Tax Guide for Motor Vehicle Dealers

Helping your business succeed is important to the Board of Equalization. Taxes you collect and pay to the state help fund state and local services and programs important to you and your community. We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so you can focus on starting and growing your business.

To help you better understand the tax obligations specific to car dealerships, we have created this guide detailing the tax issues and information important to your business.

If you have a repair or service center, you may also want to see our Auto Repair Garages guide.

How to Use This Guide

Each section of this guide contains information relevant to your business. The Getting Started section provides key resources related to registration, filing returns, account maintenance, and other important information you need.

The Industry Topics section covers the most common topics in an at-a-glance format that can be expanded to provide more extensive information if you need it.

The Recordkeeping section covers the common records used and document requirements.

Lastly, the Resources section provides links to a wealth of information, including web-based seminars, forms and publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that the information included is general in nature and is not intended to replace any law or regulation.


If You Need Help

If at any time you need assistance with topics included in this guide – or with other topics we may have not covered – feel free to contact us by telephone or email. Contact information and hours of operation are available in the Resource section.

If you have suggestions for improving this guide, please contact us by email.

Getting Started

If you own a business in California, and you expect to be making taxable sales, you must register with us for a seller's permit and file regular sales and use tax returns. You may be required to register for other licenses or accounts using our online registration service and file other returns. Listed below are some tax and fee programs that are often applicable to vehicle dealers.

California Tire Fee Account

You must register with us for a California Tire Fee Account and pay the California Tire Fee if you sell new tires at retail or if you lease or rent vehicles with new tires to your customers.

Registration

Online Registration – Register with us for your seller's permit and apply for any of the licenses, permits, or accounts listed above, or add a business location to an existing account.

If you have already registered with us, you will find these tools helpful in maintaining your account.

Filing and Payments

Notice of Business Change – Keep your information current by using the links below and notifying us of any business changes.

Industry Topics

General Information

Sales and Use Taxes in General

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, felt, or touched.

Use tax is a companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. Examples of taxable uses include oil, grease, gasoline, and parts that are used for company vehicles or service department vehicles. The cost of such items must be reported on your sales and use tax return under line 2, “Purchases Subject to Use Tax.”

Seller's Permit

As a motor vehicle dealer, you must obtain a seller's permit, and report and pay tax on your vehicle sales. Registering for a seller's permit is free, although in some cases a security deposit may be required.

If you have multiple locations, you must register each location with us. You can register with the Board of Equalization (BOE) for a seller's permit or consolidated seller’s permits using our online registration service.

Be sure to let us know about any changes to your business, or to your mailing or email address so that we can keep your records up-to-date and inform you of important changes in law, tax rates, or procedure. You can easily update your account information by contacting our Customer Service Center or any one of our field offices throughout the state. Contact information is available in the Resources section of this guide.

Sales for Resale

When making sales for resale, you must obtain a resale certificate from your customer in a timely manner. See Resale Certificates for recordkeeping requirements.

Licensed California dealers are prohibited from purchasing new motor vehicles for resale for a line or make in which you do not hold a franchise, for example a Ford dealer purchasing a Honda for resale. You are advised not to accept a resale certificate for these transactions, even if it contains a statement that specifies the vehicle is for resale in the regular course of business because it violates your dealer's license.

When a franchised dealer sells a new vehicle to another dealer of the same line, a Notice of Transfer and Release of Liability is required to be submitted to Department of Motor Vehicles (DMV) by the transferring dealer.

If you sell or trade a used vehicle to another dealer for resale, you are not required to report tax on the sale. You must complete a Wholesale Report of Sale to report sales of used vehicles between dealers, wholesale transactions to out-of-state dealers, scrap metal processors, and dismantlers. The Wholesale Report of Sale is a controlled form that can only be obtained from the DMV Occupational Licensing Section.

Gasoline

You have the option of providing a resale certificate to a seller when purchasing gasoline which you intend to include as part of the sale of a vehicle. You do not have to report and pay tax on gasoline that is in the fuel tank of a vehicle at the time it is sold.

You generally will report and pay tax on gasoline that you use for:

  • Company cars, service cars, tow trucks.
  • Vehicles that are being held for resale or lease and used prior to their sale.
  • Vehicles whose use is taxable under the 1/40th or 1/60th formulas.
  • Vehicles that are used as demonstrators only.
  • Loaned vehicles that are taxable based on the cost of purchase or their fair rental value.

