BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 516 HEARING: 1/11/12
AUTHOR: Correa FISCAL: Yes
VERSION: January 4, 2012 TAX LEVY: Yes
CONSULTANT: Miller
SALES AND USE TAX EXEMPTION: MOTORCYCLES
Excludes the price of a trade in motorcycle for computation
of the sales & 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, unless specifically exempted by statute.
The sales tax is imposed on retailers for the privilege of
selling goods in this state while the use tax is imposed
upon the storage, use or consumption of the goods. In
general, the tax is based on the sales price of the good
sold. 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 Board of Equalization (BOE's) Regulation 1654, Barter,
Exchange, and "Trade-Ins," explains the application of tax
to sales and purchases involving "trade-ins." The
regulation provides that the value of a trade-in of a used
vehicle, including a motorcycle, may not be excluded from
the computation of sales tax. For example, if a dealer
sells a new motorcycle for $12,000 and accepts a trade-in
motorcycle with a value at $6,000 as partial payment, sales
tax is still based on the $12,000 selling price.
And when merchandise is "traded-in" or "exchanged," for the
full amount of the new item, the retailer must still impose
the tax on the new item. 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
SB 516 -- 1/5/11 -- Page 2
sales tax on the fair retail market value of the new ring.
Proposed Law
Senate Bill 516 excludes the value of a motorcycle traded
in for a new motorcycle for purposes of computing the sales
and use tax. For example, if a dealer sells a new
motorcycle for $12,000 and accepts a trade-in motorcycle
with a value at $6,000 as partial payment, sales tax would
only be based on $6,000. The bill sunsets on January 1,
2017.
State Revenue Impact
The BOE estimates a $10.2 million annual loss at the
average statewide sales and use tax rate of 8.11%
Comments
1. Purpose of the bill . The California motorcycle
industry has been hit hard by the current economic
recession. Hundreds of dealerships have closed down and
thousands of people have lost their jobs. To help stimulate
this industry and the economy, I have introduced SB 516.
SB 516 will exempt the value of a motorcycle traded in on a
new motorcycle purchase. For example, if a consumer
purchases a new motorcycle for $12,000, and the motorcycle
that they trade in is valued at $4,000, the amount of sales
tax paid is only on the difference, or $8,000, saving the
consumer $330 (assuming the tax rate is 8.25%). Forty-five
other states currently deduct vehicle trade-in sales tax as
proposed in SB 516. With our economy struggling, this bill
will correct an unfair tax policy, encourage Californian's
to purchase motorcycles and help create jobs.
2. These are a few of my favorite things . SB 516 limits
the sales tax exclusion to trade-ins of motorcycles for new
motorcycles. Therefore, should a person trade-in a
motorcycle for a new or used car or a used motorcycle, or
trade in a car for a new or used motorcycle, the exclusion
would not apply. Also, the bill would not apply to other
commonly traded-in items for which purchasers receive
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credit for their trade-ins, such as vehicles, jewelry,
washing machines and dryers, trading cards, tires, and car
batteries.
Support and Opposition (1/5/11)
Support : B & B Cycles; Barger Harley-Davidson; Beach
Yamaha; Bellflower Motor Sports; Biggs Harley Davidson; CA
Harley Davidson, Escondido Cycle Center; Cal Coast
Motorsports; Gilroy Motorcycle Center; Golden Gate Cycles
LTD; Harley Davidson Anaheim-Fullerton; Harley Davidson of
Glendale; Hutchins Motor Sport; Indian Motorcycle Los
Angeles; Kawasaki of Santa Barbara; Motorcycle Industry
Council; Skiebyrd Motors, Inc.; Skip Fordyce
Opposition : California State Association of Counties.