Does buying a vehicle, vessel or aircraft through an out-of-state entity still avoid California use tax after SB 1406?

The presumption and who counts as a resident

Section 6248(a) creates "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." The four triggers are independent: purchase by "a resident of California, as defined in Section 516 of the Vehicle Code" (section 6248(a)(1)); for a vehicle, being subject to California registration under the Vehicle Code during the first 12 months of ownership (section 6248(a)(2)); for a vessel or aircraft, California property tax during the first 12 months (section 6248(a)(3)); and, for a nonresident purchaser, use or storage in California "more than one-half of the time during the first 12 months of ownership" (section 6248(a)(4)).

The residency standard is borrowed from the Vehicle Code. Vehicle Code section 516 provides: "'Resident' means any person who manifests an intent to live or be located in this state on more than a temporary or transient basis. Presence in the state for six months or more in any 12-month period gives rise to a rebuttable presumption of residency." The listed evidence includes the voter registration address, the place of employment or business, dependents in California schools, a homeowner's exemption, a rented or leased home, a California driver's license, and "other acts, occurrences, or events that indicate presence in the state is more than temporary or transient" (Veh. Code section 516(a) to (i)). It is an intent test with a six-month presumption, not the income tax residency test, applied to each owner whose status matters.

Prior law already looked through closely held entities. Before SB 1406, section 6248(a)(1) provided that "a closely held corporation or limited liability company shall also be" considered a California resident if 50 percent or more of its shares or membership interests were held by California residents, a rule Regulation 1620 carries (Cal. Code Regs., tit. 18, section 1620(b)(5)(A)1, as amended effective March 11, 2013), Publication 52 repeats (CDTFA Publication 52, Vehicles and Vessels: Use Tax), and the Legislative Counsel's Digest to SB 1406 describes as existing law. A majority-resident LLC organized elsewhere was a California resident for this presumption before September 30, 2026. What the prior look-through rule did not reach was a partnership of any kind, or an entity whose California owners held less than half.

What SB 1406 changed in section 6248

The act rewrites section 6248(a)(1) in three subparagraphs.

Subparagraph (A) widens the entity list. "[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" (section 6248(a)(1)(A)). The count is by interests held, and the threshold is "50 percent or more," so an even split between resident and nonresident owners makes the entity a resident.

Subparagraph (B) adds the shell company rule, and it overrides the count. "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" (section 6248(a)(1)(B)). One resident owner of any size suffices, and "beneficial owner" appears to reach past the record holder to the person behind a nominee or an intermediate entity.

Subparagraph (C) defines the term: "'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." The statute then lists evidence: "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" (section 6248(a)(1)(C)).

Three features of the definition shape its application. First, the defining element is purpose: the entity must be "used for the purpose of evading" the tax. The four listed items are evidence of that purpose, not elements of the definition, and the list is expressly nonexclusive. Second, the statute does not say how many factors are needed, whether one factor can carry the conclusion, or whether evasion must be the sole or a principal purpose. Third, the factors describe the single-asset holding entity with no employees, no office and often no return of its own; an operating business that also owns a vehicle will usually show a purpose, a location, payroll and returns, and is tested under subparagraph (A).

An example shows the difference. An LLC formed in another state holds a yacht. One of its four members, holding 10 percent, lives in California; the other three do not. Under subparagraph (A), the LLC is not a resident, because residents hold less than 50 percent. If the LLC has no activity other than holding the yacht, no office outside California, no employees and no tax filings, the same LLC is a strong candidate for shell company status, and under subparagraph (B) its single 10 percent California member makes it a resident. If the yacht then enters California within 12 months of purchase, the presumption applies unless rebutted.

The act also amends section 6247, the older presumption that "tangible personal property delivered outside this state to a purchaser known by the retailer to be a resident of this state" was purchased for use in California. The pre-amendment text said only "a resident of this State"; the amended text reads "a resident of this state, as defined in Section 6248" (section 6247(a)). That presumption is controverted by a signed statement, retained by the vendor, that the property was purchased for use at a designated point outside California, or by other evidence satisfactory to the Department (section 6247(b)). How far the entity rules of section 6248, which are written "[f]or purposes of this section," carry into section 6247 through the new cross-reference is a question the text leaves open.

Personal liability under new section 6829.5

New section 6829.5(a) provides that "[a]ny 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." The Corporations Code shield that ordinarily protects members and shareholders does not apply, and the text contains no ownership threshold and no control requirement.

The Department carries a factual burden before the liability attaches. "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" (section 6829.5(b)). That showing is distinct from the section 6248 presumption, which shifts the burden on the entity's own liability; personal liability requires the Department to establish the in-state use and the nonpayment.

The liability is collected by determination "in the manner provided in Chapter 5 (commencing with Section 6451) and Chapter 6 (commencing with Section 6701)" (section 6829.5(c)). Chapter 5 includes the redetermination procedure, under which a petition must be filed within 30 days after service of the notice of determination or the determination becomes final (Rev. and Tax. Code section 6561). The limitations period is its own: "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" (section 6829.5(d)). The clock starts with the Department's knowledge, not with the purchase or the entry into California, and the section sets no outer limit.

The contrast with the general responsible person statute is sharp. Section 6829 applies only "[u]pon the termination, dissolution, or abandonment of the business" of the entity; reaches a person "having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax"; requires that the person "willfully fails to pay or to cause to be paid" the tax, defined as "an intentional, conscious, and voluntary course of action"; limits liability to taxes that became due while the person had that control or duty; and requires the notice within three years after the Department obtains actual knowledge of the termination, or within eight years after the termination, "whichever period expires earlier" (Rev. and Tax. Code section 6829(a), (b), (d), (f)). Section 6829.5 requires none of the termination, control or willfulness elements and has no eight-year backstop.

