Tax Guide for Motor Vehicle Dealers
Frequently Asked Questions (FAQs) for Used Vehicle Dealers

California enacted Assembly Bill (AB) 85, (Stats. 2020, ch. 8), AB 82 (Stats. 2020, ch. 14), AB 176 (Stats. 2021, ch. 256), and Senate Bill (SB) 1496 (Stats. 2022, ch. 474). Together, these bills require certain used motor vehicle dealers (dealers) to pay the sales tax and any applicable including district use tax (tax), on their retail sales of certain used motor vehicles directly to the Department of Motor Vehicles (DMV) when they submit a vehicle registration application.

Most recently, SB 132 (Stats. 2025, ch. 17) amended Revenue and Taxation Code section 6295, and the changes include the following:

• A vehicle registration application submitted to DMV by the dealer is deemed a return filed with the California Department of Tax and Fee Administration (CDTFA) with respect to tax amounts reported to DMV. As such, dealers who are required to pay tax on their retail vehicle sales to DMV will no longer need to include the vehicle sales amount reported to DMV in Total Sales on their sales and use tax return filed with CDTFA.
• Dealers who sold 1,000 or more vehicles at retail in the current or preceding calendar year and whose account is in good standing with CDTFA may be exempt from paying tax directly to DMV. The account is considered to be in good standing if the dealer has timely filed and made applicable payments, including prepayments, for all required sales and use tax returns for the 12 quarterly reporting periods immediately preceding the issuance of the exemption.
• CDTFA may revoke the exemption from paying tax to DMV, 30 days after it notifies the dealer, when either of the following has occurred:
  • The dealer is no longer in good standing.
  • The dealer's retail vehicle sales dropped below 1,000 vehicles in any calendar year.

Changes in Payment Method

On January 1, 2021, DMV began phasing in dealers to pay tax directly to DMV upon submitting a vehicle registration application (Direct-to-DMV payment method). DMV will notify you if your payment method is scheduled to change. You must continue to pay tax due directly to CDTFA on time until DMV notifies you. Once DMV notifies you to begin paying tax directly to them, enter your seller's permit number in the electronic Report of Sale (ROS) system so we can apply your tax payment correctly to your CDTFA account. Your seller's permit number is essential to transfer your retail vehicle sales information and tax payments from DMV to CDTFA's system.

If you use an ROS service provider, please confirm with them that your seller's permit number is properly included on each ROS record created. You may also call DMV at 1-800-777-0133 or email them at DMVTAXINQ@dmv.ca.gov to ensure they have your correct seller's permit number on file.

Changes in Sales and Use Tax Returns Filing Frequency

Effective July 1, 2024, the sales and use tax reporting basis for dealers is as follows:

• Dealers who are required to pay tax directly to DMV when submitting a registration application are required to file their sales and use tax returns with CDTFA on a quarterly basis.
• Dealers who are not currently required to pay tax directly to DMV when submitting a registration application are required to file their sales and use tax returns with CDTFA on a monthly basis.

Changes in Filing Requirements

The recent legislation described above provides that a vehicle registration application submitted to DMV by a dealer is deemed a return filed with CDTFA with respect to amounts reported to DMV. Therefore, dealers phased into the Direct-to-DMV payment method do not need to include vehicle sales amounts reported to DMV on their sales and use tax returns filed with CDTFA. Dealers who are not paying to DMV for their retail vehicle sales should continue to report and pay tax on their retail vehicle sales to CDTFA until notified by DMV.

Regardless of whether a dealer is required to pay tax to DMV, all dealers are still required to file sales and use tax returns with CDTFA to report, among other things, their other taxable and nontaxable sales for which the tax was not paid to DMV. We removed CDTFA-531-MV, Used Vehicle Dealer-Sales Report (For filing periods ending 6/30/2025 and prior.) from the sales and use tax return, and dealers will no longer need to report the ROS transaction information for their used vehicle sales for sales made on or after July 1, 2025.

