Southern California is not (yet) the old Ottoman Empire where people lived in seeming shacks with opulent interiors to keep the Sultan`s tax farmers from noticing and then squeezing them. There`s still an if-you`ve-got-it-flaunt-it attitude that`s especially visible in car purchases. Thus, the most straightforward way to tax gray market income would be through a luxury tax on car purchases. For example, besides the existing taxes, you could establish a simple incremental luxury sales tax on new and used car purchases that would be zero percent up through $10,000, then add 1 percentage point for each $10,000 of sales price over that.
Thus, a $20,000 car (e.g., a nice, big, new Ford Fusion or Hyundai Sonata, 4 cylinder, automatic transmission, power everything), would cost an extra $100 in luxury tax.
Price Tax $30,000 - $300 $40,000 - $700 $50,000 - $1200 $60,000 - $1800 $70,000 - $2,500 $80,000 - $3,300 $90,000 - $4,200 $100,000 - $5,200
Of course, cheating on this anti-cheating measure would happen — dealerships would make kickback arrangements with seemingly 3rd party shops to add $4,000 wheels, and the like. But, this seems like a pretty reasonable way to catch a little of the tax evasion that is going on at low cost to the honest and thrifty.