Sales and Use Tax Law: vehicles: shell companies

The law prevents California residents from using entity ownership structures to avoid use tax on property brought into the state. It also makes people behind qualifying shell companies personally responsible for unpaid tax, interest, and penalties.

What the law does ​

• Treats partnerships and similar entities as California residents when California residents own at least 50% of their interests.
• Treats a shell company as a California resident when any shareholder, partner, member, or beneficial owner is a California resident.
• Defines a shell company as a closely held entity used to evade tax, with listed evidence including no real business purpose, no out-of-state location, no employees, or missing tax filings.
• Makes shell-company officers, managers, partners, beneficial owners, and members personally liable for unpaid tax, interest, and penalties on covered vehicle, vessel, and aircraft purchases.
• Allows personal liability when the California Department of Tax and Fee Administration establishes that the shell company used, stored, or consumed the property in California within 12 months and did not pay or remit the tax.
• Requires the California Department of Tax and Fee Administration to issue a personal-liability deficiency notice within three years after learning of the in-state use through audit or compliance work.

Who it affects ​

• California residents who buy vehicles, vessels, or aircraft outside California through closely held entities.
• Shell-company officers, managers, partners, members, beneficial owners, and shareholders.
• Sellers and purchasers handling use-tax obligations for covered property brought into California.

Context ​

The law takes effect immediately as a tax levy and does not apply to property purchased or subject to a binding purchase contract on or before its operative date.