Did cargo containers, pallets, and nets qualify for the aircraft component-part exemption when used aboard common-carrier aircraft?

Plain-English summary

The Board's Petitions Section asked whether cargo containers, cargo pallets, and nets fit the aircraft component-part exemption added to section 6366 in 1996.

Tax counsel believed cargo containers qualified when they were designed to be secured and actually secured to qualifying common-carrier aircraft during flight. Cargo pallets could qualify on the same terms if they held cargo during flight, and the memorandum applied that analysis to nets while assuming they also contained cargo.

The source relies partly on proposed amendments to Regulation 1593 that the Board had authorized for publication shortly before the memorandum. It also explains that property bought for inventory could qualify only if purchased with intent to incorporate it and then actually incorporated into qualifying aircraft.

Citations and references

• California Revenue and Taxation Code section 6366(a)(2), added by Senate Bill 38, Statutes 1996, chapter 954 (as cited)
• Proposed California Sales and Use Tax Regulation 1593(a)(3) and (b)(2)(B) (as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/105-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/105-0065-500.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum

105.0065.500

December 2, 1997

To :

Mr. Philip Spielman
Supervisor, Petitions Section

Date:

From :

Pat Hart Jorgensen
Senior Tax Counsel

Telephone: (916) 327-2291

Subject:

CalNet 467-2291

Component Parts of Aircraft
S---, Inc.
SR -- XX-XXXXXX-001

This is in response to your memorandum of October 21, 1997 in which you question whether cargo containers, cargo pallets, and nets qualify for the exemption provided under Revenue and Taxation Code section 6366(a)(2). Revenue and Taxation Code section 6366 was amended by Senate Bill (SB) 38 (Stats, 1996 Ch. 954) to add subdivision (a)(2) which provides that, under specified circumstances, tangible personal property, purchased on or after October 1, 1996, which becomes a component part of aircraft used in common carriage under the authority of the laws of California, the United States or any foreign government shall be exempted from the imposition of California’s sales and use taxes. This subdivision further provides that in order to qualify for this exemption, the addition of the property, as a component part of the aircraft, must be “as a result of the maintenance, repair, overhaul or improvement of the aircraft in compliance with [FAA] requirements.” On Thursday, November 20, 1997, the members of the Board authorized the publication of proposed amendments to Regulation 1593, Aircraft and Aircraft Parts, formerly captioned “Aircraft,” drafted, in part, to respond to the amendments of SB 38. Of significance to your inquiry is proposed subdivision (a)(3), copy enclosed for your review. As proposed to be amended Regulation 1593 (a)(3) provides in pertinent part: “[T]he term ‘component part’ means an item incorporated by securing to the aircraft for the purpose of complying with Federal Aviation Administration (FAA) requirements, or United States military equivalent, related to the maintenance, repair, overhaul, or improvement of the aircraft which is essentially associated with the functional aspects of the aircraft including those related to safety and air worthiness.

Mr. Philip Spielman

-2-

December 2, 1997
105.0065.500

(A) Examples of property which are component parts are ... items replaced, repaired, or overhauled according to manufacturer’s service bulletins; ...cargo and baggage containers which are designed to be secured, and which are secured, to the aircraft during flight.” Proposed Regulation 1593(b)(2)(B) explains that the exemption from sales tax for component aircraft parts “applies with respect to tangible personal property purchased and placed in inventory with the intent to thereafter remove the property from inventory and incorporate it as a component part of [qualifying] aircraft...provided the property is so incorporated into qualifying aircraft.” Accordingly, we believe that the sales of cargo containers are intended to qualify for this exemption, so long as they are designed to be secured and are, in fact, secured to qualifying aircraft during flight. As for the cargo pallets, if these items are used to contain the cargo during flight and are designed to be secured and, in fact, are secured to qualifying aircraft during flight, purchases of these items will be eligible for the exemption. The same analysis applies to the nets which, we assume, are used to contain cargo during flight. PHJ/cmm Enclosure