Avalara Taxrates > Blog > Sales Tax News > California Exemption Confusion - Avalara

California Exemption Confusion


 Or not.

Sales and use tax exemptions are exceptions to sales and use tax law. In most states, most tangible personal property is subject to sales and use tax unless it has been specifically exempted by a law, rule or regulation. It’s important to get all the facts right when you’re dealing with exemptions. If there’s a misunderstanding, you could be held liable for the unpaid tax.

A recent such misunderstanding underscores the importance of language and clarity.

The State of California allows an exemption from use tax for vehicles purchased by active duty service members outside of California and then brought into California when the service member is transferred there. In 2013 (effective January 2014), the law was expanded to include “any other items… which were purchased less than 90 days before the report date on their transfers.” (Use tax does not apply to purchases made more than 90 days before an active service member’s transfer.)

With this in mind, some active-duty military purchased vehicles in another state, brought them into California when they transferred there, and did not pay use tax on the vehicles. Later, when registering the vehicles in California, they were surprised to find that they owed the use tax.

Surprise!

The confusion reportedly arose around the language of an October 13, 2013 California State Board of Equalization (BOE) news release, which has since been removed from the BOE website. The service members relied on the release for information, and the release reportedly does not make clear that the vehicles must be purchased before receipt of transfer orders, not before the report date.

This distinction is made in Assembly Bill 143, which expands the exemption to “any other items.” It reads in pertinent part:

“Existing law excludes from use taxes the storage, use, or other consumption of a vehicle purchased by a service member prior to receipt of official orders transferring him or her to this state, as provided.

This bill would … exempt from use taxes the storage, use, or other consumption in this state of tangible personal property, other than a vehicle, vessel, or aircraft, purchased while outside this state … prior to the report date on official orders transferring the qualified service member to this state” [emphasis mine].

Even spelled out, confusion is understandable. BOE board member Diane Harkey is working on behalf of a service member who, after receiving orders to move to San Diego, purchased an RV with the understanding that the vehicle qualified for an exemption from use tax. She told the San Diego Union Tribune, “We and the agency (staff) have agreed that [the news release] is misworded; it’s not worded correctly.” One inaccurate news release was removed on January 7, 2016, at Harkey’s request; another was removed on January 13.

A spokesman for the BOE told the Union Tribune “he couldn’t confirm when staff first knew of errors in the news release, but word didn’t reach the public affairs office in charge of news releases until Harkey’s office contacted then.” Additional information.

Sales and use tax is confusing. Sales tax software makes it less so. Learn how it works.

photo credit: BRITISH COLUMBIA 1971 MUNICIPAL EXEMPT plate via photopin (license)


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.