SB 1406

SB1406:v97#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Senate Bill

No. 1406

An act to amend Sections 6247 and 6248 of, and to add Section 6829.5 to, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL'S DIGEST

SB 1406, as amended, McNerney. Sales and Use Tax Law: vehicles: shell companies.

The Sales and Use Tax Law imposes a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state, measured by sales price. Under the Sales and Use Tax Law, there is a presumption that a vehicle, vessel, or aircraft shipped or brought into this state within 12 months from the date of its purchase was acquired for storage, use, or other consumption in this state and is subject to the use tax if any of specified conditions are satisfied, including where the vehicle is purchased by a resident of this state, as defined. Existing law provides that, for purposes of this presumption, a closely held company or limited liability company is considered a resident of this state if 50% or more of the shares or membership interests are held by shareholders or members who are residents of this state.

This bill would additionally provide that a partnership, limited partnership, or limited liability partnership is a resident of this state if 50% of the partnership, limited partnership, or limited liability partnership interests are held by partners that are residents of this state. The bill would also provide that, for purposes of the above-described presumption, a shell company, as defined, is a resident of this state if any shareholder, partner, member, or beneficial owner is a resident of this state. The bill would hold any officer, manager, partner, beneficial owner, or member of a shell company personally liable for any unpaid taxes, and any interest and penalties on those taxes, the nonpayment of which may constitute a crime, due on the purchase of a vehicle, vessel, or aircraft. By expanding the scope of crimes related to the violation of the Sales and Use Tax Law, this bill would impose a state-mandated local program. The bill would also make nonsubstantive and conforming changes to these provisions.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of ²/₃ of the membership of each house of the Legislature.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

This bill would take effect immediately as a tax levy.

Digest Key

Vote: 2/3 Appropriation: NO Fiscal Committee: YES Local Program: YES

Bill Text

The people of the State of California do enact as follows:

SECTION 1.

Section 6247 of the Revenue and Taxation Code is amended to read:

6247.

(a) On and after the effective date of this section, it shall be further presumed that tangible personal property delivered outside this state to a purchaser known by the retailer to be a resident of this state, as defined in Section 6248, was purchased from a retailer for storage, use, or other consumption in this state and stored, used, or otherwise consumed in this state.

(b) This presumption may be controverted by a written statement, signed by the purchaser or their authorized representative, and retained by the vendor, that the property was purchased for use at a designated point or points outside this state. This presumption may also be controverted by other evidence satisfactory to the board California Department of Tax and Fee Administration that the property was not purchased for storage, use, or other consumption in this state.

SEC. 2.

Section 6248 of the Revenue and Taxation Code is amended to read:

6248.

(a) There shall be a rebuttable presumption that any vehicle, vessel, or aircraft bought outside of this state on or after the effective date of this section, and which is brought into California within 12 months from the date of its purchase, was acquired for storage, use, or other consumption in this state and is subject to use tax if any of the following occurs:

(1) The vehicle, vessel, or aircraft was purchased by a resident of California, as defined in Section 516 of the Vehicle Code.

(A) For purposes of this section, a closely held corporation, partnership, limited partnership, limited liability partnership, or limited liability company shall also be considered a California resident if 50 percent or more of the shares, partnership interests, limited partnership interests, limited liability partnership interests, or limited liability company membership interests are held by shareholders, partners, or members who are residents of California, as defined in Section 516 of the Vehicle Code.

(B) Notwithstanding subparagraph (A), a shell company shall be deemed to be a California resident if any shareholder, partner, member, or beneficial owner is a resident of California, as defined in Section 516 of the Vehicle Code.

(C) For purposes of this section, “shell company” means a closely held corporation, partnership, limited partnership, limited liability partnership, or limited liability company used for the purpose of evading the payment of taxes due under this part. Evidence that an entity is a shell company used for the purpose of evading the tax includes, but is not limited to, any of the following:

(i) It lacks a specific business activity or purpose.

(ii) It fails to maintain a physical location outside California.

(iii) It fails to employ individual persons and provide those persons with Internal Revenue Service Form W-2 wage and tax statements.

(iv) It fails to file federal tax returns or fails to file a required state tax return in a state other than California.

(2) In the case of a vehicle, the vehicle was subject to registration under Chapter 1 (commencing with Section 4000) of Division 3 of the Vehicle Code during the first 12 months of ownership.

(3) In the case of a vessel or aircraft, that vessel or aircraft was subject to property tax in this state during the first 12 months of ownership.

(4) If purchased by a nonresident of California, the vehicle, vessel, or aircraft is used or stored in this state more than one-half of the time during the first 12 months of ownership.

(b) This presumption may be controverted by documentary evidence that the vehicle, vessel, or aircraft was purchased for use outside of this state during the first 12 months of ownership. This evidence may include, but is not limited to, evidence of registration of that vehicle, vessel, or aircraft, with the proper authority, outside of this state.

(c) This section shall not apply to any vehicle, vessel, or aircraft used in interstate or foreign commerce pursuant to regulations prescribed by the department.

(d) The amendments made to this section by the act adding this subdivision shall not apply to any vehicle, vessel, or aircraft that is either purchased, or is the subject of a binding purchase contract that is entered into, on or before the operative date of this subdivision.

(e) Notwithstanding subdivision (a), any aircraft or vessel brought into this state exclusively for the purpose of repair, retrofit, or modification shall not be deemed to be acquired for storage, use, or other consumption in this state if the repair, retrofit, or modification is, in the case of a vessel, performed by a repair facility that holds an appropriate permit issued by the department and is licensed to do business by the city, county, or city and county in which it is located if the city, county, or city and county so requires, or, in the case of an aircraft, performed by a repair station certified by the Federal Aviation Administration or a manufacturer’s maintenance facility.

(f) The presumption set forth in subdivision (a) may be controverted by documentary evidence that the vehicle was brought into this state for the exclusive purpose of warranty or repair service and was used or stored in this state for that purpose for 30 days or less. The 30-day period begins when the vehicle enters this state, includes any time of travel to and from the warranty or repair facility, and ends when the vehicle is returned to a point outside the state. The documentary evidence shall include a work order stating the dates that the vehicle is in the possession of the warranty or repair facility and a statement by the owner of the vehicle specifying dates of travel to and from the warranty or repair facility.

SEC. 3.

Section 6829.5 is added to the Revenue and Taxation Code, to read:

6829.5.

(a) Any officer, manager, partner, beneficial owner, or member of a shell company, as that term is defined in Section 6248, shall, notwithstanding any provision in the Corporations Code, be personally liable for any unpaid taxes, and any interest and penalties on those taxes, due under this part on the purchase of a vehicle, vessel, or aircraft.

(b) Personal liability may be imposed pursuant to this section only if the department can establish that the shell company stored, used, or otherwise consumed the vehicle, vessel, or aircraft in this state within 12 months from the date of purchase and failed to pay the tax to the seller or to remit the tax to the department or the Department of Motor Vehicles.

(c) Except as provided in subdivision (d), the sum due for the liability under this section may be collected by determination and collection in the manner provided in Chapter 5 (commencing with Section 6451) and Chapter 6 (commencing with Section 6701).

(d) A notice of deficiency determination under this section shall be served within three years after the last day of the calendar month following the quarterly period in which the department obtains actual knowledge, through its audit or compliance activities, that the shell company stored, used, or consumed the vehicle, vessel, or aircraft in this state.

SEC. 4.

No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SEC. 5.

This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.