BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 516 HEARING: 5/11/11
AUTHOR: Correa FISCAL: Yes
VERSION: 2/17/11 TAX LEVY: Yes
CONSULTANT: Miller
SALES TAX EXEMPTION- TRADE IN MOTORCYCLES
Excludes the trade in value of a motorcycle from the sales
and use tax.
Background and Existing Law
Existing law imposes a sales or use tax on the sale of, or
the storage, use, or other consumption of, tangible
personal property. The sales tax is imposed on retailers
for the privilege of selling tangible personal property in
this state while the use tax is imposed upon the storage,
use or other consumption of tangible personal property
purchased in this state, even if purchased out of state.
Existing law defines "sales price (use tax)" and "gross
receipts (sales tax)" to include the total amount of the
sale or lease or rental price, whether received in money or
otherwise. The total amount of the sale or lease or rental
price includes all of the following:
Any services that are a part of the sale.
All receipts, cash, credits and property of any kind.
Any amount for which credit is allowed by the seller to
the purchaser.
The BOE's regulation 1654, Barter, Exchange, and
"Trade-Ins," explains the application of tax to sales and
purchases involving "trade-ins." The regulation states
that the value of a trade-in of a used vehicle or any other
item of tangible personal property (which would include a
motorcycle) may not be excluded from the computation of
sales tax with respect to the property being sold for which
the trade-in allowance is given. For example, if a dealer
sells a new motorcycle for $12,000 and accepts a trade-in
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motorcycle with a value at $6,000 as partial payment, sales
tax is still based on the $12,000 selling price. This is
true even in cases where no further money is required to be
paid by the purchaser in the trade. For example, if a
person brings a diamond ring to a jeweler and makes an even
exchange for a different ring, the jeweler would be
required to report sales tax on the fair retail market
value of the purchased rings.
SB 516 -- 2/17/11 -- Page 3
Proposed Law
Senate Bill 516 provides that the definitions for "sales
price" and "gross receipts" do not include the value of a
motorcycle traded-in for a new motorcycle, when the value
of the trade-in motorcycle is separately stated on the new
motorcycle invoice or bill of sale or similar document
provided to the purchaser. For example, the dealer that
accepts a trade in motorcycle with a value of $6,000 on a
$12,000 motorcycle would only impose the sales tax on the
$6,000 difference.
This bill becomes operative on the first day of the first
calendar quarter commencing more 90 days after the bill is
enacted.
State Revenue Impact
The BOE estimates that this bill result in a $50 million
revenue loss per year.
Comments
1. Purpose of the bill . This bill is sponsored by the
California Motorcycle Dealers Association. The author
states that Senate Bill 516 would encourage consumers to
purchase new motorcycles and stimulate a very depressed
sector of the economy. While the motorcycle industry in
California contributes billions of dollars to the state
economy in consumer sales and services, state taxes,
personnel salaries, etc., sales of power sports products
have drastically declined in the past several years, having
a very detrimental effect on power sports dealers in the
state. In 2004, an estimated 8,078 people were employed at
new motorcycle dealerships in California. By 2009, the
number of employees had dropped to 6,786 people. SB 516
would provide an impetus for motorcycle consumers to return
to the marketplace, stimulating jobs growth and the health
of retail motorcycle dealerships in the state and the
California economy generally.
2. What about us? SB 516 limits the proposed exclusion to
trade-ins of motorcycles for new motorcycles. Should a
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person trade-in a motorcycle for a new or used car or a
used motorcycle, the exclusion would not apply. Also, the
bill only applies to motorcycles and not other commonly
traded-in items for which purchasers receive credit for
their trade-ins such as vehicles, jewelry, washing
machines, dryers, trading cards, tires and car batteries.
If this policy makes sense, why should it be limited to
motorcycles? The committee may wish to consider whether
this policy makes sense to expand to include all of these
listed items.
3. Of costs and benefits . The proponents of this measure
posit that excluding the trade-in value of a motorcycle for
a new motorcycle will increase the number of new
motorcycles sold in this state leading to economic growth
for the state overall. There is little evidence to the
accuracy of the outcome as it is unclear whether sales and
use tax exemptions have ever in fact changed behavior in
this state or if they have only served to favor one
industry over another. If the state wanted to create an
incentive for the motorcycle industry above all others,
would the trade in exemption or the sales and use tax work?
The committee may wish to consider adding some performance
measures to this bill to ensure that in three to seven
years the sales of new motorcycles has in fact increased as
the proponents suggest. The committee may also wish to
consider a sunset on this measure to ensure that it is
meeting its performance objectives within seven years.
4. The silver lining. The economic downturn has seriously
affected motorcycle shops both in terms of motorcycle and
accessory sales. At the same time, motorcycle repair shops
have seen an upturn in business. The Committee may wish to
consider whether helping one aspect of the motorcycle
industry will hurt another.
5. Have we met before? Last Legislative Session, three
measures were introduced to exclude the value of a used
vehicle traded-in for a new vehicle: SB 658 (Walters)
excluded the trade-in value of vehicles and motorcycles, SB
714 (Dutton), and SBx6 5 (Hollingsworth). All three
measures were placed on the Senate Revenue and Taxation
Committee's suspense file.
SB 516 -- 2/17/11 -- Page 5
In the 2007-08 Session, a similar bill to SB 516, SB 1417
(Hollingsworth), was also considered by the Legislature.
That bill died in the Senate Revenue and Taxation
Committee.
Support and Opposition (5/5/11)
Support : California Motorcycle Dealers Association
(sponsor); Barger Harley-Davidson; Beach Yamaha; Dudley
Perkins Company; Fred Cummings Motorsports; Fremont Honda
Kawasaki; Gilroy Motorcycle Center, Inc.; Golden Gate
Cycles; Ltd.; Harley-Davidson Motor Company; Micheal's
Harley-Davidson; Mission Motorcycles.
Opposition : California State Association of Counties;
California Taxpayer
Reform Association.