This guide is for educational purposes only and based on professional experience in California dealer licensing and compliance. It is not legal, tax, or financial advice. Always verify current requirements with the California DMV Occupational Licensing Division and CDTFA.
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Audits are a normal part of operating a dealership in California. The DMV and CDTFA conduct them to ensure public protection, tax compliance, and ethical business practices.
| Trigger | Why It Matters |
|---|---|
| Inconsistent Reports of Sale | ROS dates not matching inventory logs = missing tax reporting |
| Customer Complaints | DMV investigates every verified consumer complaint |
| Plate Misuse | Cited or reported dealer-plate violations trigger site audits |
| Unpaid Sales Tax | CDTFA flags late filings or unpaid balances |
| Advertising Violations | False or misleading ads often lead to compliance inspections |
| Bond Claims or Lawsuits | Automatically notifies DMV to review your license file |
You'll receive a letter or email stating audit date and scope.
Gather the past 4 years of deal jackets, ROS, invoices, and tax returns.
Inspector reviews your office, signage, records, and dealer plate logs.
Auditor summarizes findings and notes corrections required.
If issues are found, you receive a Notice of Correction or Investigation Notice.
Pro Tip: Use a monthly self-audit sheet to check your records against DMV requirements — this shows good-faith effort if you're ever audited.
| Violation | Description | Possible Penalty |
|---|---|---|
| Unreported Sales Tax | Vehicle sales not included in CDTFA filing | Tax assessment + penalties + interest |
| Improper Plate Use | Personal use or loaning plates | $500 fine + license suspension |
| False Advertising | Misleading pricing or "no credit refused" ads | $1,000 fine + mandatory compliance course |
| Failure to Maintain Records | Missing deal jackets or titles | Written warning or audit hold |
| Incomplete ROS or Title Paperwork | Delayed registration submissions | DMV penalties per vehicle |
| Bond or Insurance Lapse | Coverage expired without notice | Immediate license suspension |
| Odometer Fraud or VIN Tampering | Willful misrepresentation of mileage or identity | Criminal charges + license revocation |
If the DMV issues a Notice of Correction or Hold:
Never ignore audit letters. Non-response is viewed as non-compliance and can escalate to license revocation.
Pro Tip: Most investigations stem from complaints that could have been avoided with clear communication and documented agreements.
Do not ignore DMV or law enforcement correspondence.
Keep copies of emails, letters, and inspection notes.
Submit information exactly as it exists — alterations appear deceptive.
Consult your compliance partner or legal counsel before responding to complex requests.
Demonstrating transparency can lead to warnings rather than penalties.
Download the full template → /playbook/resources/
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Audits and investigations don't have to be stressful if you're prepared. Staying organized, accurate, and proactive is the best defense against violations and license risk.
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