In a recent Budget Change Proposal, the California Department of Tax and Fee Administration asks for slightly more than $5.8 million from the state’s General Fund in the 2021-2022 Fiscal Year, to “reimburse the (California) Department of Motor Vehicles for the costs associated with the passage of Chapter 8 of the Statutes of 2020 (Assembly Bill 85) and Chapter 14 of the Statutes of 2020 (Assembly Bill 82).” Of that, $4.4 million is for IT development costs and $1.5 million is for administrative costs, according to the BCP. The DMV is asking for $3.75 million in “reimbursement authority” for costs associated with the design of the IT solution and its administration, according to the BCP. Among the takeaways:
- AB 85 and AB 82 require used vehicle dealers, starting this year, to pay sales tax once they register a car that has been “sold at retail by a licensed dealer.” The legislation closes the “sales tax gap” on sales tax that has gone unreported from these sales. DMV will implement the new payment requirement in “multiple phases over the next few years through January 1, 2023,” according to the BCP; the first group of affected dealers started paying the sales tax Jan. 1. DMV will compile reports on vehicles with unpaid sales tax for CDTFA to issue “department assessed billings.
“Since used motor vehicle dealers already provide complete data to the DMV when registering a used motor vehicle, this new law should increase sales tax payments made by these dealers,” CDTFA wrote in the BCP. - CDTFA will reimburse DMV for “programming costs to implement this new law” starting in FY 2020-21 through 2021-22 — a $3 fee per transaction in FY 2020-21 and 2021-22 for “administration of collecting sales tax.” This will ensure CDTFA can administer the sales taxes for used vehicle dealers. The department will “collect additional data” from dealers on sales transactions; and prepare “reconciliations between the CDTFA and the DMV data,” among its responsibilities. Of the roughly $5.8 million, $4.4 million will pay back DMV for developing and deploying an IT solution that collects use tax from used vehicle dealers, and for the costs of administering the program — $1.5 million. Provisional language, per the BCP, is also being sought, “making $2.15 million of the $4.4 million requested for the IT solution” contingent on submittal and approval of “the appropriate Project Lifecycle documents” by the departments of Finance and Technology. DMV is seeking $3.75 million in “reimbursement authority” for costs associated with the IT solution’s design and the program’s administration. DMV will do an “industry assessment” of used vehicle dealers and stakeholders in creating the automated use tax collection process to ensure it’s efficient for all.
- Resources requested include “one-time staff and consultant costs” to originate business requirements, do project management, implement (Report of Sale) system enhancements,” and other automation efforts. The requested resources also include program administration and the extra workload via use tax collection from around 2,500 used motor vehicle dealers submitting 497,000 transactions annually to DMV. Absent funding to reimburse the DMV, CDTFA will not be able to successfully implement this new law, it said, indicating closing the sales tax gap “will result in an increase in sales tax revenue.” Approving the BCP as written will require a future BCP, CDTFA said. But an alternative — providing a “direct appropriation” to DMV in FY 2021-2022 — would also require a future BCP and potentially also a trailer bill.
- Implementation of the new program is ongoing. Among the aspects underway, CDTFA has worked with DMV to ensure its computer system was ready to collect sales tax starting Jan. 1; webpages and publications have been updated; and internal operations instructions have been generated for CDTFA on handling accounts required to pay DMV sales tax.
