BILL ANALYSIS �
AB 2618
Page A
ASSEMBLY THIRD READING
AB 2618 (Ma)
As Amended April 18, 2012
2/3 vote. Tax levy
REVENUE & TAXATION 8-0 APPROPRIATIONS 17-0
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|Ayes:|Lara, Harkey, Beall, |Ayes:|Fuentes, Harkey, |
| |Charles Calderon, | |Blumenfield, Bradford, |
| |Cedillo, Fuentes, Gordon, | |Charles Calderon, Campos, |
| |Nestande | |Davis, Donnelly, Gatto, |
| | | |Ammiano, Hill, Lara, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
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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
AB 2618
Page B
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
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
AB 2618
Page C
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
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.
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 Department of Motor Vehicles
(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 $5.5 million,
which this bill seeks to recover.
COMMENTS :
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 properly
----------------------
<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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Page D
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.
AB 2618
Page E
Assembly Revenue and Taxation Committee Staff Comments:
1)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 property's subsequent retail sale
(unless the property is again sold for resale or is exempt for
some other reason).
2)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>
3)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.
4)What problem is this bill seeking to address ? Audits and
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<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.
AB 2618
Page F
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 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.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0003853