Calif. sales tax exemption - occasional sale

A literal reading is that sales via eBay are not exempt under the "garage sale" rule, and his frequency of sales exceeds the "occasional sale" rule. Even though these are used items where sales tax has already been paid once, they may not be exempt from sales tax again.

Maybe he should hold a real garage sale instead of online sales.

I think the only people who can answer your primary question are the people who know how the CA BOE defines the word "substantial."

As to the secondary question, the fact that sales tax had been paid when the item was purchased has no relevancy. The same item can be taxed every time it gets resold.

Goods purchased for resale, and for which sales tax is paid, results in a credit of some sort on the sales tax return. Perhaps that doesn't apply here, where the goods were bought for personal use, then resold.

It's a bit circular. The point is that if things are sold in large lots at a time or all in the same day, it can be an occasional sale. But if there is a series of transactions (apparently more than three qualifies) then sales tax is supposed to be collected.

FWIW, the answer I found is: it depends on whether there was personal use after the prior sales tax was paid. Seems to agree with the above.

Scenario 1: items are purchased, sales tax paid, items are immediately wrapped and put into storage as inventory for future sale. This sales tax offsets the sales tax to be collected upon sale (not sure how changes in rates between purchase and sale are handled).

Scenario 2: items are purchased, sales tax paid, items are used personally. Over time, items are stored and then sold. Because there was personal use, the prior sales tax paid has no effect upon future sales tax.

-Mark Bole

In general, yes. Although at least in California, there is a specific exemption in the sales tax code for garage sales that are conducted on a casual basis. IIRC, that means you can't have more than one such garage sale in any 6-month period. Otherwise you are deemed to be running a business and are responsible for collecting sales tax.

There may also be a monetary limit as well on the value of items that are sold.

Undoubtedly. I suppose the sales tax authorities could step in, if they decided it was worth their time. Given the tight state budgets, that may end up happening.

You may still have to pay sales tax, but under a different name -- the "use tax". See

If you buy a car from a private party, the private party probably won't collect sales tax because they're not in the business of selling cars. However, when register your car, which is required within 10 days of purchasing the car, you will write down how much you paid for the car. The DMV will happily calculate use tax or sales tax on the car. I heard that if you put an amount too low, the DMV will use their own FMV.

On your personal tax return form 540, page 2, line 49 you write the amount of Use Tax. This is for items purchased out of state and for which no sales tax was charged, and here's your chance to redeem yourself and pay CA sales on them. So I guess the stuff you bought at the garage sale would be reported here.

There's no exemption in California law (that's what we're talking about, I believe) for an exemption from sales or use tax for gifts. I don't know how the DMV handles these in practice, though.

The law allows for an exemption from the use tax when there is a gift. See

: Received as a gift If you received a vehicle or vessel as a gift, you are not required to pay California use tax on that gift and can apply for a use tax clearance. However, the vehicle or vessel is not considered a gift if:

- You paid cash, traded property, provided services, or assumed a liability in exchange for the vehicle or vessel; or

- Your employer gave you the vehicle or vessel as a form of compensation (for example, a vehicle given to an employee as a bonus).

The law is here:

section 6400. I wonder which part of the law supports the BOEposition mentioned above. As an aside, one way to cheat is to gift the car to the person you want to sell it to, then accept cash from them without declaring it (like selling drugs). Illegal, and I don't recommend it. When people request an exemption from the use tax, the DMV probably checks to see if the parties are related.

Thanks. I hadn't been aware of that.

There's nothing I can find in the statute. There is a regulation that appears to give an exemption from use tax for some gifts.

No, it would not be reported there, or anywhere. Look at the rule that Mark Bole quoted from BOE Publication 61 in the first post in this thread.

"OCCASIONAL SALES - A sale by (and purchase from) a person who is not engaged in a business requiring a seller's permit is exempt from sales and use taxes. These types of sales are 'occasional' sales. . . . A person holding two garage sales with no other sales in any 12 month period in which the garage sales are held are regarded as making exempt occasional sales."

Your purchase at a garage sale "is exempt from sales AND USE taxes."

Bob Sandler

Then why is the individual sale of a car not exempt?

The keyword seems to be substantial. The quote above has a "..." and I think the magic is there. Here it is in full:

OCCASIONAL SALES ? A sale by (and purchase from) a person who is not engaged in a business requiring a seller?s permit is exempt from sales and use taxes. These types of sales are ?occasional? sales (some states have similar exemptions for ?casual? sales). Generally, a person who makes three or more sales for substantial amounts in any period of 12 months is required to hold a seller?s permit. A person who makes a substantial number of sales for relatively small amounts is also required to hold a seller?s permit. (The 12 month test period can be the 12 months before the sale in question, the 12 months after the sale in question, or any other 12 month period in which the sale occurs.) A person holding two garage sales with no other sales in any

12 month period in which the garage sales are held are regarded as making exempt occasional sales. A business that is not required to hold a seller?s permit would be making an occasional sale when making a single sale of its assets upon termination of its business. Such persons should be aware that making two or three sales in anticipation of final liquidation will generally result in all the sales being subject to sales tax.

But the word "substantial" is so subjective. I could sell my old car for $2,000 and it would be substantial, or I could have one garage sale and sell lots of little stuff for $2,000 -- and the first would be subject to the USE tax when the car is registered.

One more thing. The law is not necessary logical. A case in point in cell phones. The regulation requires sales tax to be charged on the full price of the cell phone, not the discounted price when you sign a contract. However, regulation 6051 of the California tax code requires sales tax to be charged only on the actual sales price (including all discounts).

See

Basically the BOE takes your money because they can, and no-one is strong enough to stop them.

An individual sale of a car is not exempt because Section 6367 of the CA Revenue and Taxation Code specifically says that the exemption for occasional sales does not apply to the sale of a vehicle. Apparently the BOE didn't think it was necessary to mention that in Publication

61 (other than be giving the reference to this section).

"6367. There are exempted from the taxes imposed by this part the gross receipts from occasional sales of tangible personal property and the storage, use, or other consumption in this state of tangible personal property, the transfer of which to the purchaser is an occasional sale. This exemption does not apply to the gross receipts from the sale of, or to the storage, use, or other consumption in this state of, a mobilehome or commercial coach required to be annually registered under the Health and Safety Code, a vessel or aircraft, as defined in Article 1 (commencing with Section 6271) of Chapter 3.5 of this part, or a vehicle required to be registered under the Vehicle Code or a vehicle required to be identified under Division 16.5 (commencing with Section 38000) of the Vehicle Code or a vehicle that qualifies under the permanent trailer identification plate program pursuant to subdivision (a) of Section 5014.1 of the Vehicle Code. This section shall not preclude the exemption afforded under Section

6281."

Bob Sandler

Good find! I confess I looked for a while and gave up.

Listing an exception to the exemption in the exemptions section...who'da thought it?! Why not just make it not an exemption in the first place?

-Mark Bole