If the amount of gasoline you purchased with a resale certificate is more than the amount of gasoline sold with vehicles, you must report the difference on your sales and use tax return under “Purchases Subject to Use Tax”.

If the amount of gasoline you purchased with a resale certificate is less than the amount of gasoline sold with vehicles, you may claim a deduction for the difference under “Tax-Paid Purchases Resold”.

Sales of Vehicles

The majority of your vehicle sales will involve purchases made by individuals who will use the vehicle in California for personal or business use. Generally, these sales are taxable. Some sales are exempt from tax under the Sales and Use Tax Law. All exempt sales should be properly documented.

You are required to report and pay sales tax on your retail sales of tangible personal property; however, you may pass the cost of the sales tax onto your customer, provided it is agreed to as part of the sale. For more information, please refer to Regulation 1700, Reimbursement for Sales Tax.

Vehicle Auctions

When you conduct a wholesale vehicle auction, you must document all sales or transfers on a Vehicle Auction Wholesale Report of Sale.

These are controlled forms that can only be obtained from the DMV Occupational Licensing Section. When you sell vehicles at auction, you must also obtain a timely BOE-230-F, California Resale Certificate, Sales by Auto Auctions and Auto Dismantlers to support any sales for resale.

Sales to Leasing Companies

Generally, a lessor may give you a resale certificate if they intend to report tax measured by their monthly rental price.

You must report and pay tax on sales to leasing companies when they purchase vehicles defined as mobile transportation equipment (MTE) unless the following conditions are met:

  • You obtain a timely and valid resale certificate, and
  • The resale certificate is for the limited purpose of reporting use tax liability based on their fare rental value of the equipment.

See Regulation 1661, Leases of Mobile Transportation Equipment to determine whether a vehicle qualifies as MTE.

Passenger vehicles not defined as mobile transportation equipment, may be sold to leasing companies for resale if you obtain a valid and timely resale certificate which contains:

  • The signature of the purchaser, purchaser’s employee, or authorized representative.
  • The name and address of the purchaser.
  • The phrase “for resale”.

See “Resale Certificates” for recordkeeping requirements. If the leasing company purchases both tax paid and resale vehicles the sales documents must clearly indicate the sale as taxable or for resale. If a blanket resale certificate is provided, the purchase order supersedes the resale certificate.

Sales of Previously Leased or Rented Vehicles

Tax applies to the total selling price of previously leased or rented vehicles regardless of any tax that may have been previously paid on the lease or rental receipts.

When a lessee chooses to buy a vehicle as part of a lease agreement, you must report and pay tax based on the amount collect upon exercise of that option.

If you are licensed by the DMV as a lessor-retailer, the following special rules apply to your retail sale of a leased vehicle:

  • If you sell the vehicle to the lessee, you are not required to file a report of sale with the DMV and you are not liable for the tax. The lessee will pay use tax directly to the DMV. If, however, you do file a report of sale, you will be liable for the sales tax.
  • If you make a retail sale of a leased vehicle to anyone other than the lessee, you are required to file a report of sale with the DMV and report and pay the sales tax.

Sales of Company Vehicles and Demonstrators

Tax applies to the total selling price of company cars, parts and service department vehicles, tow trucks, and demonstrators as if it were a retail sale.

Repossessed Vehicles

If you transfer a repossessed vehicle to a third party who assumes the unpaid contract or sell it to a new customer, you must report and pay sales tax based on the total sales price.

Consignment Sales

If you sell a vehicle on consignment for another person, the transfer and sale are considered to be made by you, and you must report and pay sales tax on the sale.

Specific Exemptions

Some of your sales have exemptions that allow the sales to not be subject to tax. You should still report these sales in your total sales and then take the appropriate deduction on your sales and use tax return. For more information regarding special exemptions related to vehicle sales refer to publication 34, Motor Vehicle Dealers.

Sales to United States Government Agencies

You must obtain and keep copies of government purchase orders or remittance advices to support sales claimed as nontaxable.

Sales tax does not apply to:

  • Sales to the United States government or its unincorporated agencies and instrumentalities.
  • Sales to any incorporated agency or instrumentality of the United States owned wholly either by the United States or by a corporation wholly owned by the Unites States.
  • Sales to the American Red Cross, it chapters and branches.

