BILL ANALYSIS �
AB 2618
Page A
Date of Hearing: May 14, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2618 (Ma) - As Amended: April 18, 2012
2/3 vote. Tax levy. Fiscal committee.
SUBJECT : Sales and Use Tax Law: auction: vehicles
SUMMARY : Provides that a "qualified person" making specified
vehicle sales shall be presumed to be making sales at retail
(and not for resale) under the Sales and Use Tax (SUT) Law.
Specifically, this bill :
1)Defines a "qualified person" as a person making a sale at
auction or a dismantler licensed under the Vehicle Code (VC).
2)Applies to every qualified person making any sale of:
a) A mobilehome or commercial coach required to be
registered annually under the Health and Safety Code
(H&SC);
b) A vehicle required to be registered under the VC or
subject to identification under VC Section 38000 et seq.;
c) A vehicle that qualifies under the permanent trailer
identification plate program under VC Section 5014.1(a);
or,
d) Any salvage certificate vehicle as defined in VC Section
11515.
3)Specifies that the retail sale presumption may be rebutted by
taking a resale certificate from a person that certifies it
is:
a) Licensed, registered, regulated, or certificated under
the H&SC or the VC as a dealer or dismantler;
b) Licensed, registered, regulated, or certificated under
the Business and Professions Code as an automotive repair
dealer, or is qualified as a scrap metal processor as
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described in the VC; or,
c) Licensed, registered, regulated, certificated, or
otherwise authorized by another state, country, or
jurisdiction to do business as a dealer, dismantler,
automotive repairer, or scrap metal processor.
4)Prohibits a qualified person from accepting a resale
certificate from any person except as provided above.
5)Provides that, in addition to the requirements of Revenue and
Taxation Code Sections 6093 and 6243, the resale certificate
shall include the license or registration number of the
dealer, dismantler, or automotive repair dealer, as
applicable. If the purchaser is not required to hold a
seller's permit because the purchaser makes no sales in this
state, the purchaser must include on the certificate a
sufficient explanation as to the reason the purchaser is not
required to hold a California seller's permit in lieu of the
seller's permit number.
6)Provides that a qualified person that does not timely obtain a
resale certificate as provided above may use alternative
methods as prescribed by the State Board of Equalization (BOE)
to rebut the retail sale presumption.
7)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Imposes a complementary use tax on the storage, use, or other
consumption in this state of TPP purchased from any retailer.
The use tax is imposed on the purchaser, and unless the
purchaser pays the use tax to a retailer registered to collect
the California use tax, the purchaser remains liable for the
tax, unless the use is exempted. The use tax is set at the
same rate as the state's sales tax and must generally be
remitted to the BOE.
3)Presumes that all proceeds from retail sales are subject to
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tax until the contrary is established. The seller bears the
burden of proving a sale of TPP is not a retail sale subject
to tax unless the seller obtains a resale certificate in good
faith from a person engaged in the business of selling TPP who
holds a permit under the SUT Law.
4)Provides that a person engaged in the business of making
retail sales at auction of TPP owned by others is a retailer.
5)Provides generally that retail sales of vehicles subject to
registration under the VC are subject to sales tax when sold
by a person licensed or certificated under the VC, and subject
to use tax, collected by the Department of Motor Vehicles
(DMV), when sold by a person not so licensed or certificated.
FISCAL EFFECT : In its staff analysis of this bill, the BOE
notes that it conducted a six-month study of California auto
auctioneers. Based on a statistical sampling of vehicles sold
to non-dealers, BOE staff found that roughly 41% of the vehicles
sold were never registered with the DMV, and of those vehicles
actually registered, 26% of the actual sales price was not
reported to DMV.<1> These combined practices result in an
estimated revenue loss of $67 million, which this bill seeks to
recover.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
The sales tax is generally imposed on the retailer when
they sell tangible personal property at retail in this
state. If a person is purchasing property for the purpose
of reselling the property prior to any use of the property,
the seller may accept a resale certificate from the
purchaser. Under current law, auction houses can accept a
resale certificate from any person with a seller's permit,
not just a licensed dealer. For example, a person with a
seller's permit for the operation of a restaurant may be
-------------------------
<1> In other words, BOE staff determined that when the purchaser
registered the vehicle with the DMV, the purchaser declared a
purchase price lower than the actual purchase price, resulting
in a lower use tax payment than required by existing law.
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properly issued a resale certificate for the purchase of a
salvage certificate vehicle from an auto auction if the
salvage certificate vehicle will be resold by the
purchaser.
