Tax Guide for Purchasers of Vehicles

You can look up the current tax rate for your address on our Find a Sales and Use Tax Rate webpage. You may also find a list of current and historical rates on our California City & County Sales & Use Tax Rates webpage.

Example #1
You take over monthly payments for a car your friend can no longer afford and, in exchange, your friend transfers his or her interest in the car over to you. You owe use tax on the balance of the loan at the time you assumed the debt, plus any cash you paid for the car. You still owe use tax even if you do not make any cash payment directly to your friend and only assumed the unpaid debt.

Example #2
You purchase a vehicle for $5,000. As payment, you give the seller your current vehicle valued at $3,000 and $2,000 in cash. You owe use tax on the entire $5,000 purchase price.

Example #3
You trade vehicles with another person. No money is involved in the transaction. The vehicle you traded has a current market value of $5,000 at the time of the exchange, which is considered to be your purchase price for your new vehicle. You owe use tax on the $5,000 purchase price.

Example #4
You purchase a vehicle from a private party. The seller knows that you are a painter and offers you the car in exchange for painting his house. You would usually charge $5,000 for this service. You agree to the exchange. You owe use tax on the $5,000 value of the service you performed.

For example, if you previously paid $1,500 sales or use tax to another state for the purchase of the vehicle, and the California use tax due is $2,000, the balance of use tax due to California would be $500.

An incorrect tax amount may be collected if the wrong tax rate was charged or if tax was computed on the wrong purchase price. If you overpaid the use tax, you can file a claim for refund using the CDTFA's online services and selecting Claim a Refund for Tax Paid to DMV/FTB under Limited Access Function. Or, you can complete form CDTFA-101-DMV, Claim for Refund or Credit for Tax Paid to DMV, and mail it to the address listed on the form.

If you erroneously reported a lower purchase price than your actual purchase price to the DMV and did not pay enough use tax, you may make an additional payment using the CDTFA's online services and selecting the option to File a Return or Claim an Exemption for a Vehicle, Vessel, Aircraft, or Mobile Home under the Limited Access Functions.

If a vehicle dealer is not involved in handling the lease buyout for you, the bank or leasing company may not charge or collect the tax on the sale of the leased vehicle (i.e., the lease buyout amount). If that is the case, you will be responsible for paying the use tax at the DMV when you register your vehicle.

However, if you sold the vehicle to a third party and you transferred title and registration to the buyer within 10 days after the date you acquired title from the lessor, the lease buyout is presumed to be a sale for resale and is not subject to tax. Use tax will be due, however, if you make personal use of the vehicle prior to reselling it to a third party. Additionally, use tax is also due if you gift the vehicle, rather than resell it, to a third party.

To apply for a use tax clearance certificate (CDTFA-111), use CDTFA's online services and select Request Use Tax Clearance for Registration with DMV/HCD under the Limited Access Functions. Or you may submit form CDTFA-106, Vehicle/Vessel Use Tax Clearance Request, to the CDTFA. You may mail, fax, or submit form CDTFA 106 to your local CDTFA field office or the Consumer Use Tax Section in Sacramento.

To submit your use tax clearance request directly to the Consumer Use Tax Section, please mail it to:

Consumer Use Tax Section, MIC: 37
California Department of Tax & Fee Administration
PO Box 942879
Sacramento, CA 94279-0037

In some instances, the DMV may not collect use tax when you register your vehicle because you state that your vehicle was a gift or a family transaction. You may be contacted by the CDTFA at a later time to provide supporting documentation.

Please see publication 52, Vehicles and Vessels: Use Tax for more information regarding obtaining a use tax clearance.

To qualify as a gift, the owner must give the vehicle freely, without any payment from the person receiving the vehicle. The vehicle will not be considered a gift if:

• You pay cash, trade property, provide services, or assume a liability in exchange for the vehicle; or
• Your employer gives you the vehicle as a form of compensation (for example, a vehicle was given to you as a bonus).

A signed statement from the former owner indicating the property was given to you as a gift and a copy of the vehicle's certificate of title are needed to support your exemption claim. The statement should include the vehicle's identification number (VIN) or license plate number.