Generally, the following organizations are not considered exempt agencies of the United States:

  • State, county and city government agencies.
  • American Legion Posts in federal areas.
  • District agricultural associations.
  • National Guard.

Sales of vehicles to federally owned banks are exempt from sales tax. Sales to other banks or credit unions are generally taxable.

For further information, please refer to Regulation 1614, Sales to the United States and Its Instrumentalities and publication 102, Sales to the United States Government.

Military Personnel

Sales of vehicles you make to a member of the military who is on active duty may not be subject to sales tax.

Please refer to Regulation 1610, Vehicles, Vessels, and Aircraft, or publication 52, Vehicles and Vessels: How to Request a Use Tax Clearance for DMV Registration.

Disabled veterans

A partial sales tax exemption may apply to sales of vehicles to disabled veterans. If a portion of the payment is made by the veteran and a portion is paid directly by the Veterans Administration, tax applies only to the amount paid by the veteran.

Tax does not apply to the sale or installation of items and materials that:

  • Are used to modify a vehicle so that a person with disabilities can operate it or when such items and materials are necessary to enable the vehicle to be used to transport a physically handicapped person or persons, and
  • Are incorporated into, attached to, or installed on the vehicle.

Sales of materials that are not incorporated into, attached to, or installed on the vehicle are taxable. See “Supporting Documents for Sales to Disabled Veterans” for recordkeeping requirements.

Sales of Vehicles for Use Outside California

You generally do not have to report and pay tax on a vehicle that is sold and delivered for use outside California.

You must show evidence that the vehicle was delivered to the purchaser outside California (for example by an employee or common carrier) and that the purchaser did not take possession of the vehicle in California. See, “Required Documentation for Vehicles Delivered Outside of California” under recordkeeping for requirements.

Special Charges Related to Motor Vehicle Sales

License Fees

There are many common charges associated with vehicle sales. Tax applies differently to each type of charge and may change depending on whether they are listed separately or grouped together.

Sales tax does not apply to license fees that you collect and remit to the DMV, unless you collect an amount in excess of the fee required by the DMV. Excess amounts collected are taxable.

Documentation Fees

Charges for preparation of documents you make in connection with a sale are taxable.

Financing, Interest and Insurance Charges

When you sell a vehicle on credit, you should show the sales price separate from charges for insurance, interest, financing, or for carrying the contract. When you do not separate out these charges they are taxable.

Smog Certifications

The fees determined by the Department of Consumer Affairs (DCA) for smog certification are not taxable. Amounts charged in excess of the DCA fee are taxable. Other charges, such as inspection charges are taxable if done for a vehicle you plan to sell.

Broker’s Fees and Commissions

If you use a broker acting on your behalf, commissions paid to the broker are taxable. If the broker is acting on behalf of the customer, the broker fee is not taxable.

Dealer — Free Full Tank of Gas

When you sell a vehicle with a full tank of gas, and do not itemize a charge for the gasoline, you are not liable for reporting the tax on the gas and may purchase the gas with a resale certificate. If you make a separate charge for the gas, you are liable for the tax. You must keep adequate records to support gas purchases made using a resale certificate.

Special Pricing and Incentives

Trade-ins

If you accept a trade-in on the sale of a vehicle, you must still report the total selling price of the vehicle in your gross receipts. You cannot deduct the allowance for the trade-in.

For example, you sell a car for $20,000 and accept a trade-in for a credit of $4,000. You must report and pay tax on the $20,000 selling price.

If you allow a trade-in value higher than the fair market value of the vehicle, you cannot treat the excess as a discount or otherwise deduct the additional amount. If you allow less than the fair market value, the BOE will presume the allowance agreed upon is the fair market value.

Discounts

When you offer a customer a discount, you are only required to report tax on the total selling price of the vehicle.

For example, you sell a $20,000 car and offer a 10 percent discount. Your tax is based on the $18,000 selling price.

The sales records should clearly show the discount, the taxable amount, and the tax reported and paid. If you offer a discount and take a trade-in on the same sale, the records must clearly show the amount of each allowance. Otherwise, the discount may be considered an over allowance and the total sales price will be taxable.

