Was a dealer's use of an inventory vehicle or boat in a race a nontaxable demonstration?

Plain-English summary

California said a dealer could use an automobile or boat from resale inventory in a race without tax when the sole purpose was to demonstrate the item's capabilities and thereby aid its ultimate sale. The correspondence cited prior examples involving boat racing and a sports car in a drag-strip race.

If the vehicle entered the race for any purpose other than demonstrating capabilities for sale, the use could not be treated as exempt demonstration or display.

Common questions

Did every amateur race qualify as demonstration?

No.

What purpose had to be shown?

The sole purpose had to be demonstrating the item's capabilities to aid its ultimate sale.

Did the correspondence conclude that the taxpayer before it qualified?

No. It said the contrary conclusion might well be correct for that taxpayer while clarifying the broader rule.

Citations and references

• The supporting correspondence states no statutory or regulatory citation for its demonstration-and-display rule.
• June 19, 1958 taxpayer letter — automobile withdrawal for an amateur race; copy not reproduced in the official PDF
• Prior Board letters — sole-purpose race demonstrations; dates, recipients, identifiers, and copies not supplied in the official PDF
• Unnamed boat retailer and sports-car dealer arguments — race and drag-strip examples described; underlying requests and records not supplied in the official PDF
• Next Index and Digest — publication of the prior letters promised; issue and publication record not supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/215-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/215-0440.pdf

Original ruling text

STATE BOARD OF EQUALIZATION
OFFICE CORRESPONDENCE

215.0440
Sacramento
August 22, 1958

To:

Los Angeles – Review (PER)

From:

Headquarters – Sales Tax Counsel

Re:

R--- P--W--- W--- A--- I---, Inc.
XXXX --- ----- ---, California

-- - XXXXX

Under the date of June 19 you wrote a letter to the above named, stating that the withdrawal from stock of an automobile for the purpose of entering it in an amateur auto race could not be considered to be a nontaxable withdrawal on the theory that the use was within demonstration and display. That may well be true in Mr. P---’s case. We have, however, written letters to the effect that if the sole purpose of entering a vehicle in a race is to demonstrate its capabilities, such use may be regarded as falling within the scope of demonstration or display. Possibly none of these letters were written to taxpayers in your district. We shall see to it that they come out in the next issue of the Index and Digest. This question originally arose in connection with a retailer of boats in the E district. He insisted that it was essential to selling boats that he enter them in races to demonstrate their capabilities. The same argument was made by a motor car dealer in some other district with respect to entering a sports car in a drag-strip race. Of course, the entering of a car in a race for any purpose other than to demonstrate its capabilities, thus aiding its ultimate sale, cannot be regarded as an exempt use. E. H. Stetson

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