McNerney Introduces Innovative Bill to Reduce Taxes California Sends to the Federal Government

SACRAMENTO – State Sen. Jerry McNerney, D-Pleasanton, today introduced SB 1275, innovative legislation that would reduce the amount of taxes Californians pay to the federal government each year by up to an estimated $250 million.

SB 1275 would eliminate the state sales tax on motor vehicles and replace it with a vehicle license fee of the same amount that can be deducted from federal taxes. 

The legislation would not impact state or local revenues, nor would it increase what consumers pay on a vehicle purchase. Instead, SB 1275 would provide a federal tax break for Californians when they buy a car, truck, or other vehicle. 

“California has long been a ‘donor’ state – that is, Californians send more money each year to the federal government than the state receives in return. SB 1275 is a creative approach to address that problem, and it will save California taxpayers money,” said Sen. McNerney, who is chair of the Senate Revenue and Taxation Committee. “Under SB 1275, Californians who buy a car or truck would get a federal tax break that they don’t currently receive. The legislation, as a result, could boost vehicle sales in the state, and it won’t cost consumers, the state, or car dealers a thing. It’s a win-win proposal.”

Currently, when a California consumer buys a motor vehicle, new or used, they pay sales taxes. SB 1275 would eliminate the state general fund portion of the sales taxes on vehicle purchases and replace it with a vehicle license fee that is equal to the sales tax. Such license fees, in turn, are federally tax deductible. (SB 1275 would not impact local sales taxes enacted by cities and counties.)

For example, if the state sales tax on a car or truck purchase is $2,000, that amount would be converted to a vehicle license fee, which is considered a property tax. The $2,000 fee would still go to the state’s general fund, just like state sales taxes do, but consumers who itemize on their federal taxes would potentially be able to reduce their taxable income (but not on their state tax returns).

As a result, SB 1275 would reduce the amount of taxes that Californians who buy motor vehicles pay the federal government up to an estimated $250 million annually.

Each year Californians individually pay tens of millions of dollars more to the federal government than the state receives in return. And California’s donor status is expected to worsen due to the Trump-era budget cuts.

SB 1275 is expected to be heard by a Senate committee in the coming weeks.

Sen. Jerry McNerney is chair of the Senate Revenue and Taxation Committee, and his 5th Senate District includes all of San Joaquin County and Alameda County’s Tri-Valley.