California has over 27 million licensed drivers, with over 31 million registered vehicles. If you buy a vehicle in California, be it a motorcycle, truck or car, you have to pay a 7.5% state sales tax. In addition, you may have to pay as extra as 2.5% if you live in a specific city or county.
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In 2018, 51.22% of registrations were for cars, 10.15% were for SUVs, and 0.83% were for electric vehicles in CA.
In the Golden State, use tax is collected on original registration and transfer applications for vehicles purchased from someone other than a licensed California dealer, manufacturer, or dismantler… unless the transaction is specifically exempted. There are certain types of vehicle transactions that aren’t subject to use tax though, since one can acquire a vehicle such as a motorcycle or sedan, without actually purchasing it, like in the case of an inheritance.
For exemption, an applicant must request a use tax clearance certificate, and file an CDFTA-106 Vehicle/Vessel Use Tax Clearance Request. Continue reading to find out more details title transfers exempt from sales tax.
Divorce and other court orders: Transfer of a vehicle obtained by court order such as divorce settlement or quiet title judgement. These include transfers obtained due to circumstances beyond your control such as inheritance and repossession of a vehicle you sold. There are specific forms and affidavits to file for this tax clearance.
Gifted Vehicles: Transfer or registration of vehicle received as gift. The car title has to include the word “gift” instead of the purchase price, and form REG 256 has to be completed. If you truly received a vehicle as a gift, you’re not required to pay taxes on it in California.
California made $5 billion on sales tax from new vehicles, and $3 billion from used vehicles sales tax in 2018.
But, please note, that if your employer gives you a vehicle as compensation, the transaction is not considered a gift. If you take over a loan payment from a friend, that is not considered a gift. If you traded property for the gifted vehicle in return, that is not considered a gift.
Family transfers and domestic partners: If you buy a vehicle from a parent, grandparent, grandchild, child, spouse, or domestic partner, you don’t have to pay use tax. This also applies to legally adopted individuals. Even if you’re under 18, and purchasing from a minor brother or sister. If the family member is a licensed car dealer, the vehicle won’t be considered a family transfer, so you’ll have to pay taxes on it.
Inherited vehicle: Inheritance is considered an involuntary transfer, so not subject to tax. But you’ll have to provide an affidavit for transfer without probate along with more forms. If it’s an out-of-state vehicle, you’ll have to first transfer it in the state of origin before getting a California registration for it. The use tax exemption may not apply of the vehicle is considered a trust transfer.
Transfer upon death: If you’re getting a vehicle transferred due to a death, you won’t pay taxes on it is you’re the transfer on death beneficiary.
Business transfer to sole owner: If vehicle is being transferred from business to individual or the other way around, from individual to his or her business, there’s no sales tax on it. If the business is a corporation, this won’t apply.
In California, the average age of vehicles is 11.2 years.
Foreign consul officers: Diplomatic personnel of foreign nations are exempt from sales tax on vehicles purchased and receive a card from the U.S Department of State and letter from the Office of Foreign Missions.
American Indians: There’s no use tax on a vehicle if the car buyer is of American Indian descent. The applicant however has to live on a reservation, and vehicle must be delivered and title transferred on the reservation or rancheria. Also, the vehicle has to be used at least 50% of the time during the first year on the reservation.
You can find out more details and exemptions, by visiting the California DMV vehicle industry registration procedures manual. There are more exemptions to discover such as minibikes, stolen vehicles, registrations in unincorporated areas, and more. Please note, most of these exemptions require matching forms such as affidavits for proof.
2 comments
If the app is for title only between private parties nd the vehicle will not be driven in Calif. (trailered show car) is Use tax due?
Hey there! The use tax fees are determined from the value of the car when it was sold. You’ll need to make sure that the vehicle is not a SPECIALLY CONSTRUCTED OR MODIFIED VEHICLE – A specially constructed or modified vehicle (SPCNS) is a homemade or kit vehicle built for private use, not made by a licensed manufacturer and not eligible for resale. These vehicles may be built from a kit and may include a combination of new and used parts, especially if they are constructed using a junked vehicle that was previously dismantled. If it will be a show car only, then you can register the vehicle under non-operation which will save you some money on registration fees! I hope this helps!