Dealer-purchased Incentives

When you offer incentives for purchasing a vehicle, such as prepaid gas cards, maintenance checks, oil and filter changes, etc., not included in the sales price of the vehicle, you must pay tax when you purchase the incentives.

Factory-dealer Incentives

When a vehicle manufacturer offers you a discount on the purchase price of its vehicles to promote sales the vehicles, the tax you must report and pay is based on the total selling price of the vehicle to your customer; you do not have to report tax on the amount of the discount.

Third-party discount or rebate programs

When a third-party compensates you to encourage price reductions, or reduces your purchase price in exchange for a reduced selling price, you may have to report and pay tax on the amount received from the third-party in addition to the selling price of the vehicle.

For example, a manufacturer offers a $1,000 rebate to your customer on the purchase of a car. The customer then assigns the rebate to you as part of their down payment on the vehicle. You must report and pay tax on the $1,000 rebate.

For more information on these topics, please refer to Regulation 1671.1, Discount, Coupons, Rebates, and Other Incentives.

Self-consumed Items

If you use items for personal or business use that you purchased without paying tax, you owe use tax measured by its purchase price. Some of the most common items you may owe use tax on are listed below

Oil and Grease

You must report and pay use tax on oil and grease used in company cars, service cars, loan cars, tow trucks, and any vehicles subject to tax under the 1/40th or 1/60th formulas.

Parts and Accessories

You must report and pay tax on the cost of parts and accessories installed on the following vehicles:

  • Loan cars whose use is subject to tax based on the cost of purchase.
  • Company cars, service cars, and tow trucks.

You are not required to report or pay use tax on the cost of parts and accessories installed in the following:

  • Vehicles held for resale or taxable lease, including vehicles used for demonstration and display.
  • Vehicles whose use is subject to tax under the 1/40th or 1/60th formulas.
  • Loan cars whose use is subject to tax based on the fair market value.

When you use oil, grease, or parts and accessories that you remove from inventory without paying tax on, you must report theses on your sales and use tax return under “Purchases Subject to Use Tax”.

Tools and Equipment

You may not issue a resale certificate for tools and equipment purchased for use in your business. You must pay tax when you purchase these items.

 

Vehicles Used for Other Than Resale

If you purchase a vehicle for resale or lease, without paying tax, and use if for other than demonstration and display, you generally owe use tax for such use based on either the vehicle's cost or its fair rental value.

Vehicles Assigned to Salespersons

A salesperson specifically refers to employees who directly participate in negotiating sales. The following information assumes you purchased the vehicle in question with a resale certificate. Vehicles can be assigned, rented or sold to the salesperson.

If you assign a vehicle for 12 months or less, you must report and pay use tax on the vehicle’s fair rental value, calculated at 1/60th of the purchase price for each month used.If you assign the vehicle for longer than 12 months, you must pay and report use tax based on your cost for the vehicle.

If you do not know how long the vehicle will be used, you can report and pay tax based on the fair rental value for the first 12 months at 1/60th of the purchase price; on the 13th month you must pay use tax based on the cost of the vehicle minus the tax previously reported.

If you rent a vehicle to a salesperson, you must report and pay use tax on the rental receipts.
If you sell a vehicle to a salesperson, you must report and pay use tax based on the amount paid by the salesperson.

Vehicles Assigned to Other Employees

When you assign vehicles to employees other than salespersons, it is presumed it is for business purposes or personal use unless you can clearly establish otherwise.

If a vehicle is assigned for 12 months or less, you must report and pay use tax on the fair rental value, computed at 1/40th of the purchase price for each month the vehicle is in use.

If you assign the vehicle for longer than 12 month, you must report and pay use tax on the cost of the vehicle.

If you do not know how long the vehicle will be used, you can report based on the fair rental value for the first 12 months at 1/40th of the purchase price; on the 13th month you must pay use tax based on the cost of the vehicle minus the tax previously reported.

Vehicles Assigned to Non-employees

If you assign a vehicle to a person other than an employee or officer of the dealership, you generally will pay and report use tax based on the cost of the vehicle.

The vehicle is not presumed to be held for resale. However, if such loans are 30 days or less, the tax you must report and pay may be based on the fair rental value.

Tire Sales

If you sell new tires with your vehicles, you must register with our Environmental Fees Division and collect the California Tire Fee on every new tire sold.

