It’s almost the end of May, and with it comes the Memorial Day holiday, which is traditionally observed on the last Monday of May. Formerly known as Decoration Day, Memorial Day commemorates and mourns the military personnel who have lost their lives while performing their military duties in the U.S. Armed Forces. In thinking about our troops, this article aims to answer some of the most common questions surrounding active-duty non-resident military (NRM) members that we receive on the Hotline.
Do we charge them tax?
We covered this question not too long ago in an article on Sales Tax Exemption Myths, but it bears repeating given the number of calls that we have still been receiving on this topic. Although this is an easy answer, dealership personnel frequently are faced with a military member insisting that s/he does not have to pay sales tax on a vehicle because s/he is in the military and from a different state. The CDTFA Audit Manual section 0611.40 instructs: “Sales of vehicles in California to military personnel are subject to sales tax regardless of the service member’s place of residence.” Moreover, Sales and Use Tax Regulation 1566(c) states: “A dealer (or manufacturer or dismantler) who is licensed or certificated pursuant to the California Vehicle Code must report and pay sales tax to the Board with respect to the sale of a vehicle in California to a member of the armed services regardless of the service member’s place of residence.” If even more authority is necessary, Sales and Use Tax Annotations, section 325.0680 states that “[t]here is no basis for exemption from sales tax of sales to servicemen to take delivery of an automobile in California but drive it from California on a driveaway permit and registers it in another state. When the vehicle is delivered to the purchaser in this state the sale is completed insofar as the sales tax is concerned.” This means that if you deliver a vehicle in California to a military member, the transaction is subject to sales tax.
Can we sell and/or deliver a vehicle to an NRM that has an expired out-of-state license?
This is a bit of a complex question, and so let’s start first with some general rules. Remember, there is no California law that directly prohibits the sale of a vehicle to an unlicensed individual or an individual with an expired license. A vehicle can legally be sold to any person assuming that the person is not an OFAC match. The transaction must still also comport with the dealer’s Red Flags policy. However, if a dealer knowingly lets an unlicensed driver drive a vehicle off the lot (i.e., the dealer lets an unlicensed driver take delivery of a vehicle), the dealer could be sued under a negligent entrustment theory if that unlicensed driver gets into an accident. [See Vehicle Code § 14606]. In fact, Vehicle Code section 12500(a) expressly provides that “a person may not drive a motor vehicle upon a highway, unless the person then holds a valid driver’s license issued under this code, except those persons who are expressly exempted under this code.” However, California does allow non-resident visitors over the age of 18 with a valid driver’s license issued by another state to operate a vehicle in California. [Vehicle Code § 12502]. You can read more about all of this in our Stevie Wonder Principle Revisited article.
These preliminary matters aside, in order to legally drive a privately-owned vehicle in California, a NRM member on active duty must either have a valid California driver’s license or a valid license from that member’s home state. Although the general rule is that when a license is expired the license is no longer valid, there can be certain state-dependent extensions for military personnel. Accordingly, if a NRM member provides you with an expired driver’s license from his/her home state, you need to contact that home state’s DMV because that state may “extend” the validity of the driver’s license for active-duty NRM members. In fact, and as an example, California provides that a California driver’s license held by a military member shall be valid as long as the member remains absent from California and for a maximum of 30 days following an honorable discharge or return to California (whichever is earlier). [Vehicle Code § 12817(a)].
Now is also a good opportunity to make a couple of quick additional points. First, and as it sometimes happens, the deal with the NRM member is being done late at night or on a weekend where their home state’s DMV office is closed. In this situation, the dealer should look to the internet, and specifically, if possible, the home state’s DMV website for additional information. If the deal is to be financed, you should also check with the lender to confirm whether it will allow the vehicle to be delivered to the NRM customer with an out-of-state license that is expired on its face (the lender may refuse to accept assignment even if the home state provides an extension in these circumstances). Also, remember, if you remain hesitant to deliver a vehicle to the NRM customer, you can certainly treat the customer as an unlicensed driver and only deliver the vehicle to another licensed driver.
