When did a local aircraft dealer become a seller rather than merely help a buyer purchase from an out-of-state dealer?

Plain-English summary

The memorandum analyzed four ways an out-of-state aircraft dealer and a local dealer could participate in a California purchase.

First, when the out-of-state dealer brought an airplane to California without a prior enforceable contract, allowed inspection, and executed the sale and bill of sale here, that dealer made a California retail sale. The source said sales tax applied and the buyer was exempt from use tax under section 6401.

Second, a local dealer that merely found a willing out-of-state seller or helped the buyer inspect the airplane did not make the sale. The out-of-state dealer remained the seller when it brought the airplane to California and completed the transaction.

Third, the local dealer became liable when it executed a conditional sales contract as seller, discounted the contract to a bank with recourse, paid the out-of-state dealer, kept the excess as commission, and sometimes took the buyer's trade-in. Those facts indicated that the local dealer took title and resold the airplane, even if its commercial purpose was to help arrange financing.

Fourth, when an airplane was left with a local dealer but a bank held title-transfer power, the answer varied. If the out-of-state dealer was not engaged in business in California, local delivery on its behalf made the local dealer liable under the cited second paragraph of section 6007. If the out-of-state dealer was engaged in business here, the memorandum treated it as the seller; a local dealer that only showed the airplane was not a seller, while one that entered a conditional sales contract could be treated as a seller alongside the out-of-state dealer.

The source called this a developing position intended to reduce inconsistent audits and acknowledged that more precise ground rules might follow.

Common questions

Did helping a buyer locate or inspect an airplane make the local dealer the seller?

No. Assistance alone was not enough without a sale or delegated power of sale.

Why did financing activity change the third scenario?

Executing the contract as seller, taking bank recourse, paying the original dealer, and accepting a trade-in indicated that the local dealer took title and resold the aircraft.

Was every fourth-scenario local dealer liable?

No. Liability depended on the out-of-state dealer's California business status and whether the local dealer merely showed and delivered the plane or also entered the sales contract.

Citations and references

• California Revenue and Taxation Code sections 6401, 6015(a), 6007, and 6352 (as cited)
• California Sales and Use Tax Regulation 1567 (later source note)
• U.S. Constitution Due Process Clause (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/185-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/185-0100.pdf

Original ruling text

State of California

Memorandum

To:

Fresno – District Administrator

From:

Tax Counsel (JHK) - Headquarters

Subject:

Interstate Sales of Aircraft

Board of Equalization

185.0100

March 29, 1965

Mr. E. H. Stetson referred your letter of March 10, 1965, to me since I have had some background on the problems involved. He is in agreement with the content and recommendations of this letter. Your letter described four situations concerning an out-of-state airplane dealer who makes sales in California. In the first situation the California buyer makes arrangements for the dealer to bring the airplane to California, and if the airplane is as represented, he agrees to purchase it. The dealer brings the aircraft to California, and after inspection, sells it to the California buyer, executing a bill of sale. In this situation there is no enforceable contract prior to bringing the airplane into California. The bill of sale is executed here; the buyer and seller are both present in the state. There can be no doubt that the sales tax applies to the retailer and the purchaser is exempted from use tax under §6401. The dealer is engaged in the business of selling airplanes; therefore, the first sale of an airplane in California is subject to sales tax, because he is a retailer under
§ 6015(a). The sale did not occur in interstate commerce and the seller was physically present in the state, satisfying the due process clause, so no constitutional limitation is involved. In the second situation a local aircraft dealer aids the local buyer in finding an airplane for sale from an out-of-state dealer. However, the out-of-state dealer again flies the airplane to California and sells the airplane to the buyer in California. Again, the out-of-state dealer is subject to sales tax. The local dealer has not made the sale or executed a power of sale given to him by the owner of the airplane. In the third situation the local dealer is more involved with the sale in that he aids the parties to obtain financing by executing a conditional sales contract for the buyer, discounting

Fresno – District Administrator

-2-

March 29, 1965
185.0100

the contract to the local bank with recourse, and pays the dealer for the airplane, keeping the excess for his commission. At times the local dealer retains the buyer’s trade-in. We believe in this case the local dealer is subject to sales tax. While he may have only aided the parties in obtaining financing, he has done it in a manner that is subject to sales tax. In order to sell goods under a conditional sales contract, the local dealer must have obtained title to the airplane. The fact the local bank has recourse against him and that he has taken a trade-in also tend to establish that he has taken title to the airplane and sold it to the local buyer. In the fourth situation the airplane is left with the local dealer to sell. However the dealer does not have title or power to transfer title to the airplane. Rather, a local bank is given this power. At times the customer pays in cash, and at times he enters a conditional sales contract with the local dealer. Here, several results are possible. If the out-of-state dealer is not engaged in business in California, then the provisions of § 6007, paragraph 2, are met, and delivery by the local dealer on behalf of the out-of-state dealer makes the local dealer subject to sales tax. If the out-of-state dealer is engaged in business, we believe he is subject to tax as the seller even though the bank passes title to the airplane. Banks are exempt from sales tax under § 6352 because federal law forbids it. Otherwise, it, too, would be liable. If the local dealer only shows the airplane and does not enter into a conditional sales contract with the buyer, he cannot be considered as selling the airplane. If he does enter a contract, he should be considered the seller along with the out-of-state dealer. Banks now subject to sales tax; see Reg. 1567. DJH As we indicated above, an out-of-state dealer is in the business of selling airplanes and is subject to sales tax upon the first California sale. The number of times he does it within a twelve-month period is not important. The local customer, of course, cannot be held for sales or use tax in this situation. We can see there are difficult audit problems in this area. Our position respecting the execution of a conditional sales contract has not been consistent in the past. The position of this letter is an attempt to alleviate the audit problem and to reduce the avoidance of sales tax. The board is presently considering the analogous problem of yacht brokers who enter conditional sales contracts and they will probably toake the position that this is sufficient to make them liable for the tax. When the preliminary hearing on the taxpayer involved is held, it may be possible to establish further ground rules. We are uncertain at present of the information contained on the FAA bill of sale. It may be this will establish whether the out-of-state dealer or the local dealer should be held accountable for sales tax in any particular situation.

JHK:ls

cc:

Mr. E. H. Stetson
Mr. Robert H. Anderson