The fee of $1.75 per tire is not taxable. You may keep one and a half percent of the fees you collect as reimbursement for your related costs. If you charge any amount higher than the $1.75 per tire, you are required to report tax on the excess amount. For more information, see publication 91, California Tire Fee.

Recordkeeping

You must keep adequate records that support the amount of tax that is due. You may be required to present the records to the BOE in an audit. Failure to maintain accurate records could result in negligence or intent to evade tax and may result in penalties.

Records should be kept for at least four years unless the BOE gives written authorization to destroy them sooner. If you are being audited, retain all records for the audit period until the audit is completed to support any differences that may arise from the audit.

Under the Sales and Use Tax Law, you are required to keep adequate records that show:

  • Your gross receipts from sales or leases of vehicles and other tangible personal property, whether you regard the receipts as taxable or nontaxable.
  • All deductions allowed by law and claimed on your sales and use tax returns.
  • The total purchase price of all tangible personal property purchased for sale, use, or lease.

These records must include:

  • The normal books of account.
  • All bills, receipts, invoices, repair orders, contracts, or other documents of original entry that support the entries in the books of account.
  • All schedules of working papers used in connection with the preparation of tax returns.

Special Taxing Jurisdictions

As a vehicle dealer, you must generally report and pay sales or use tax at the statewide tax rate (currently 7.5%) plus any applicable district taxes.

Many cities, counties, communities, etc., impose additional sales tax amounts to fund local public services. Whether or not you must report and pay the additional district taxes will depend on the location where a vehicle is registered. If you are unsure of the applicable tax rate at any location you may visit “Know Your Sales and Use Tax Rate” to lookup the correct rate to charge. Additional resources may also be found in the resource section of this guide.

Resale Certificates

When making sales for resale, you must obtain a resale certificate from your customer in a timely manner.

Resale certificates can be in any form but must contain:

  • The signature of the purchaser, purchaser’s employee, or authorized representative of the purchaser.
  • The name and address of the purchaser.
  • The number of the seller’s permit held by the purchaser.
  • The phrase “for resale.” The use of the phrases such as “nontaxable,” “exempt,” or similar terminology is not acceptable.

Timely is considered to be any of the following:

  • Before you bill the purchaser for the sale;
  • At any time within your normal billing and payment cycle; or
  • At any time prior to, or upon, delivery of the item.

Accepting a resale certificate late does not relieve you of the liability for the tax. If the BOE questions a transaction and you accepted a late certificate, you will be required to present other satisfactory evidence to verify that the sale was a nontaxable sale for resale (see Regulation 1668, Sales for Resale). You may accept a certificate in good faith only if:

  1. The property being purchased is for resale.
  2. The person is engaged in the business of selling the type of tangible personal property being purchased.

Property purchased by issuing a resale certificate must be described either by an itemized list of the particular property to be purchased for resale, or by a general description of the kind of property to be purchased for resale

If you are purchasing vehicles for resale at auction or you are a licensed auto dismantler you must use form BOE-230-F, California Resale Certificate, Sales by Auto Auctions and Auto Dismantlers. You can easily verify seller’s permit numbers on our website. You can also search for a dealer’s license online, or check the current status of businesses licensed by the DMV using their Occupational License Status.

You should retain all resale certificates with your records for not less than four years.

Sales Documents

As a new vehicle dealer, you will generally use a motor vehicle contract and security agreement as your basic sales document.

Most new vehicle dealers have detailed records that will reflect your operations in detail. These record keeping requirements are prescribed by the major automobile manufacturers.

Used Vehicle Sales

Generally, you should use car envelopes and inventory books for recordkeeping. In all instances, the DMV issues a Used Vehicle Report of Sale Book to certificated used car dealers.

Report of Sale Books (ROS)

The only record common to all car dealers is the Report of Sale Book. In all instances, the DMV issues Vehicle Report of Sale forms. Preparation of the Report of Sale requires paying license or transfer fees. You may submit payment to the DMV on form, FO 247, Transmittal of Registration Applications.

Car Envelopes

You should assign an inventory number to resale vehicles with car envelopes prepared for each unit. Details of each purchase and sale should be placed on the proper lines on the printed face of the envelope. All documents of purchase, reconditioning, and sale are then inserted in the envelope.