What do we charge a NRM customer for license and registration?
NRM personnel stationed in California are exempt from payment of the vehicle license fee (VLF) on any vehicle owned or leased and registered in California. In order for the VLF exemption to apply, the NRM member must be shown as the lessee or registered owner of the vehicle and the vehicle cannot be operated “for hire.” The NRM member must also complete a Nonresident Military Exemption Statement (REG 5045).
Dealers should remember that the exemption only applies to the VLF. All other fees are due, including: registration, transfer, titling, CHP fees, and possibly smog abatement. Accordingly, on a LAW 553 Retail Installment Sale Contract, “n/a” or “none” should be stated on line 2.A. for the VLF, while the required amount of fees should be stated on line 2.B.
What if the NRM customer wants the vehicle registered in his/her home state?
Sometimes, you may be presented with the situation where, for example, the customer is an active-duty NRM member who is a Texas resident stationed in California and wants to have that vehicle registered in Texas and put Texas plates on the car and drive it off the lot without California registration and license plates. This is possible, albeit a fairly complicated procedure.
The procedure considered here is authorized by Vehicle Code section 6701 and is described in the DMV’s Vehicle Industry Procedures Manual (VIRPM) Section 12.080-Military Personnel. The statute provides that a motor vehicle may be operated in this state without California registration if all of the following requirements are met:
- The owner must be a nonresident of California who is a member of the armed forces of the United States and on active duty in California (or their spouse).
- The vehicle must be registered to the military person (or spouse).
- The vehicle must display valid license plates issued to the military person (or spouse) by the foreign jurisdiction claimed as the permanent state of residence.
- The owner of the vehicle must have evidence of financial responsibility (insurance).
- The vehicle cannot be a commercial vehicle used in a business manner for which the military member (or spouse) receives compensation.
In order for this procedure to work, the foreign jurisdiction license plates must be displayed on the vehicle before delivery can be accomplished and the vehicle is operated on the public highways. You cannot affix the Temporary Operating Permit portion of the Report of Sale to the vehicle’s windshield. This would be a representation that the vehicle will be registered in California and those appropriate fees will be submitted to the California DMV within applicable time constraints. Therefore, the out-of-state registration and plates must be obtained and brought to California prior to delivery of the vehicle. The customer must be willing to leave the vehicle at the dealership until these things occur. As a possible alternative, you could deliver the vehicle on a One Trip Permit. You may recall, this Permit is valid for one continuous trip from a place within California to another place within or outside of California. But the customer would have to understand and possibly be required to sign a Statement of Facts indicating the vehicle must be driven home and parked pending receipt of the out-of-state plates and registration. Any movement of the vehicle prior to this would be the customer’s responsibility.
There is also a question of whether the dealer or customer will be responsible for applying for the out-of-state registration, and the answer may hinge upon whether the underlying transaction is a cash deal or a financed purchase or lease. On finance and lease deals, the dealer typically makes a guarantee of title to the lender. This means the dealer promises it will procure issuance of a title that secures the lienholder status for the financial institution. Now, this is something that could be done by way of applying for a California “Title Only.”
But there’s a twist. Some states require titling and registration to take place at the same time. They will not do a “Registration Only” to mirror California’s “Title Only.” Rather than possibly frustrate the ability of your customer to secure registration in his/her state of residence, it might be easier for you to “volunteer” to apply for both out-of-state registration and title. At the same time, you are contacting the customer’s home state to inquire about forms and fees for registration, you might as well ask the same about titling. There are titling services that can do all of this for you, for a fee, of course. By the way, some states also require payment of sales/use tax at the time of titling and registration. Best to ask about this as well. Clearly, charges for all of these items need to be resolved prior to contracting, so that the contract may reflect the collection of these fees and charges from the customer.
If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or email@example.com.