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Lesson 17 of 20 Outline

Dealer education / Selling and financing. Lesson 17 of 20. 10 minutes.

Sales and use tax on a vehicle sale

After this lesson you can

  • Compute the tax on a sale with a trade-in, a service contract and a documentation fee.
  • Know what the seller's permit requires and when returns are due.
  • Handle an out-of-state buyer and a sale to another dealer.

The seller's permit

Sales tax in California is a tax on you, not on the buyer. Revenue and Taxation Code 6051 imposes it on all retailers for the privilege of selling at retail, and three or more sales in 12 months make you a retailer (6019; CDTFA Publication 34, Motor Vehicle Dealers, October 2025). Before the first sale you hold a seller's permit from the California Department of Tax and Fee Administration, the CDTFA, which took over the Board of Equalization's sales tax work: one permit per place of business, good only for the person and place named, displayed where customers see it, never assigned (6066, 6067). The DMV wants your nine-digit seller's permit number on each Report of Sale before it credits the tax you pay through it (CDTFA, Tax Guide for Motor Vehicle Dealers).

Collecting the tax from the buyer

You recover the tax from the buyer only by agreement, which Civil Code 1656.1 presumes when the contract provides for sales tax reimbursement, the tax appears on the sales document, or a posted notice says it will be added. On the conditional sale contract, taxes imposed on the sale are their own line in the cash price itemization (Civil Code 2982(a)(1)(G)).

What is taxable

The measure is the full selling price, with no deduction for your cost or any other expense, and including any amount for which you allow the buyer credit (Revenue and Taxation Code 6012). Publication 34, line by line:

  • Taxable: the vehicle; accessories you install before delivery, labor included; the documentation fee; smog inspection charges above the state certificate fee on a vehicle you plan to sell; a mandatory warranty; a manufacturer's rebate the buyer assigns to you toward the price.
  • Not taxable: license, registration and title fees passed to the DMV at cost; the $1.75 California tire fee (Public Resources Code 42885); the state's smog certificate fee; an optional service contract or warranty the buyer chooses for an extra charge; finance, interest and insurance charges shown apart from the price; a discount your records show; and, since October 1, 2026, the refund and the restocking fee on a three-day cancellation (Revenue and Taxation Code 6012.3, re-enacted by SB 766).

The trade-in is where California differs from most states: there is no trade-in credit. Sell a $20,000 car and take a $4,000 trade, and tax is on $20,000 (Publication 34; Regulation 1654).

Finding the rate

The statewide rate is 7.25 percent. District taxes, the voter-approved city and county add-ons, sit on top, and for a vehicle the district that counts is where the buyer registers it, not where your lot sits (Publication 34, Special Taxing Jurisdictions; Regulation 1823.5). Look up the registration address on the CDTFA's rates page before you write the contract; rates change by the quarter.

A worked deal

A buyer who registers in a county whose districts total 1.50 percent buys a used sedan at a $14,000 cash price. You installed an alarm for $400 with labor, you charge the $85 documentation fee, the buyer takes an optional service contract for $1,200, the DMV fees are $350, and the trade-in is worth $3,000. The taxable measure is the price, the alarm and the doc fee: $14,000 + $400 + $85 = $14,485. The service contract, the DMV fees and the trade-in play no part. At 8.75 percent the tax is $14,485 x 0.0875 = $1,267.44. Deduct the trade before taxing and you are $262.50 short on this one deal.

Paying through the DMV since 2021

Assembly Bills 85 and 82 of 2020 moved the vehicle tax from your return to the DMV window. Under Revenue and Taxation Code 6295, a licensed dealer that is not a new-vehicle franchisee pays the sales tax and district use tax on each retail sale of a vehicle that must be registered to the DMV, with the registration application, within 30 days of the sale (DMV, Important Tax Information for Used Vehicle Dealers); a late application draws the 10 percent penalty of 6591 on the tax (6295(b); CDTFA tax guide). The DMV phased dealers in by notice: new, reinstated and under-reporting dealers in 2021, dealers with 300 or fewer sales a year in 2023, and every other dealer on January 1, 2026 (6295(g); DMV memo VIN 2026-02). A franchised dealer stays out of it, as does a vehicle that is not registered, whose tax still goes on the return.