You may receive cars from trade-ins on sales of used vehicles, purchases of used cars from individuals, other new and used car dealers, or wholesale or retail auctions. It is necessary to record the various sources of purchases to accurately account for all vehicles sold. When you purchase used vehicles from an auto auction or dismantler, you are required to provide a BOE-230-F, California Resale Certificate Sales by Auto Auctions and Auto Dismantlers to the party you are purchasing the vehicle from.  Other sources of revenue may include consignment vehicles and sales at auction.

Inventory Books

If you use an inventory book as a combination purchase and sales journal, you should enter the details of the source of purchase, date, description, and cost of each vehicle reflecting each purchase. The date of sale, name of customer, and selling price are recorded at the time of sale.

When using this method, it is not uncommon to purchase a vehicle in one period and sell it in a later period. You should be sure to reconcile all purchases and sales each period to make sure sales are reported in the appropriate period.

Bad Debts

You may be able to take a bad debt deduction for losses resulting from repossessions of vehicles as well as uncollectible accounts. Deductions can be claimed once they are written off for income tax purposes.

When claiming a repossession loss, you:

  • Can claim a deduction only to the extent that you sustain a net loss of gross receipts upon which you have paid tax.
  • May base the wholesale value of the repossessed vehicle on industry-recognized wholesale pricing guides.
  • Cannot use estimated or unsupported figures or percentages to calculate the repossession loss.
  • Cannot claim a deduction for expenses incurred in attempting to collect an account or for that portion of a debt that is retained by, or paid to, a third party as compensation for collecting an account.
  • Must report and pay any amounts that you recovered after claiming a repossession loss on the first tax return following the recovery.

Note: You cannot claim a deduction for nontaxable charges such as installation or repair labor performed in connection with the sale of a vehicle.

Below is an example of how to compute the allowable bad debt deduction using the pro rata method:

a. Retail sales price $ 12,000
b. Taxable fees (i.e., doc/smog) 230
c. Total amount subject to tax 12,230 (a+b)
d. Sales tax (7.5%) 917 (c×.075)
e. License fees 240
f. Other non-taxables 0
g. Total non-taxable charges 1,157 (d+e+f)
h. Total sales price 13,387 (c+g)
i. Down payment 2,000
j. Balance on contract 11,387 (h-i)
k. Finance charges/accrued interest 3,000
l. Total contract value 14,387 (j+k)
m. Payments received on contract 2,100
n. Balance on date of repossession 12,287 (l-m)
o. Unearned finance charges 2,750
p. Net contract balance 9,537 (n-o)
q. Value of repossession 6,000
r. Repossession loss per records $3,537

*sales tax rates can and do change, be sure to use the same rate charged at the time the sale occurred.

Step Two:  Compute the Taxable Percentage of Loss

This is done by dividing the total amount subject to tax (line c) by the total sales price (line h).

12,230 ÷ 13,387 = 91.36%

Step Three: Compute the Allowable Deduction

This is done by multiplying the taxable percentage of loss (step Two) by the repossession loss per records (step One).

91.36% × 3,537 = $3,231.40

For more information, please refer to Regulation 1642, Bad Debts.

Required Documentation for Vehicles Delivered Out of California

You are urged to get statements notarized and maintain all documentation in your files for all sales claimed as sales in interstate or foreign commerce.

Suggested documentation includes:

  • Evidence of the purchaser’s out-of-state address, such as utility bills or property tax bills.
  • If delivery is made by common carrier, customs broker, or forwarding agent, documents supporting the delivery or shipment (for example bills of lading).
  • If delivery is made by you or your employee:
    • Expense claims that include fuel or hotel receipts, and
    • A statement signed by the delivery person and the purchaser certifying delivery of the vehicle to an out-of-state location. You may use a BOE-448, Statement of Delivery Outside California

If you know that a purchaser is a California resident and they state the vehicle is being purchased for use outside the state, it is important to obtain a BOE-447, Statement Pursuant to Section 6247 of the California Sales and Use Tax Law certifying their statement. If you do not get the certification, the vehicle will be considered purchased for use in this state and you must report and pay tax on the sale.

Even if you are not required to report and pay tax on vehicles delivered outside California, the buyer may owe use tax. See publication 52, Vehicles and Vessels: How to Request a Use Tax Clearance for DMV registration for more information on this topic.

