluded
AB 2618 -- 4/18/12 -- PageB
from DMV registration requirements.<1> As the BOE notes
in its staff analysis, salvaged auto auctions operate
somewhat differently from general auto auctions. Since a
salvage certificate vehicle is not subject to DMV
registration, salvaged auto auctioneers allow both dealers
and non-dealers to purchase vehicles from them. Therefore,
a salvaged auto auctioneer or dismantler selling such a
vehicle to someone other than a licensed dealer may
properly accept a resale certificate from any person with a
seller's permit, as long as the resale certificate is
properly completed by the purchaser in accordance with
BOE's regulations.
Proposed Law
Assembly Bill 2618 provides that a licensed dismantler or
any person selling a vehicle at auction is presumed to be
making a sale at retail. The bill creates a rebuttable
presumption that a licensed dismantler or any person
selling a vehicle at auction is presumed to be making a
sale at retail and therefore subject to the tax. The
seller may rebut the presumption by accepting a resale
certificate, with the appropriate license or registration
number, from a licensed dealer, dismantler, automotive
repair dealer or scrap metal processor.
State Revenue Impact
The BOE estimates that this bill will raise approximately
$5.44 million annually.
Comments
1. Purpose of the bill . The BOE audits show that car sale
non-compliance with the sales and use tax law is about 6%,
higher than the average rate of 4% in the rest of the
-------------------------
<1>
The vehicle may, however, be subsequently repaired and
re-registered with the DMV. To be re-registered, the law
requires that the vehicle pass a safety inspection with the
DMV or the California Highway Patrol. It is then
classified as a "revived salvage" or "salvaged" vehicle and
the certificate of ownership (i.e., the "pink slip")
reflects this classification.
AB 2618 -- 4/18/12 -- PageC
program. AB 2618 addresses a significant issue around who
may purchase salvage vehicles without being required to pay
the sales and use tax. By requiring the tax reimbursement
to be paid to the auto auction or dismantler at the time of
purchase, the bill mitigates a significant opportunity to
avoid the sales and use tax. The audits specifically
found that permit holders that are not licensed dealers are
acquiring salvage certificate vehicles by issuing a resale
certificate, and are not reporting any subsequent sales of
vehicles. Purchasers do not appear to be registering the
vehicles with DMV and reporting use tax. This bill
requires that only specific persons may purchase a salvage
vehicle with a resale certificate (and therefore not pay
the sales tax) which not only mitigates the state's tax
loss but also the unfair advantage that these persons have
over new and used car dealers that are required to collect
and remit the sales and use tax.
Assembly Actions
Assembly Revenue and Taxation: 8-0
Assembly Appropriations: 17-0
Assembly Floor: 77-0
Support and Opposition (6/14/12)
Support : State Board of Equalization (BOE); Board of
Equalization Member George Runner; Californians Against
Waste; California State Association of Counties; California
Auto Dismantlers and Recyclers Alliance, Inc.; Insurance
Auto Auction Inc. (IAAI); State of California Auto
Dismantlers Association.
Opposition :
Unknown.