The entity's own liability runs on the ordinary deficiency periods of section 6487(a): three years after the last day of the calendar month following the quarterly period, or after the return is filed if later, a period that by its terms does not apply "in the case of fraud, intent to evade this part or authorized rules and regulations, or failure to make a return," and eight years where no return was made. Because a shell company is defined by an evasion purpose, the intent-to-evade exception is in view whenever the shell company rule is. A separate penalty applies to a purchaser who registers a vehicle, vessel or aircraft outside California "for the purpose of evading the payment of taxes due under this part": 50 percent of the tax determined to be due on the sales price (Rev. and Tax. Code section 6485.1).

Rebutting the presumption, and what the Department has published

The rebuttal is unchanged. The 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," which "may include, but is not limited to, evidence of registration of that vehicle, vessel, or aircraft, with the proper authority, outside of this state" (section 6248(b)). Out-of-state registration is one example of that evidence, not a safe harbor; registration elsewhere is weighed against where the property was kept and used during that year. The section "shall not apply to any vehicle, vessel, or aircraft used in interstate or foreign commerce pursuant to regulations prescribed by the department" (section 6248(c)), and the regulation measures that by whether one-half or more of the miles, nautical miles or flight time in the six months after entry are commercial interstate or foreign travel (Cal. Code Regs., tit. 18, section 1620(b)(5)(C)). An aircraft or vessel brought in "exclusively for the purpose of repair, retrofit, or modification" is not deemed acquired for use here if the work is performed, for a vessel, by a repair facility holding the appropriate Department permit and any required local license, or, for an aircraft, by an FAA-certified repair station or a manufacturer's maintenance facility (section 6248(e)), and a vehicle brought in for warranty or repair service and kept here 30 days or less, documented by a work order and the owner's statement of travel dates, can rebut the presumption (section 6248(f)). The library's article on in-transit stopovers covers those carve-outs in more depth.

The Department's published guidance predates the act. Regulation 1620's 12-month test still lists only closely held corporations and limited liability companies in its resident definition. Publication 52 describes the records that rebut the presumption, and the Department's vehicles, vessels and aircraft pages list what it asks for: the purchase contract, a seller's statement of the date and place of out-of-state delivery, out-of-state registration, insurance records, proof of tax paid to another state, and fuel, mooring, hangar, repair, lodging, bank and credit card records placing the property outside California during the first 12 months. Special Notice L-966, Sales of Motor Vehicles to Out-of-State Limited Liability Companies (LLCs) (December 2024), addresses the dealer side: a California dealer's exempt sale to an out-of-state LLC depends on delivery outside the state by the dealer or a carrier, documented on Forms CDTFA-447 and CDTFA-448, and the notice reminds dealers that an LLC with California-resident members may owe use tax if the vehicle is brought into California within 12 months. The Department's 2026 special notices list carried no notice on SB 1406, partnerships or shell companies as of October 14, 2026.

The transition questions the act leaves open

Section 6248(d), as it appears in the restated section, provides: "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." Read alone, that sentence looks like a grandfather rule for purchases and contracts on or before September 30, 2026, the date the act took effect (SB 1406, section 5). Two points make that reading uncertain.

First, the subdivision is not new. The history note to section 6248 in the Department's Business Taxes Law Guide shows that subdivision (d), in the same words, was added by Stats. 2008, ch. 763, in effect September 30, 2008, and Regulation 1620(b)(5)(E) implements the binding contract rule with 2004 and 2007 to 2008 dates only. SB 1406 amended and restated section 6248; it did not add subdivision (d). On that history, "the act adding this subdivision" is the 2008 act, and the subdivision shields purchases and contracts on or before the 2008 operative date from the 2008 amendments. The Legislative Counsel's Digest describes no transition rule for SB 1406. The contrary reading treats the 2026 restatement as speaking anew, with September 30, 2026 as the operative date; the statute does not state that date in words, and the Department has not addressed either reading. A cautious reader does not rely on subdivision (d) to protect a 2026 purchase or contract.

Second, section 6829.5 has no transition language of its own, and subdivision (d), whatever its reach, speaks only to amendments "to this section." Whether personal liability reaches unpaid tax on a purchase made on or before September 30, 2026, by an entity that meets the shell company definition, is open. The text of section 6829.5(a) covers "any unpaid taxes" on the purchase, and its limitations period runs from the Department's actual knowledge rather than from the purchase date, so a cautious reader treats an older unpaid purchase as within reach until the Department or a court says otherwise.

Practice notes

For any vehicle, vessel or aircraft held through an entity, the first question is the owner count: which shareholders, partners, members and beneficial owners are California residents under Vehicle Code section 516, and whether they hold 50 percent or more of the interests. Where they do not, the second question is the shell company test, and the four statutory factors serve as the audit checklist: a documented business activity, a physical location outside California, W-2 employees, and filed federal and required out-of-state returns. An entity that fails most of them and has any California owner is exposed to treatment as a resident. The presumption is answered with records assembled during the first 12 months, not afterward. Officers, managers, partners, beneficial owners and members of an entity that meets the shell company definition carry personal exposure under section 6829.5 without the termination, control or willfulness elements of section 6829, on a limitations clock that starts only when the Department learns of the in-state use. For contracts signed on or before September 30, 2026, subdivision (d) is a doubtful defense. G&G State Tax Group provides use tax analysis and audit representation for vehicles, vessels and aircraft held through entities, including responses to personal liability determinations, alongside its state and local tax practice.