The California Tire Fee has been around since I was in high school, and it has not changed much: it’s still $1.75 per new tire (up from $1.00) and still needs to be remitted to the California Department of Tax and Fee Administration (CDTFA) – which was formerly the Board of Equalization. What has changed, and will continue to change, is the litigious setting in the automotive industry. It seems like what plaintiffs’ attorneys and state agencies want to focus on changes every cycle. One year it’s hidden finance changes, another year it’s deceptive advertising practices, and another year it’s overcharging for government fees (such is the world of compliance I suppose). The California Tire Fee, though seemingly straightforward, is an area that can be easily mishandled and a mistake even easier to spot for any plaintiff’s attorney. Since 2012 (thanks to Assembly Bill 238), the condition sale contract cannot be made unenforceable (i.e., contract rescission) solely for a violation of provisions requiring the disclosure of certain fees paid to public officials. However, the mantra in compliance has always been that the mightiest of ships can be sunk by the smallest of leaks. The attorney of a disgruntled customer only needs to find a way into the deal jacket and the tire fee can be that way in. With so much potentially riding this small and confusing fee, we’re putting together a quick review of the California Tire Fee and how it should be charged.
What is the CA Tire Fee?
This fee is imposed on California consumers (but is collected and remitted by you, the dealer) for each new tire purchased. The funds are used to promote activities and develop technologies for tire recycling, and by the California Air Resources Board for air pollution control and prevention.
When Should I Collect the CA Tire Fee?
Generally, the CA Tire Fee should be collected whenever a new vehicle is sold at retail. However, the somewhat straightforward fee becomes murky when different situations are involved. Let’s take a look at some of them.
New Vehicle Sale (or Lease)
The CA Tire Fee should be charged for every new tire that’s sold on the vehicle. At the very least, this itemized fee should amount to $7.00 (at $1.75 per new tire for four tires). Be aware that some DMS systems are automatically programmed to put in $8.75 for five new tires (to include the fifth spare tire). Nowadays, many new vehicles are sold with only four new tires because they are either run-flats that do not have a tire in the trunk or carry an inflation system rather than a fifth spare wheel. We recommend entering this amount manually for every transaction so that you can verify how many new tires are sold on the vehicle. Accidentally overcharge the customer for this fee? Refund the amount immediately, and with interest, if possible.
Used Vehicle Sale
The CA Tire Fee should only be charged on the retail sale of a used vehicle if both of these elements are fulfilled: 1) new tires that were replaced on the used vehicle (including any spare tire) and 2) the dealer did not pay the CA Tire Fee to a retail tire center when purchasing the tires.
The CA Tire Fee should not be collected if the vehicle is delivered outside of California. However, the CA Tire Fee will apply if the buyer takes possession of the new tires in California. To think of it in another way, if California sales tax does not apply to the out-of-state transaction then the tire fee may not apply either. For a more comprehensive discussion on out of state transactions, please refer to the article “What’s hot on the Hotline? Out-of-State Transactions” in our October 2018 issue of Transmission.
Sales to American Indians
The CA Tire Fee should not be collected if the sale to American Indians occurred on Indian reservations.
When the vehicle is entered as a demonstrator, the dealer should self-report and remit to the CDTFA the appropriate tire fee for four tires “on the ground.” When the vehicle is eventually retailed, the dealer should only collect the applicable CA Tire Fee for the one unused spare tire, if any.
If you have any questions regarding the CA Tire Fee, 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 protected].