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.
SB 1406 would expand California’s use tax rules for vehicles, vessels, aircraft, and other tangible personal property purchased outside the state but brought into California. The bill broadens the definition of a California resident for these presumptions to include certain partnerships and limited liability partnerships when 50% or more of ownership interests are held by California residents. It also creates a special rule for “shell companies,” deeming them California residents if any owner or beneficial owner is a California resident, and defines shell companies as entities used to evade taxes, with listed indicators such as lacking a real business purpose, physical location outside California, employees, or required tax filings.
The bill further adds a new personal-liability provision for officers, managers, partners, beneficial owners, and members of shell companies. If the Department of Tax and Fee Administration establishes that a shell company brought a vehicle, vessel, or aircraft into California within 12 months of purchase and failed to pay the applicable tax, those individuals could be personally liable for the unpaid tax, interest, and penalties. The bill also sets a three-year notice deadline tied to when the department gains actual knowledge through audit or compliance activity.
In practical terms, SB 1406 would strengthen enforcement of the Sales and Use Tax Law by making it harder to use out-of-state entities to avoid California use tax on high-value purchases. It would amend Revenue and Taxation Code Sections 6247 and 6248 and add Section 6829.5, affecting retailers, purchasers, entity owners, and the state tax agency. The bill is also structured as a tax levy and would take effect immediately if enacted.
The general sentiment reflected in the bill’s movement is cautious support for tax enforcement. The only recorded committee action shows it passed out of committee with a 5-2 vote and was re-referred to Appropriations, suggesting majority support but some opposition. No committee transcript was provided, so there is no direct record of floor or committee debate, but the bill’s framing indicates a policy goal of closing tax-avoidance loopholes rather than changing the underlying tax rate.
The main point of contention is likely the bill’s reach into business entities and individual liability. Opponents may object to the expanded presumption of residency for partnerships and shell companies, the broad definition of shell company, and the personal liability imposed on owners and managers. Supporters would likely emphasize anti-evasion enforcement and fairness in collecting use tax on luxury or high-value assets purchased through entities. The bill also raises procedural and constitutional issues by increasing tax liability and creating a state-mandated local program, which may have contributed to the need for a two-thirds vote.
SB 1406 would amend Revenue and Taxation Code Sections 6247 and 6248 and add Section 6829.5, expanding the circumstances under which California presumes use tax is owed on vehicles, vessels, aircraft, and other tangible personal property brought into the state after out-of-state purchase. It would treat certain partnerships and limited liability partnerships as California residents based on ownership by California residents, and it would create a stricter residency rule for shell companies used to evade tax. The bill also imposes personal liability on specified shell-company insiders for unpaid use tax, interest, and penalties, thereby increasing enforcement authority for the California Department of Tax and Fee Administration and potentially expanding tax collection actions against individuals as well as entities.
The available legislative history suggests the bill had at least moderate support, as it advanced out of committee on a 5-2 vote and was sent to Appropriations. The bill’s purpose appears to be anti-evasion enforcement, which is generally framed positively in the text. At the same time, the recorded opposition indicates some concern about the breadth of the new presumptions and personal-liability provisions. Because no hearing transcript or detailed vote record is provided, the broader sentiment can only be characterized as supportive overall but not unanimous.
The most notable contention is the bill’s expansion of liability beyond the purchasing entity to officers, managers, partners, beneficial owners, and members of shell companies. Another likely point of dispute is the definition of a shell company and the evidentiary factors used to identify one, which could be viewed as broad or potentially overinclusive. There may also be concern about the new residency presumption for partnerships and the effect on legitimate multi-state business structures. Supporters are likely focused on closing loopholes and preventing tax avoidance on high-value asset purchases, while critics are likely concerned about compliance burdens, due-process issues, and the reach of personal liability.