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California makes sure car buyers pay the price twice in taxes

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POSTED April 27, 2013 1:56 a.m.

Call it farmer smarts

State Sen. Bill Berryhill contends stealth taxes are costing you and I money we never imagined. And at the same time they are a drag on our economy and can even hurt the environment.

The Twain Harte Republican and farmer is the author of Senate Bill 732.

The bill essentially would put Californians on par with most other states when it comes to sales tax at the time they trade in a vehicle and purchase a new one.

Currently, if the car you are buying is $20,000 and the dealer gives you $4,000 as a trade-in allowance you are taxed on the full $20,000 and not the $16,000 you are spending.

Based on the example, you are paying $340 for something you have already paid sales tax on once when you bought it new. The taxing rule flies in the face of how the Franchise Tax Board treats items sold at occasional yard sales. In a yard sale you are selling items you purchased over the years and used personally. If you paid more for the items than you sell them for, the sales are not reportable and therefore not taxable. Yet vehicles are.

Berryhill’s bill this past week cleared the Senate Committee on Governance and Finance unanimously. That’s a pretty big step considering in past years it has been killed at that stage.

The state senator sees the bill as a way to make it more appealing for people to buy new vehicles. That, he points out, would go a long way toward helping clean up the air in the San Joaquin Valley that rates as either the top or second-worst air basin in the country depending upon what Environmental Protection Agency yardstick is used. A newer vehicle means newer technology. That translates into better mileage and lowered emissions.

Currently California sticks it to vehicle buyers in three ways. First, they are taxed on the purchase. Then they are taxed for property tax in lieu fees each year. And when they go to trade-in the vehicle for a newer one they are taxed on the residual value that they were already taxed on when it was purchased and repeatedly are taxed over the years through licensing taxes.

If the vehicle was $30,000 new and you kept it for seven years you will have paid $2,550 in sales tax and over $1,750 in vehicle registration taxes. Basically you will have paid 14.3 percent of the car’s new price in taxes. Then, if you get $7,000 for a trade-in allowance you are being taxed another $595 on the car you bought seven years previously. That makes the accumulative tax on the car’s value $4,895, or an effective tax rate of 16.3 percent.

That extra $595 is being paid despite your car meeting the same criteria as garage sale items that exchange hands. In reality, you are taxed twice on $7,000 of the original $30,000 purchase price.

Berryhill calls the tax assessed at trade-in time “unnecessary and duplicative.”

Those politicians who believe we can tax our way out of any problem might dispute the unnecessary moniker but they certainly can’t argue that it isn’t duplicative.

Our tax system is a mess.

It needs to be fair. It needs to be transparent. And it needs to be clean.

Senate Bill 732 is a step in that direction.



This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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