A qualifying family member includes a:

• Parent
• Grandparent
• Child
• Grandchild
• Spouse or registered domestic partner (as referenced in Family Code section 297.5).
• Brother or sister (related to you by blood or adoption), if the sale occurs when both are minors.

The exemption does not extend to purchases from stepparents or stepchildren if a natural parent or child is not involved or there is not a legal adoption. The exemption also does not apply to transactions between ex-spouses after a decree of divorce.

For example, a purchase from your biological or adopted child would qualify as an exempt family transaction; however, a purchase from your stepchild generally would not.

To qualify for the exemption, you must supply documentation to support the family relationship, such as birth certificates, marriage license, or adoption paperwork, and a copy of the vehicle's certificate of title.

An involuntary transfer is one in which you assume ownership of a vehicle due to circumstances beyond your control.

For example, you acquire a vehicle as the result of a court order, a property settlement in a divorce, an inheritance from an estate, or the repossession of a vehicle you sold.

Documentation needed to support your exemption claim:

• Official court property settlement documents or a certificate of repossession. The documents should include the vehicle's identification number (VIN) or license plate number.
• A copy of the vehicle's certificate of title.

To qualify for the exemption, you must have purchased and taken delivery of the vehicle outside of California before you received your orders to come to this state. Use tax will apply if you take delivery of the vehicle in California or if you purchase the vehicle for use in this state after receiving your official transfer orders.

Documentation needed to support your exemption claim:

• Your official military transfer orders.
• A copy of your purchase contract.
• A copy of the vehicle's certificate of title.

However, when a vehicle purchased outside of California, is first functionally used outside of California, and is brought into California within 12 months from the date of its purchase, it is presumed that the vehicle was purchased for use in California and is subject to use tax if any of the following occur:

• The vehicle is purchased by a California resident.
• The vehicle is subject to California DMV registration during the first 12 months of ownership.
• If purchased by a nonresident of California, the vehicle is used or stored in California more than one-half of the time during the first 12 months of ownership.

Functional use means use for the purposes for which the vehicle was designed. For example, vehicles designed for personal use are functionally used when merely driven; however, vehicles such as busses or trucks designed for a commercial or other special purpose (e.g., transportation or passengers or property) are not functionally used until used for that purpose.

If the vehicle enters California within 12 months of purchase, you may overcome the presumption that the vehicle was purchased for use in California by providing the following documentation to support your claim:

• A copy of your purchase contract.
• A statement signed by the seller verifying the date and location of the vehicle's delivery out of state.
• Evidence of registration with the proper out-of-state authority.
• Copies of your vehicle insurance documents identifying the date insurance coverage began.
• Evidence of tax paid to another state.
• Documentation to show the use and location of the vehicle outside of California, such as receipts for meals, lodging or campgrounds, and fuel for the first 12 months of ownership.
• Credit card/bank statements or cell phone bills supporting the use of the vehicle outside of California.

Additionally, a vehicle purchased out of state and brought into California during the first 12 months of ownership for the exclusive purpose of warranty or repair service is not presumed to have been purchased for use in California if the vehicle is used or stored in the state for that purpose for 30 days or less.

The 30-day period begins when the vehicle enters this state, including any travel to and from the warranty or repair facility, and ends when the vehicle is returned to a point outside the state.

To document that use tax does not apply, you must supply documentation to support the following:

• You took delivery of the vehicle outside of California.
• You first functionally used the vehicle outside of California.
• One-half or more of the miles traveled by your vehicle must be commercial miles traveled in interstate or foreign commerce during the six-month period immediately following the vehicle's first entry into California.

Functional use means use for the purposes for which the vehicle was designed. For a commercial truck or trailer, first functional use occurs when the vehicle first hauls cargo or is first dispatched to pick up a specific load of cargo.

Documentation needed to support your exemption claim:

• A copy of your purchase contract.
• A statement signed by the seller verifying the vehicle was delivered to you outside of California.
• A load confirmation, bill of lading, or other similar document verifying the vehicle was first functionally used outside of California.
• Bills of lading and driver logs, fuel receipts, and other similar documents verifying the location and use of your vehicle and the origin and destination of each load from the date of out-of-state delivery until the vehicle first entered California and for the next six months.

