Did California use tax apply when a cruise company bought an out-of-state vessel, chartered it back for 91 days of out-of-state use, and then brought it here?

Plain-English summary

A California cruise company planned to buy a 200-foot vessel from an out-of-state builder, then bareboat-charter it back to the builder for more than 90 days. The vessel would host social events and possible revenue charters outside California before coming here for the company's cruise business.

Section 6246 presumed that property brought here by its purchaser had been bought for California use. Regulation 1620(b)(3), as then written, accepted more than 90 days of prior out-of-state use as proof of a different purchase intent.

Because the shipbuilder-lessee would use the vessel outside California for 91 days, the opinion concluded that the purchase was not subject to California use tax. The client's anonymity meant the opinion did not qualify for section 6596 reliance relief.

The proposed timeline began with a September 7 launch, included two to five social events during the next 40 to 45 days and a mid-October move to another state, and ended the bareboat charter on or after December 7 before California entry. The request said profit charters might or might not occur, while the free launch event was intended to develop business.

The request, contracts, title and payment, charter, events, revenue, voyage and entry records, tax computation, and later outcome are absent. The live annotation adds that the vessel was mobile transportation equipment and attributes lessee use to the lessor, neither of which appears in the supporting letter, and adds later amendment markers and a temporary twelve-month note without source texts.

Common questions

What outside-state activity counted in the proposed 91 days?

The shipbuilder would possess the vessel under a bareboat charter, host a free launching party, hold two to five underway or dockside social events, possibly conduct profit charters, and move the vessel to a second state before the charter expired.

Did the cruise company receive value during the leaseback?

The proposed agreement gave it a portion of revenue generated by either party's use or rental during the charter. No agreement, revenue amount, event contract, or accounting record is supplied.

What happened after the charter?

On or after December 7, the vessel would sail to California and immediately enter the cruise company's underway and dockside social-event business, most likely remaining here indefinitely.

Why did counsel find no California use tax?

The letter applied the then-existing rule accepting more than 90 days of prior outside-state use as proof that the property was not bought for California use and assumed 91 days of lessee use before entry.

Did the supporting letter analyze mobile transportation equipment attribution?

No. That characterization and attribution of builder-lessee use to the cruise-company lessor appear only in the live annotation. No cited regulation or supporting source for the added analysis is supplied there.

Could the cruise company rely on this letter for relief?

No under counsel's section 6596 statement because the client was not identified. The source supplies no later identified request or reliance determination.

What later rules appear only in the live annotation?

It marks amendments “2006–1” and “2008–1” and notes a conditional twelve-month presumption from October 2, 2004 through June 30, 2007 under Regulation 1620(b)(5). Those texts and their effect are absent.

Citations and references

• California Revenue and Taxation Code section 6246 and Regulation 1620(b)(3) — cited for California-use intent and more-than-90-day outside use; complete authorities, functional-use and proof rules, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6596 — cited to deny reliance because the client was unidentified; complete authority, every condition, procedures, amendments, later history, and current law not supplied
• August 2 request and August 30 response — no request, contracts, identity, transaction, event, voyage, tax, audit, assessment, claim, appeal, or later outcome records supplied
• Official Annotation 325.0082's MTE attribution, amendment markers, temporary-law note, and historical summary — adds analysis absent from the letter, supplies no later texts, and omits the reliance refusal, event uncertainty, missing records, later outcome, and limits

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/325-0082.pdf

Original ruling text

325.0082

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-6450

August 30, 1991

This is in reply to your August 2, 1991 letter regarding the application of use tax to the use in California of a vessel under the following facts you described: “We represent a California-based company (the 'cruise company') whose primary business is chartering vessels for social and entertainment events in California waters. The cruise company's vessels are chartered for events which take place both underway and dockside. “The cruise company wishes soon to purchase a 200-foot-long vessel to be constructed by a shipbuilder out of state. The vessel is expected to be launched on September 7, 1991. The cruise company and the shipbuilder would enter on that date into a bareboat charter agreement by which the cruise company would lease the vessel to the shipbuilder for a term of more than 90 days. The agreement would call for the cruise company to receive a portion of revenues generated by its own or the shipbuilder's use or rental of the vessel during the charter period. “The shipbuilder plans to host a dockside 'launching party' aboard the vessel on September 7, 1991. This event would not generate revenues but would, it is hoped, develop future business opportunities for both the shipbuilder and the cruise company. Over the following 40 to 45 days, between two and five additional social events would be held aboard the vessel, both underway and dockside. These functions might or might not include profit-making charters. Sometime in mid-October, the vessel would sail to a second state, where it would be put to similar use. “On or after December 7, 1991, the bareboat charter agreement would expire, and the vessel would sail to California. Immediately after its arrival at the cruise company's headquarters, the vessel would be employed by the cruise company for social events in California waters, both underway and dockside. The vessel most likely would remain in California indefinitely.”

Given this information, you asked for confirmation of your opinion that the cruise company's purchase of the vessel would not he subject to California use tax. We agree with your conclusion. Revenue and Taxation Code section 6246 provides a presumption that tangible personal property which is shipped or brought to this state by the purchaser was purchased from a retailer for use in this state. However, Sales and Use Tax Regulation 1620, subdivision (b)(3), provides that prior out-of-state use in excess of 90 days from the date of purchase to the date of entry into California will be accepted as proof of an intent that the property was not purchased for use in this state. Since, under the facts you present, the vessel will be leased outside California to a lessee who will use the vessel outside California for 91 days, we conclude that, under subdivision (b)(3) of Regulation 1620, the purchase of the vessel is not subject to use tax. We note that, since you did not identify your client, this opinion is provided for general information, and your client cannot rely upon the opinion for purposes of Revenue and Taxation Code section 6596. We hope this answers your questions; however, if you need further information, feel free to write again.

Very truly yours,

Ronald L. Dick
Senior Tax Counsel

RLD:sr