Do I Pay Tax When I Sell My Car in California?
Understand California's tax rules for selling a car, including when sales tax applies, how private sales differ from dealer transactions, and key exemptions.
Selling a car in California comes with financial and legal obligations that many people overlook. One major concern is whether taxes apply to the transaction, which depends on factors like the buyer and how the sale is structured.
Understanding tax obligations can help avoid unexpected costs or penalties.
Sales and Use Tax Requirements
California does not impose a sales tax on private individuals selling their personal vehicles. Instead, the buyer pays use tax when registering the car with the Department of Motor Vehicles (DMV). The use tax rate matches the sales tax rate in the buyer’s location, which varies by city and county. For example, Los Angeles has a combined rate of 9.5%, while San Diego’s is 7.75%.
The tax is based on the purchase price, but if the DMV suspects the reported amount is artificially low, they may assess tax based on the car’s fair market value. This often happens when a vehicle is sold for significantly less than its typical resale price. The DMV may request additional documentation, such as a bill of sale or proof of the vehicle’s condition, to justify the lower price.
Certain transactions are exempt from use tax, such as gifts between family members. If a parent transfers a car to their child, the recipient can file a Statement of Facts (REG 256) to claim the exemption. However, if the DMV determines the transfer was actually a sale, tax may still be required.
Private and Dealer Transactions
Selling a car privately differs from trading it in or selling it to a dealership. Private sellers negotiate directly with buyers, often securing a better price than a dealer would offer. However, they must handle all paperwork, including the title transfer and release of liability, to ensure they are no longer responsible for the vehicle.
Dealership transactions simplify the process. When trading in a car, the dealer manages the paperwork, including notifying the DMV of the ownership change. While this removes administrative burdens, dealerships generally offer lower prices than private buyers because they need to resell the vehicle at a profit. Some dealers apply a trade-in credit, reducing the taxable amount on a new vehicle purchase.
For those selling to a dealership without buying another car, the process is straightforward. The dealer purchases the vehicle, submits the necessary forms, and assumes responsibility for registration and tax reporting. Unlike private sales, where buyers pay use tax at registration, dealers collect and remit sales tax on vehicles they resell.
Documentation Requirements
Completing a vehicle sale requires submitting the right paperwork to ensure a legally recognized transfer. The most important document is the car’s title, which must be signed by the seller and properly endorsed to the buyer. If a lienholder is listed, the seller must obtain a lien release before the transfer can proceed. Lost or damaged titles require a duplicate title application (REG 227).
An odometer disclosure is mandatory for vehicles less than 20 model years old, as required by federal and state law. This information is typically recorded on the title, but if there is no designated section, a separate Vehicle/Vessel Transfer and Reassignment Form (REG 262) must be used. This document is only available at DMV offices or through licensed dealers, so sellers should obtain it in advance if needed.
The buyer may also request a valid smog certification, which is required for most vehicles more than four model years old. The certificate must be issued within 90 days of the sale unless the car is exempt due to being a hybrid, electric, diesel-powered (pre-1998 or over 14,000 lbs.), or transferred between certain family members. Sellers should check whether a recent smog check is on file with the DMV to avoid unnecessary testing costs.
Exemptions for Special Cases
Certain vehicle sales qualify for exemptions that eliminate or reduce tax obligations. One common exemption applies to out-of-state buyers who purchase a vehicle in California but immediately transport it to another state. To qualify, the buyer must take delivery outside of California, and the seller must complete a notarized Statement of Delivery Outside California (BOE-447). If the buyer takes possession within state lines, use tax may still apply.
Transactions involving nonprofit organizations can also be exempt if the vehicle is donated rather than sold. Charitable organizations with 501(c)(3) status may receive vehicles as tax-deductible contributions, allowing the donor to claim a deduction based on the car’s fair market value. However, if the nonprofit provides goods or services in exchange, such as a trade-in arrangement, the transaction may no longer qualify as a donation. Proper documentation, including a written acknowledgment from the nonprofit, is required for tax reporting purposes.