Once a dealer has been phased into the Direct-to-DMV payment method, they will be required to:

• Pay tax on their retail vehicle sales directly to DMV. Tax is generally due at the same time they submit a vehicle registration application.
• Provide additional information to DMV, including their nine-digit seller's permit number in the electronic ROS system. Eight-digit account numbers require a leading zero (for example, 012345678).
• Ensure DMV has the correct dealer location address for accurate local tax allocation.
• Continue to timely file their sales and use tax returns with CDTFA and report:
  • Any vehicle sales for which they did not report tax to DMV, such as demand title sales.
  • Taxable sales and fees not reported to DMV.
    • The selling price reported to DMV generally does not include other charges related to the retail sale of the vehicle, such as document fees, smog certification fees, and mandatory warranties. These other charges must still be reported on line 1, Total Sales.
  • Transactions subject to use tax, such as inventory withdrawals, purchases from vendors outside CA, or ex-tax purchases being used in the business
  • Nontaxable sales, such as sales for resale, sales in interstate or foreign commerce
  • Tax recovery transactions such as dealer-financed bad debt, losses, and returns on taxable merchandise.

No. If you are a licensed new motor vehicle dealer, you are not required to pay tax directly to DMV, even if you make retail sales of used motor vehicles. Additionally, your filing frequency will not be changed.

If you received a notice from DMV stating that you are required to pay tax on your retail sales of motor vehicles directly to DMV, and you believe you received this notice in error, you must contact DMV to correct and verify your licensing information. See For More Information below for DMV's contact information.

Tax due on the sale of used motor vehicles required to be registered under the Vehicle Code must be paid to DMV, except for recreational vehicles that are either truck-mounted or permanently towable on the highways without a permit or a park trailer. “Used” generally means the vehicle has previously been sold, previously registered for operation, or operated on public roadways. Used motor vehicles generally include:

• Cars
• Motorcycles
• Trucks
• Recreational vehicles/motor homes
• Trailers

See California Vehicle Code section 665 for more information on the definition of a used vehicle or contact DMV with questions about which vehicles require registration. See the section For More Information below for DMV’s contact information.

When you sell vehicles that are not operated on public roads and are not subject to registration, such as off-highway vehicles, vessels, or snowmobiles, you are not required to pay the tax directly to DMV. You must pay the tax to CDTFA when you file your sales and use tax return.

On January 1, 2021, DMV began phasing in dealers to the Direct-to-DMV payment method. DMV will notify you when you have been phased in. You must continue to file your returns and pay the tax due directly to CDTFA. Once DMV notifies you to begin paying them, enter your seller's permit number in the electronic ROS system to ensure your tax payment is correctly applied to your CDTFA account. Your seller's permit number is essential to transfer your vehicle sales and tax payment information from DMV to CDTFA's system.

Once DMV has notified you that you must pay them the tax, your tax payment is due when you submit a vehicle registration application, generally within 30 days from the date of the retail vehicle sale.

If you are required to pay tax to DMV, you will pay in the same manner you pay other DMV transaction fees, either directly to DMV or through your third-party service provider. However, until you have been notified by DMV, you must continue to file your sales and use tax returns and pay the tax due directly to CDTFA. When paying tax to DMV, properly enter your seller's permit number in the electronic ROS system to ensure your vehicle sales and tax payment information are correctly transferred to your account with CDTFA.

If you use an ROS service provider, please confirm with them that your seller's permit number is properly included on each ROS record. You may also call DMV at 1-800-777-0133 or email them at DMVTAXINQ@dmv.ca.gov to ensure they have your correct seller's permit number on file.

Yes. Although you no longer need to report your retail vehicle sales for which you paid tax to DMV on sales and use tax returns filed with CDTFA, you must report, among other things:

• Any vehicle sales for which you did not report tax to DMV, such as demand title sales.
• Taxable sales and fees not reported to DMV.
  • The selling price reported to DMV generally does not include other charges related to the retail sale of the vehicle, such as document fees, smog certification fees, and mandatory warranties. These other charges must still be reported on line 1, Total Sales.
• Transactions subject to use tax, such as inventory withdrawals, purchases from vendors outside CA, or ex-tax purchases being used in the business.
• Nontaxable sales, such as sales for resale, sales in interstate or foreign commerce.
• Tax recovery transactions such as dealer-financed bad debt, losses, and returns on taxable merchandise.

For sales made on or after July 1, 2025, dealers will no longer need to report the detailed transaction information. CDTFA-531-MV will be removed from the sales and use tax return.

Effective July 1, 2024, the sales and use tax reporting basis for dealers is as follows:

• Dealers who are required to pay tax directly to DMV when submitting a registration application are required to report on a quarterly basis.
• Dealers who are not currently required to pay tax directly to DMV when submitting a registration application are required to report on a monthly basis.

