Sales and Use Tax Law: vehicles: shell companies.

Plain English Breakdown

The bill summary does not provide specific enforcement mechanisms or consequences if a shell company cannot pay taxes.

Tax Law Changes for Vehicle Purchases

The bill changes the Sales and Use Tax Law to include partnerships, limited liability partnerships, and shell companies in determining if a vehicle purchase is subject to tax when bought by someone who lives in California.

What This Bill Does

• Adds partnerships, limited partnerships, and limited liability partnerships to the list of entities considered residents of California for tax purposes if at least half of their interests are held by people living in California.
• Defines a shell company as one where any shareholder, partner, member, or beneficial owner is a resident of California, making it subject to similar tax rules.
• Makes officers, managers, partners, and members of shell companies personally responsible for paying taxes on vehicle purchases if the taxes are not paid by the company.
• Expands criminal penalties for failing to pay these taxes.

Who It Names or Affects

• People who buy vehicles through partnerships, limited liability partnerships, or shell companies.
• Officers and managers of shell companies involved in vehicle purchases.

Terms To Know

Shell company

A business entity that exists primarily to conceal the identity of its owners or to avoid taxes.

Resident

Someone who lives in a particular place, like California.

Limits and Unknowns

• The bill does not specify how it will be enforced.
• It is unclear what happens if the shell company cannot pay the taxes.

Official Summary Text

SB 1406, as amended, McNerney.
Sales and Use Tax Law: vehicles: shell companies.
The Sales and Use Tax Law imposes a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state, measured by sales price. Under the Sales and Use Tax Law, there is a presumption that a vehicle, vessel, or aircraft shipped or brought into this state within 12 months from the date of its purchase was acquired for storage, use, or other consumption in this state and is subject to the use tax if any of specified conditions are satisfied, including where the vehicle is purchased by a resident of this state, as defined. Existing law provides that, for purposes of this presumption, a closely held company or limited liability company is considered a resident of this
state if 50% or more of the shares or membership interests are held by shareholders or members who are residents of this state.
This bill would additionally provide that a partnership, limited partnership, or limited liability partnership is a resident of this state if 50% of the partnership, limited partnership, or limited liability partnership interests are held by partners that are residents of this state. The bill would also provide that, for purposes of the above-described presumption, a shell company, as defined, is a resident of this state if any shareholder, partner, member, or beneficial owner is a resident of this state. The bill would hold any officer, manager, partner, beneficial owner, or member of a shell company personally liable for any unpaid taxes, and any interest and penalties on those taxes, the nonpayment of which may constitute a crime, due on the purchase of a vehicle, vessel, or aircraft. By expanding the scope of
crimes related to the violation of the Sales and Use Tax Law, this bill would impose a state-mandated local program. The bill would also make nonsubstantive and conforming changes to these provisions.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of
2
/
3
of the membership of each house of the Legislature.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide
that no reimbursement is required by this act for a specified reason.
This bill would take effect immediately as a tax levy.

Current Bill Text

Download Bill PDF