Note: In order to ensure you have adequate documentation to support your exemption claim, motor carriers and drivers who are required to use electronic logging devices should retain copies of these records for a minimum of eight years. The CDTFA may have up to eight years to determine whether your truck or trailer was actually purchased for use in interstate or foreign commerce.

Additionally, if you purchased a truck or trailer without completing registration and paying the use tax to the California Department of Motor Vehicles (DMV), you still need to report your purchase to the CDTFA and file a CDTFA-401-CUTS, Combined State and Local Consumer Use Tax Return for Vehicle. You do not need to wait until the end of the six-month test period to register with the CDTFA. Please visit our website to register today, and we will contact you at the end of the six-month test period to request documentation to support your exemption claim.

For more information on the new requirements, please see Special Notice, Assembly Bill 321 Expands Sales and Use Tax Exemption to Include Trucks Used Out-of-State or in Interstate or Foreign Commerce.

To qualify for the exemption, you must supply documentation to support the following:

• Ownership transferred on the reservation.
• You took delivery of the vehicle on the reservation.
• You used your vehicle on a reservation more than one-half of the time during the first 12 months of ownership.

Documentation needed to support your exemption claim:

• A purchase invoice showing the date you took title of the vehicle and showing the date and place the vehicle was delivered to you.
• A copy of the vehicle's certificate of title.
• Documentation showing you are an American Indian residing on a reservation, such as a proof-of-residency letter from your Tribal Council, your tribal ID card, or a letter from the U.S. Department of the Interior.

The partial exemption applies only to the state general and fiscal recovery funds portion of the sales and use tax, currently 5.00 percent.

To calculate the tax rate for a qualifying purchase, subtract 5.00 percent from the tax rate that would normally apply at the location where the vehicle is registered. For example, if the current tax rate in effect is 9 percent, the tax rate for a qualifying purchase would be 4.00 percent.

Note: The state rate portion of the sales and use tax is subject to change. The rates used in this example are for demonstrative purposes only. You must use the rate in effect at the time of the sale. Current tax rates can be found on our website.

Three requirements must generally be met for the partial exemption to apply to the purchase of a vehicle. The vehicle must be:

• Purchased for use by a qualified person.
• Used exclusively (100 percent of the time) in producing and harvesting agricultural products.
• Qualifying farm equipment and machinery. For a vehicle to be considered farm equipment and machinery, it must be designated as an implement of husbandry under the California Vehicle Code. Appendix A to Regulation 1533.1, Farm Equipment and Machinery, lists vehicles which are typically regarded as farm equipment and machinery.

If any of these three requirements are not met, the partial exemption does not apply.

Generally, the term implement of husbandry does not include a vehicle primarily designed to transport people or property on a public street or highway, such as a passenger car or truck.

Documentation needed to support your partial exemption claim:

• A copy of your most recent federal or state income tax return with Schedule F, Profit or Loss from Farming.
• DMV registration or identification slip showing the DMV has determined the vehicle to be an implement of husbandry.
• A copy of the bill of sale or purchase contract.
• A copy of the vehicle's certificate of title.

For more detailed information about farm equipment and machinery, see Regulation 1533.1, Farm Equipment and Machinery, and publication 66, Agricultural Industry.

This exclusion only applies to a purchase that would otherwise be subject to use tax. This exclusion does not apply to a purchase from a licensed vehicle dealer subject to sales tax.

For example, you purchase a vehicle from a person (private party) in California who does not hold a dealer's license or a California seller's permit. Generally, use tax would be collected by the DMV at the time the vehicle is registered. However, use tax is not required if the only use of the vehicle in California is to remove it from the state and it will be used solely thereafter outside this state. A One-Trip Permit may be issued by the DMV in lieu of registration, for operating certain vehicles while being moved or operated for one continuous trip from a place within this state to another place outside this state.

The CDTFA can provide you verification of tax previously paid on your vehicle. To submit a request for verification, use CDTFA's online services and select Verify a Sales and Use Tax Payment.