Did an aircraft's 90-day out-of-state period also protect modifications installed later outside California from use tax?

Plain-English summary

The owner acquired and first used an aircraft outside California, then later had exterior refurbishment and interior modifications performed outside the state. The letter agreed that Regulation 1620, rather than the common-carrier rules in Regulation 1593, governed whether the aircraft and modifications were purchased for California use.

The aircraft and the later modifications had separate test periods. More than 90 days of qualifying out-of-state use before the aircraft's first California entry could make the aircraft nontaxable. But if the modifications were installed after 50 days and the modified aircraft entered California 50 days later, the modifications entered within 90 days of their purchase and were presumed taxable even though the aircraft itself was not.

That modification presumption could still be overcome if the modified aircraft was used or stored outside California at least half the six months after the modifications' first California entry.

The client was not identified. Counsel therefore said the letter did not qualify for section 6596 reliance relief, which counsel described as requiring a written request that disclosed all facts and party identities. The April 19 request, its expressly omitted footnote, aircraft and modification records, prices, tax calculation, applied exemption decision, and later outcome are absent.

The live annotation publishes the separate-test analysis and numeric example but omits the section 6596 no-reliance conclusion, claimed section 1031 exchange, registration and residence facts, omitted footnote, Regulation 1593 and common-carrier discussion, correspondence provenance, and missing records.

Common questions

Why were the aircraft and modifications tested separately?

The modifications were not part of the aircraft acquisition and were planned later. Counsel therefore measured the aircraft's out-of-state use before its first California entry separately from the modifications' out-of-state use before the modified aircraft first entered California.

What did the letter's 100-day and 50-day example show?

An aircraft used outside California for 100 days before first entry could avoid use tax, while modifications installed after day 50 and entering with the aircraft 50 days later would enter within their own 90-day period and be presumed purchased for California use. The modification presumption could be overcome under the stated six-month half-time-outside-California test.

Did shipment time count toward the out-of-state period?

No. Counsel's conditional agreement required more than 90 days of outside-California use before first entry, excluding shipment time and storage-for-shipment time.

Why did counsel discuss the common-carrier regulation?

Regulation 1593 mattered only if the aircraft was first regarded as purchased for California use and the purchaser then claimed a common-carrier exemption under sections 6366 or 6366.1. The adviser said the client was not claiming that exemption, and counsel agreed Regulation 1620 governed the purchase-for-use question.

Could the unidentified client rely on the opinion under section 6596?

No. Counsel said the client's withheld identity placed the letter outside section 6596. The official PDF also lacks the request, transaction documents, flight records, and any applied tax outcome.

Citations and references

• California Revenue and Taxation Code section 6596 — described for written-opinion reliance relief; complete text, conditions, procedures, amendments, later history, and current law not supplied, and counsel found it unavailable because the client was unidentified
• Internal Revenue Code section 1031 — invoked for the claimed tax-free exchange; complete text, exchange records, federal treatment, conditions, amendments, later history, and current law not supplied or decided
• California Sales and Use Tax Regulation 1620(b)(3) — applied separately to the aircraft and modifications; complete text, presumptions, definitions, evidence rules, procedures, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1593(b) and Revenue and Taxation Code sections 6366 and 6366.1 — discussed for a common-carrier exemption the client was not claiming; complete authorities, conditions, procedures, amendments, later history, and current law not supplied
• April 19 request and July 9, 1996 response — no request, omitted footnote, client identity, transaction and aircraft records, prices, tax amount, applied finding, claim, appeal, or later outcome supplied
• Official Annotation 325.0002.200's separate-test analysis, example, alternative, and date — omits the no-reliance conclusion, exchange and registration facts, omitted footnote, common-carrier analysis, named counsel, missing records, later outcome, and reliance status and supplies no additional aircraft record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0002.200
• Original supporting opinion: 325.0002.200 PDF

Original ruling text

325.0002.200

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 324-2655
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento
___