When you submit a vehicle registration application to DMV, they will assess the tax due on the transaction. If you do not submit an application for registration or transfer registration of your vehicle on time, DMV will impose penalties on the transaction, including a 10% penalty based on the tax due.

Dealers are still required to timely file sales and use tax returns to report other taxable sales and fees, even with the new legislative change that may relieve them from the obligation to report vehicle sales amounts reported to DMV on their sales and use tax returns filed with CDTFA. For more information regarding sales and fees you are required to report to CDTFA, see Do I still need to file sales and use tax returns with CDTFA?.

If you do not file your sales and use tax return with CDTFA, we will contact you to resolve any sales and use tax returns you did not file. If you do not file your sales and use tax returns, we may send you an estimated billing, which may include interest and penalties.

No. You are not required to show proof of the tax you paid to DMV when you file your sales and use tax return. DMV will provide your vehicle sales and tax payment information directly to CDTFA. When you make a tax payment to DMV, it is important that you accurately provide your seller’s permit number and vehicle sales information on your ROS to ensure the information is properly transferred to your CDTFA account.

You should still maintain records to show proof of payment in case this information is ever requested by CDTFA. As a reminder, you generally should keep the required records for at least four years. For more information, see publication 116, Sales and Use Tax Records.

If you received a notice from DMV stating that you are required to pay tax on your retail sales of vehicles directly to DMV and you believe you received this notice in error, you must contact DMV to verify and correct your licensing information with DMV. See For More Information below for DMV's telephone number.

You may have received a special notice or other related material from CDTFA indicating you are a used vehicle dealer. However, if you don't sell used vehicles to the public and you have confirmed with DMV that you are not licensed to sell used vehicles, you must update your registration with CDTFA. You may do so by contacting your local CDTFA office. A list of all CDTFA offices is available on our Office Locations & Addresses webpage.

For more information, contact CDTFA's Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific time), except state holidays.

To obtain a refund for tax overpaid to DMV, you must file a claim for refund with CDTFA. With your claim, you need to include supporting documents. For more information, see publication 117, Filing a Claim for Refund.

In general, when you refund the full sales price of the vehicle, including tax, to your customer, you may claim a Returned Taxable Merchandise credit on your sales and use tax return for the period in which you refunded your customer. If your sales and use tax return shows a credit amount on Total Amount Due and Payable, after filing the return, you must timely file a claim for refund with CDTFA. With your claim, you need to include supporting documents for your credit. For more information on how to file a claim for refund, see publication 117, Filing a Claim for Refund. Regulation 1655, Returns, Defects, and Replacements, also provides additional guidance.

If you have accounts that are worthless and that you charged off for income tax purposes, as indicated in Regulation 1642, Bad Debts, you may take a bad debt deduction on your sales and use tax returns filed with CDTFA for the period in which your sale was written off. You may claim the bad debt deduction regardless of whether you paid tax to DMV or CDTFA. See Regulation 1642 for additional details on calculating the amount of any bad debt that may be claimed for sales tax purposes.

If your sales and use tax return shows a credit amount on Total Amount Due and Payable, after filing the return, you must timely file a claim for refund with CDTFA. With your claim, you need to include supporting documents for your credit. For more information on how to file a claim for refund, see publication 117, Filing a Claim for Refund.

When you submit an application for vehicle registration for a zero-emission vehicle you sold to a qualified buyer, you should specify that the transaction qualifies for the partial exemption on REG 256, Statement of Fact, so you can pay tax to DMV with the applicable partial rate. Otherwise, DMV will collect tax at the full rate from you.

If you did not inform DMV that the transaction qualifies for the partial exemption and the registration process has not yet been completed, you may contact DMV at DMVTAXINQ@dmv.ca.gov for assistance with requesting a refund.

If DMV completes the registration process, please file a claim for refund with CDTFA. Please note that it takes approximately 8 weeks for the tax information to transfer to your CDTFA account.

For questions related to licensing, vehicle registration, titling transactions, and confirming DMV is receiving your tax payments, contact DMV at 1-800-777-0133 or send an email inquiry to DMV at DMVTAXINQ@dmv.ca.gov.

For questions related to sales tax, contact CDTFA's Customer Service Center at 1-800-400-7115 (TTY:711). Customer service representatives are available Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific time), except state holidays.