Since SB 132 took effect on June 27, 2025, the registration application is deemed the return for the tax it reports (6295(c)), so for sales from July 1, 2025 those sales leave Total Sales on your CDTFA return (CDTFA notice L-994). The return itself stays: quarterly since July 1, 2024 for dealers paying through the DMV, monthly for the rest (Publication 34), due the last day of the month after the quarter, April 30, July 31, October 31 and January 31, or the next business day (Revenue and Taxation Code 6452; CDTFA filing dates page). On it you report what the DMV figure leaves out: doc fees and mandatory warranties, sales not run through the DMV, inventory withdrawn for your own use, nontaxable sales for resale and in interstate commerce, and repossession losses, which Regulation 1642 lets you deduct whichever agency got the original tax. A dealer that sold 1,000 or more vehicles in the current or prior year and has filed and paid on time for 12 straight quarters may ask the CDTFA to pay it directly again (6295(h)). Keep the records at least four years (Publication 116).

Private sales and the DMV's use tax

When someone who is not a licensed dealer sells a vehicle, the seller collects nothing; the buyer owes use tax, measured by the price paid, and pays it to the DMV at registration (Revenue and Taxation Code 6292; Regulation 1610). When you sell, the tax is sales tax and the liability is yours. That is why a car you sell for an employee on your Report of Sale, or on a contract naming you as seller, or on consignment, is your taxable sale (Publication 34).

Out-of-state buyers

A sale is exempt only when the contract requires delivery outside California and you make the delivery, with your own employee or through a carrier, so the buyer never takes possession here (Revenue and Taxation Code 6396; Publication 34). A buyer who picks the car up at your lot and drives it to Nevada owes California tax (DMV, Important Tax Information). Keep proof: the buyer's out-of-state address, bills of lading or your driver's receipts, and a Statement of Delivery Outside California, CDTFA-448, notarized at the delivery point. A California resident who claims the car is for use outside the state signs a CDTFA-447; without it the sale is taxable.

Sales to other dealers

A sale to a dealer who will resell the vehicle carries no tax if you take a resale certificate in good faith and on time, meaning before you bill or at or before delivery, from a buyer in the business of selling vehicles who holds a permit (Revenue and Taxation Code 6092; Regulation 1668; Publication 34). The certificate carries the buyer's signature, name and address, seller's permit number, the words "for resale" and a description of the property. The deal goes to the DMV on a Wholesale Report of Sale, so no tax is paid through the DMV on it, and it appears on your return as a nontaxable sale for resale. A dealer buying a truck for its own parts department is not buying for resale; that sale is taxed in full.

Sources

  • Revenue and Taxation Code 6012, gross receipts; 6012.3 (as re-enacted by SB 766, operative October 1, 2026), the refund and restocking fee on a three-day cancellation; 6019, who is a retailer; 6051, the tax on retailers; 6066 and 6067, the seller's permit; 6092, resale certificates; 6292, use tax on private-party vehicle sales paid to the DMV; 6295 (as amended by SB 132, Stats. 2025, ch. 17), dealers' sales tax paid to the DMV; 6396, delivery outside the state; 6452, quarterly returns; 6591, the late penalty, read 2026-10-22 at california.public.law.
  • Public Resources Code 42885, the California tire fee, read 2026-10-22.
  • Civil Code 1656.1, sales tax reimbursement; Civil Code 2982(a)(1)(G), taxes as a line of the contract, read 2026-10-22.
  • CDTFA Regulations 1610, vehicles; 1642, bad debts; 1654, trade-ins; 1668, sales for resale; 1823.5, place of delivery of vehicles for district tax, read 2026-10-22.
  • CDTFA Publication 34, Motor Vehicle Dealers, October 2025 revision: Motor Vehicle Sales, Special Taxing Jurisdictions and General Information sections, read 2026-10-22.
  • CDTFA, Tax Guide for Motor Vehicle Dealers, Industry Topics and Frequently Asked Questions pages, read 2026-10-22.
  • CDTFA, Sales and Use Tax Returns Filing Dates, read 2026-10-22; CDTFA special notice L-994 (September 2025), the deemed return under SB 132.
  • DMV, Important Tax Information for Used Vehicle Dealers, and DMV memo VIN 2026-02, Used Vehicle Dealers Pay Sales Tax to DMV Phase 3, read 2026-10-22.
  • DMV, Lesson Plan Guidelines for Used Vehicle Dealer Education Programs, OL 2000 (rev. 12/2007).