BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 732 (Berryhill) - Sales and Use Tax: Exclusion: Motor Vehicle
Trade-in
Amended: May 14, 2013 Policy Vote: G&F 7-0
Urgency: No Mandate: Yes
Hearing Date: May 20, 2013 Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 732 would exclude the value of a "trade-in"
from the sales and use tax (SUT) for the purchase of a new car
or motorcycle.
Fiscal Impact: The Board of Equalization estimates that this
bill would result in a revenue loss of $451 million annually.
BOE's own costs to implement the bill are minor and absorbable.
Background: The SUT is a tax on final sales of tangible personal
property, such as clothing, household furnishings, appliances,
and motor vehicles. Intermediate sales of goods (from a
wholesaler to a retailer, for example) are not taxed and, in
addition, certain individual items are specifically exempted
from SUT. The largest of these tax expenditure programs (TEPs)
involve utilities and home-consumed food. California's
state-level SUT was established in the 1930s and its local SUT
in 1955.
The SUT rates in California differ by county and locality, and
range from 7.50 percent to 10.00 percent, depending on whether
optional taxes are levied. The current statewide SUT rate is
8.38 percent (weighted by sales). This includes:
A state rate of 6.50 percent-3.9375 percent for the
General Fund, 2.0625 percent for specified local purposes,
.25 percent for schools and community college funding, and
0.25 percent to pay off the deficit-financing bonds.
A weighted average local rate of 1.88 percent, including
0.75 percent for general purposes, 0.25 percent for county
transportation purposes, and the remaining 0.88 percent
from optional SUTs largely used for transportation.
SB 732 (Berryhill)
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BOE's regulation 1654, Barter, Exchange and Trade-Ins, explains
the application of sales 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 sold for which the trade-in allowance is
given. For example, if a dealer sells a new vehicle for $25,000
and accepts a trade-in with a value of $5,000 as partial
payment, sales tax is still based on the $25,000 selling price.
Using the average statewide SUT rate of 8.38 percent, the
resulting sales tax liability would be $2,095.
This is also true in cases where the purchaser pays no money 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 is required to report sales tax on the fair market value
of the diamond ring traded in.
Proposed Law: This bill would amend current law to provide that
the terms "sales price" and "gross receipts," respectively, do
not include the value of a vehicle traded in for a new vehicle,
as defined, 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. In the previous example,
sales tax would be based on $20,000 (the new car price less the
value of the trade-in); the resulting sales tax liability would
be $1,676, or $419 less.
Related Legislation:
During the 2009-10 Legislative Session, SBx6 5
(Hollingsworth), SB 658 (Walters), and SB 714 (Dutton) were
all similar to SB 732. All three bills were held in the
Senate Revenue and Taxation Committee.
Staff Comments: Current Law provides that the State will
reimburse counties and cities for revenue losses caused by the
enactment of sales and use tax exemptions. This bill would
provide that the State shall not reimburse local agencies for
sales and use tax revenues lost by them pursuant to this bill.
SB 732 (Berryhill)
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