July 9, 1996

E. L. SORENSEN, JR.
Executive Director

Mr. M--- J. K----- --- LLP
XXX --- Street
--- ---, CA XXXXX
Re:

Unidentified taxpayer

Dear Mr. K---y:
This is in response to your letter of April 19, 1996, in which you request a “ruling” regarding the application of use tax to the purchase of an aircraft by your unidentified client. The only basis for relief for a person relying on a written opinion from the Board is when that opinion is in response to a written request for advice that discloses all facts, including the identities of the parties. (Rev. & Tax. Code § 6596.) Since you have not identified your client, this letter does not come within the provisions of section 6596. You state: “Our client, who is a California resident for income tax purposes, recently acquired a used aircraft by means of a tax free exchange as provided by Internal Revenue Code Section 1031. The aircraft will be used for both personal and business purposes. Passage of title and delivery of the aircraft to the client occurred in a state other than California. Federal Aviation Administration registration will indicate that the aircraft is based outside California. In addition, the aircraft will be hangared in a state other than California. It should be noted that the client also maintains residences in states other [than] California. “The client has already made the first functional use of the aircraft at a location outside California. Sometime in the very near future, the aircraft will undergo exterior refurbishment and interior modifications (hereinafter ‘modifications’) in a state other than California. (Footnote omitted.) The modifications were not a part of the acquisition of the aircraft. It is anticipated that the modifications will take up to six weeks to complete. Once completed, the aircraft will be flown to

Mr. M--- J. K---

-2-

July 9, 1996
325.0002.200

various points within and without the United States. In the course of its travels, the aircraft will likely enter California. However, it is anticipated that the aircraft will not enter the State within the first 90 days after the client’s acquisition and first functional use of the aircraft outside the State. It is anticipated that the aircraft will always be hangared outside the State. However, the client may eventually hangar the aircraft at an airport located in California.” You cite subdivision (b)(3) of Regulation 1620 which explains when a person is regarded as purchasing property for use in California. You note that subdivision (b) of Regulation 1593 excludes certain uses (such as modification and repair) from the term “operational use” for purposes of the common carrier exemption. You believe, however, that Regulation 1593 does not apply to the situation you pose since your client is not claiming an exemption for common carrier use under Revenue and Taxation Code section 6366 or 6366.1. We agree. The provisions of Regulation 1620 govern whether the purchaser is regarded as having purchased the aircraft for use in California. Only if the aircraft were regarded as purchased for use in California would the provisions of Regulation 1593 be relevant to the determination of whether the purchaser owed use tax. Furthermore, even if the aircraft is purchased for use in California, the provisions of Regulation 1593 are relevant only if the purchaser is claiming exemption from the otherwise applicable use tax based on common carrier use. You believe that under the provisions of Regulation 1620, if the aircraft does not enter California prior to the purchase of the modifications and does not enter California within 90 days of the purchase (and first functional use) of the modifications, California use tax will not apply to either the purchase of the aircraft or the purchase of the modifications. We agree with this statement, provided the aircraft and the modifications are used outside California for more than 90 days prior to their first entry into California, excluding time of shipment and time of storage for shipment to California. You recognize that the test period applicable to the modifications is a separate period from that for the aircraft. That is, if the aircraft is used outside California for 100 days prior to its first entry into California, use tax will not apply to its use in this state. If modifications are performed after 50 days of use outside California, and then the aircraft, with those modifications, enters California 50 days later, the modifications will be presumed to have been purchased for use in California, since they entered within 90 days of purchase, even though the aircraft will not be regarded as having been purchased for use in this state. Thus, use tax will apply to the purchase price of the modifications unless the modifications (i.e., the modified aircraft) is used or stored outside California one-half or more of the time during the six-month period immediately following the first entry of those modifications into California (i.e., date that the aircraft with the modifications first entered the state).

Mr. M--- J. K---

-3-

If you have further questions, please do not hesitate to write again. Yours very truly,

Anthony I. Picciano
Tax Counsel
AIP:cl

cc:

San Francisco District Administrator

July 9, 1996
325.0002.200