BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 732 HEARING: 4/24/13
AUTHOR: Berryhill FISCAL: Yes
VERSION: 2/22/13 TAX LEVY: Yes
CONSULTANT: Miller
SALES & USE TAXES: EXCLUSION: TRADE-IN MOTOR VEHICLE
Excludes the value of a "trade in" from the sales tax for
the purchase of a new car.
Background and Existing Law
California law imposes a 7.5% sales and use tax, plus any
locally adopted sales taxes (up to 2% more) on the gross
receipts of tangible personal property in this state. The
current sales and use tax is:
-------------------------------------------------------------
| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|1.0625%|Local Revenue Fund |Realignment of local public |
| |2011 |safety services |
| | | |
| | | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.25% |State (Fiscal |Repayment of the Economic |
| |Recovery Fund) |Recovery Bonds |
| | | |
|-------+--------------------+--------------------------------|
SB 732 -- 2/22/13 -- Page 2
| | | |
| 0.25% |State (Education |Schools and community college |
| |Protection Account) |funding |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.00% |Local (City/County) |City and county general |
| | |operations. Dedicated to |
| | |county transportation purposes |
| |0.75% City and | |
| |County | |
| | | |
| |0.25% County | |
|-------+--------------------+--------------------------------|
| | | |
| 7.50% |Total Statewide | |
| |Rate | |
| | | |
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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." It provides that the
value of a trade-in of a used vehicle or any other item of
tangible personal property may not be excluded from the
computation of sales tax with respect to the property being
SB 732 -- 2/22/13 -- Page 3
sold for which the trade-in allowance is given. For
example, if a dealer sells a new vehicle for $20,000 and
accepts a trade-in with a value at $4,000 as partial
payment, sales tax is still based on the $20,000 selling
price.
When merchandise is "traded-in" on the purchase price of
other merchandise, the retailer accepting the trade-in must
include in the amount subject to tax the amount agreed upon
between the retailer and the purchaser as the allowance for
the merchandise traded in. 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 different
ring.
Proposed Law
Senate Bill 732 changes the way the sales tax is imposed on
"trade-in" vehicles and specifically provides that the
terms "sales price" and "gross receipts" do not include the
value of a vehicle traded-in for a new vehicle, including a
new motorcycle, when the value of the trade-in vehicle is
separately stated on the new vehicle invoice or bill of
sale or similar document provided to the purchaser. For
example, if a dealer sells a new vehicle for $20,000 and
accepts a trade-in with a value at $4,000 as partial
payment, under this bill the sales tax would be based on
$16,000-the original sales price minus the trade in value
As a tax levy, the bill takes effect immediately, but
becomes operative on the first day of the first calendar
quarter commencing more than 90 days after enactment.
State Revenue Impact
The revenue estimate is still pending from the BOE.
Comments
1. Purpose of the bill . According to the author, "car
SB 732 -- 2/22/13 -- Page 4
manufacturers have been hit hard by the economic recession.
As a result there has been job loss across the nation in
the automobile industry; including parts manufacturers, car
sales, and financing institutions. SB 732 would create an
incentive for the purchase of new vehicles; therefore
individuals would be less inclined to sell their cars to a
private party.
This measure would not only stimulate the economy but would
alleviate some burden on taxpayers. Unfortunately, car
consumers in California are subject to three different
taxes. The original purchaser pays a sales tax on the
initial purchase price of the vehicle, an annual ad valorem
tax in the form of a vehicle license fee, and then another
sales tax on the trade in vehicle. Eliminating the sales
tax for trade-in-vehicles would give tax payers some
relief, and it would also eliminate this tax advantage that
out-of-state car owners have over Californians.
Over the years the automobile industry has produced
vehicles that are more fuel-efficient and have lower
emissions. SB 732 encourages consumers to purchase newer
vehicles; which would then reduce air pollutants. This
would help California achieve its air quality standards and
save the state money that would be spent on air quality
clean-up costs. "
2. Who's next ? SB 732 sets a precedent to extend a sales
and use tax exemption for trade-ins for other durable
goods. Other durable goods often traded in include: home
appliances, kitchen appliances, furniture, copy machines,
and jewelry. If a car's trade-in value should be excluded
from the definition of sales price and gross receipts, the
Committee may wish to consider the other goods that would
also benefit from such an exclusion.
3. Undefined terms . SB 732 lacks clarity around certain
terms and should be clarified by the author or could be
broadly construed and lead to additional revenue loss.
The bill does not define the term "vehicle;" under some
definitions, "vehicle" means off highway vehicles such as
race cars, snow mobiles, all-terrain vehicles, amphibious
vehicles, go-carts and even golf carts, any vehicle which
is self-propelled. This term can, therefore, include such
items as bulldozers, tractors, buses, and recreational
SB 732 -- 2/22/13 -- Page 5
vehicles. Does the author intend to include all these
items in the exclusion?
Furthermore, the author's intent is that the trade-in value
is only excluded when purchasing a new vehicle. Vehicle
dealers routinely make temporary uses of vehicles before
reselling them by occasionally removing them from resale
inventory for temporary use such as offering a loaner while
a car is being serviced. When a dealer temporarily removes
a vehicle from its resale inventory for use as a company or
service vehicle, they are required to report use tax based
on the vehicle's fair rental value for the period of such
use. Would these vehicles be considered "new?"
Support and Opposition (4/18/13)
Support : California New Car Dealer's Association.
Opposition : None received.