Vehicles assigned to employees other than salespersons
If you purchase a vehicle for resale or lease and assign it to an employee or officer of the dealership other than a salesperson, you are generally liable for tax as described below.
It is presumed, unless the dealership can clearly establish otherwise, that vehicles assigned to people who are not salespersons are used less for demonstration or display and more for other business purposes or for personal use.
Vehicle assigned for 12 months or less
When a vehicle is assigned to an employee or officer of the dealership for a period of 12 months or less, report and pay use tax based on the fair rental value. Tax applies to the periods of time when the vehicle is used for purposes other than demonstration or display.
The fair rental value, as it applies to vehicles assigned to employees and officers, is 1/40th of the purchase price of the vehicle for each month of combined demonstration or display and use.
Vehicle assigned for more than 12 months
If you assign a vehicle to an employee or a series of employees for more than 12 months, it is presumed that the vehicle is not being held for resale or lease in the regular course of business.
As a result, use tax must be reported and paid based on your cost for the vehicle.
Vehicle assigned for an unknown period of time
Generally, when a dealer or lessor assigns a vehicle to one or more people, for more than 12 months, for business or personal use in addition to demonstration and display, the vehicle is not held for sale in the regular course of business.
In this case, tax is based on the purchase price of the vehicle.
However, as provided in Regulation 1669.5, Demonstration, Display, and Use of Property Held For Resale—Vehicles, subdivision (b)(4), the 1/40th or 1/60th formula, as appropriate, may be used to calculate the use tax liability, if at the time you assign a vehicle, you do not know how long it will be used.
After 12 months, you must report and pay tax based on the purchase price minus the total tax previously reported under the 1/40th or 1/60th formula.
Example: You paid $15,000 for a vehicle purchased for resale. You assign the vehicle to an employee (other than a salesperson) to use as a demonstrator, but at the time do not know how long the vehicle will be assigned for such use.
The employee retains use of the vehicle as a demonstrator for more than 12 months.
Report and pay use tax based on the 1/40th formula for the first 12 months ($15,000 ÷ 40 = $375 for each month of use). After 12 months, report and pay use tax based on $15,000 minus the total tax previously paid for the year ($375 x 12, or $4,500). As a result, report and pay use tax based on $10,500.