Did first racing an engine outside California avoid use tax when it was installed or held on standby here and intended to return?

Plain-English summary

A California purchaser bought two race engines in Texas and received them by common carrier in California. It installed one in a race car and kept the other available as a backup. The engines were first raced in Arizona, returned to California, later raced on the East Coast, and ultimately were sold back after they failed.

Tax counsel concluded that first functional operation outside California did not control. Installation of one engine and standby service for the other were California storage or use under sections 6008 and 6009.

Section 6009.1 did not apply because the engines were not kept in California solely to transport them outside the state for use solely there. The purchaser initially intended California racing and planned to return the engines after both the Arizona and East Coast events. Use tax was therefore due on both engines.

The detailed sequence was a March 1971 trailer removal, a March 26 Phoenix race, return and storage in California, and an April 27 departure for the East Coast circuit. After both engines failed, the purchaser sold them back to the Texas seller for $5,000 rather than returning them again.

The September 15 request, transaction and movement records, purchase price, tax computation, and listed sections 6008 and 6009 pamphlet are absent. The live annotation states the central rule but omits the exact dates, $5,000 resale, request provenance, missing enclosure and records, and later tax outcome.

Common questions

Why did the first race in Arizona not decide the result?

Counsel focused on earlier California storage or use. One engine had been installed in the race car and the other held for standby service after both were delivered to California, even though neither had yet been tested or raced here.

Why was the section 6009.1 exclusion unavailable?

The described purpose was not merely to keep the engines here before transporting them away for use solely outside California. The purchaser initially intended California racing and planned to bring them back after the Phoenix race and again after the East Coast circuit.

Did keeping the backup engine unused avoid tax?

No under the letter. Counsel expressly treated standby service as “use” within section 6009, even though the source does not describe the backup engine being raced before failure.

What happened after the out-of-state races?

The engines were returned to California after Phoenix, later taken east, and failed on the racing circuit. The purchaser then sold them back to the Texas vendor for $5,000 instead of returning them to California.

What records are missing?

The official PDF does not reproduce the request, purchase and delivery papers, installation or standby evidence, movement and race logs, storage records, failure and resale documents, purchase price, tax computation, or the enclosed statutory pamphlet.

Is there a final audit or appeal result?

No. The letter says use tax was properly due but supplies no return, payment, audit, assessment, refund claim, appeal, Board action, or later outcome.

Citations and references

• California Revenue and Taxation Code sections 6008 and 6009 — cited for storage and use, including standby service; complete authorities, definitions, exceptions, procedures, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6009.1 — partly described and held unavailable because solely outside use was not the initial purpose; complete authority, every condition, procedures, amendments, later history, and current law not supplied
• September 15 request, listed statutory pamphlet, and September 27 response — no request, enclosure, transaction or movement records, tax computation, audit, assessment, claim, appeal, or later outcome supplied
• Official Annotation 325.0013's historical analysis and date — omits provenance, exact dates, price, enclosure, missing records, later outcome, and reliance status and supplies no additional engine record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/325-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0013.pdf

Original ruling text

325.0013

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

September 27, 1971

S--- - D--- P---, Inc.
XXXX --- Drive
---, CA XXXXX

Attention:

Mr. F--- W. M--Controller

Dear Mr. M---:
SR -- XX XXXXXX
This is in regard to your letter of September 15, 1971 concerning the taxability of two race engines that you purchased from [A---] in ---, Texas, in the early part of 1971. It is our understanding that these engines were delivered to you in California via a common carrier. Thereafter, you installed one of the engines in your race car and held the other one as a back-up engine, i.e., standby service. Although it was your initial intent that the car and engine be raced in California, these engines were never tested or raced in the State because of the circumstances related below. After attaching the engine to the auto chassis, you removed both engines from the State of California via a trailer in March of 1971 and raced the car in Phoenix, Arizona on March 26, 1971. After this race the engines were returned to California where they were stored and thereafter on April 27, 1971 they were then transported outside the State to the East where they were used in the racing circuit. Unfortunately, the engines blew up. You, in turn, sold them back to [A---] for
$5,000 instead of returning them to California.
You feel that under these circumstances that no California use tax is due on these engines. We respectively disagree with this conclusion.

S--- - D--- P---

-2-

September 27, 1971
325.0013

Where an item of tangible personal property is purchased and first stored or used in California (see Sections 6008 and 6009 for the definition of storage and use, pamphlet enclosed), the item is subject to the California use tax notwithstanding the lack of some functional use in the State unless it can possibly come within the exemption provided in Section 6009.1. Section 6009.1 provides, in part, that storage and use do not include the keeping, retaining, or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state. Since it was not your purpose upon the initial storage or use in California to merely transport it outside the state for use thereafter, i.e., it was to be returned to California after the Phoenix race and after the East Coast race, we do not believe that it can be said that such storage or use in California was only for the purpose for transporting it outside the state for use thereafter solely outside the state. In view of the foregoing, we have no alternative but to conclude that use tax was properly due on both engines. We regard standby service as a use within the definition of Section 6009. Very truly yours,

Glenn L. Rigby
Tax Counsel

GLR:lb
Enclosure