Supporting Documents for Sales to Disabled Veterans

Any seller claiming a transaction as exempt or partially exempt under these circumstances must obtain from the purchaser, and retain, a government purchase order or documents demonstrating direct payment by the Veterans Administration to support the claim.

When you make an exempt or partially exempt sale or lease, be sure to retain documentation that clearly shows that the transaction is a sale to the U.S. government. Documentation can include items such as:

  • Purchase orders.
  • Documents showing direct payment by the United States government.
  • Shipping and related documents if there is a question that the merchandise might have been sold directly to an individual in the armed services rather than to the United States government.

The documentation furnished by the Veterans Administration parallels that of other purchases by the United States government. In addition, you are required to show the Veterans Administration as the actual purchaser on the sales invoice to the extent that payment is made by the Veterans Administration. However, the vehicle must be registered in the purchaser’s name and all other documents must reflect the disabled veteran as the purchaser. Verification of the validity of the exemption must readily be available by examination of the car envelope.

Car Buyer's Bill of Rights

You must offer an optional contract cancellation option on used vehicles purchased for less than $40,000, sold for personal use.

This option gives the buyer a right to cancel a purchase and receive a full refund, including amounts charged for sales tax, under specific conditions that must be shown on a separate agreement.

The charge for this option cannot exceed the amount defined by law, based on the cash price of the vehicle, and is not taxable. The price defined by law is in the table below:

Cash price* of vehicle Maximum amount dealer can charge for cancellation option agreement

Up to and including $5,000

$75

$5,000.01 up to and including $10,000

$150

$10,000.01 up to and including $30,000

$250

$30,000.01 but less than $40,000

1% of the purchase price

*Cash price excludes document preparation fees, tax imposed on the sale, pollution control certification fees, prior credit or lease balance on trade-ins, service contract charges, surface protection charges, debt cancellation agreement charges, contract cancellation option agreement charges, registration, transfer, titling, license, and California tire fees.

Buyers must provide you with the following upon cancellation of a contract:

  • A signed statement indicating that the buyer chooses to cancel the purchase of the vehicle.
  • Any restocking fee specified in the contract cancellation option, less the cost the buyer pays for the contract cancellation agreement.
  • All documents originally provided to the buyer from the seller, including the vehicle purchase contract and the original contract cancellation option agreement.
  • All original vehicle title and registration documents.

The vehicle must be returned in the condition in which it was sold, except for normal wear and tear, and must not exceed the maximum mileage stated in the agreement. For more detailed information, please refer to Regulation 1655, Returns, Defects and Replacements or contact the DMV.

Contract Cancellation Option

Required documentation on cancellation option agreements includes:
  • The names of the seller and buyer, a description of the vehicle purchased, and the VIN number.
  • The time period in which the buyer may cancel the purchase and return the vehicle. This cannot be before the dealer’s close of business on the second day after the day the vehicle is delivered to the customer.
  • The maximum number of miles the vehicle may be driven before it is returned under the agreement. This may not be less than 250 miles.
  • The buyer must pay any restocking fees if they cancel the purchase.
  • The specific requirements for returning the vehicle for refund.

You may charge a restocking fee based on the cash price of the vehicle as shown in the table below. This fee is not taxable.

Price of vehicle Maximum restocking fee

$5,000 or less

$175

Between $5,000 and $10,000

$350

$10,000 or more

$500

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Forms

  • BOE 106, Vehicle/ Vessel Use Tax Clearance Request
  • BOE-230-F, California Resale Certificate, Sales by Auto Auctions and Auto Dismantlers
  • BOE-447, Statement Pursuant to Section 6247 of the California Sales and Use Tax Law
  • BOE-448, Statement of Delivery Outside California

Related Websites

Other Helpful Resources

  • Sign Up for BOE Updates — Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides — These resources will help you avoid common mistakes, file your tax returns onlines, and more.
  • Use Tax – What You Should Know — Helpful information and videos about use tax.
  • City and County Tax Rates — A listing of current and historical tax rates.
  • Special Notices — BOE special notices are issued whenever there is a change in law, tax rates, or BOE procedures.
  • BOE Online Services — Learn about the online services BOE offers.
  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • BOE Field Offices — A comprehensive listing of all BOE field offices and contact information.
  • Find Your Board Member — You can use this application to quickly identify your elected BOE representative.
  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Contact Us — A listing of BOE contacts for your questions and concerns.