This resale certificate is received in good faith that they
will recover revenues in one of two ways. 1. The seller
will sell the vehicle or the parts of the vehicle, and will
then pay the appropriate sales tax to the state. 2. If
the seller decides to keep the vehicle, they will pay the
appropriate fees at the �DMV] in order for this vehicle to
be operated on the highway again.
California created these lenient guidelines in order to
help small businesses flourish. However, audits and
investigations have disclosed 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. Additionally, purchasers do
not appear to be registering the vehicles with DMV and
reporting use tax.
The �BOE] performed a 6-month study of certain California
auto auctioneers and determined the estimated sales of
vehicles to non-dealers in California equated to $67
million in lost revenue.
Based on a statistical sampling of vehicles sold to
non-dealers, the BOE staff found that approximately 41% of
the vehicles sold were never registered with California
�DMV], and of those vehicles registered, 26% of the actual
sales price �was] not reported to DMV. In other words, the
staff identified the sales price of the vehicle sold by the
auctioneer, but when the purchaser registered the vehicle
with DMV, the purchaser declared a purchase price less than
the actual purchase price - presumably to pay a lower
amount of use tax. The projected amounts come out to $49
million attributable to unregistered vehicles; $18 million
attributable to understating the purchase price upon
registration with DMV totaling an approximate $67 million
loss in revenue.
2)Proponents state:
Present law allows buyers who are not properly licensed to
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sell, repair, or dismantle vehicles �?] to purchase
vehicles without tax by issuing a resale certificate at the
time of purchase at the insurance auction. The businesses
issuing resale certificates are not always engaged in an
automotive related business, and BOE related audits
indicate there are often failures to report subsequent
sales of vehicles or parts, nor are the vehicles always
properly registered with DMV. Applicable use tax and
registration of the vehicles may show a declared purchase
price significantly lower than the actual purchase price.
Such deception will be lessened by passage of this
legislation. AB 2618 will not impose any new taxes or fees
but will help close this tax gap.
a) In its staff analysis, the BOE notes, "This bill is
sponsored by the BOE and is intended to close a tax gap
related to the auto auction and dismantling industry where
purchasers who are not properly licensed to sell, repair,
or dismantle vehicles are purchasing the vehicles without
paying tax reimbursement to the sellers or use tax to DMV,
by issuing a resale certificate at the time of purchase at
a salvage auto auction. Alternatively, some of the
purchasers are remitting use tax to DMV upon registration
of the vehicles, but declaring a �purchase] price upon
which the use tax is based at a much lower amount. This
bill will require auto auctions (and dismantlers) to
collect tax reimbursement on the sale of any vehicle that
is sold to any person other than a licensed dealer,
dismantler, automotive repair dealer, or scrap metal
processor. The bill enables auto auctioneers to also
accept a resale certificate from any person duly licensed
in another state, country or jurisdiction as a dealer,
dismantler, automotive repair dealer, or scrap metal
processor."
3)Committee Staff Comments:
a) Overview of existing law : As noted above, the sales tax
is generally imposed on retailers for the privilege of
selling TPP at retail in this state. If a person is
purchasing property for the purpose of reselling it prior
to any use, the seller may accept a "resale certificate"
from the purchaser. Accepting such a certificate in good
faith relieves the seller of sales tax liability. The
purchaser, however, is liable for the sales tax upon the
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property's subsequent retail sale (unless the property is
again sold for resale or is exempt for some other reason).
b) What is a "salvage certificate vehicle"? : This bill is
primarily directed at addressing a problem that has arisen
in connection with "salvage certificate vehicles." 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
from DMV registration requirements.<2>
c) Salvaged auto auctions : 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.
d) What problem is this bill seeking to address? : Audits
and investigations have revealed that certain seller's
permit holders (who are not licensed dealers) are using
resale certificates to acquire salvage certificate vehicles
from auto auctions tax free. In fact, the BOE conducted a
six-month study and, based on a statistical sampling of
vehicles sold to non-dealers, found that roughly 41% of the
vehicles sold were never registered with the DMV.
Moreover, of those vehicles actually registered, purchasers
often reported a purchase price significantly lower than
--------------------------
<2> 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.
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the actual purchase price, in an apparent attempt to pay
less use tax. This bill seeks to address this tax gap by
prohibiting auctioneers and dismantlers from accepting
resale certificates from any person who is not a dealer,
dismantler, automotive repairer, or scrap metal processor.
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (sponsor)
State Board of Equalization Member George Runner
Californians Against Waste
California Auto Dismantlers and Recyclers Alliance
Insurance Auto Auction Inc.
State of California Auto Dismantlers Association
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098