Did California's interstate rail-freight-car exemption cover repair or replacement parts installed before the cars entered the state?

Plain-English summary

Section 6368.5 exempted rail freight cars for use in interstate or foreign commerce but did not expressly mention their component parts. The memorandum applied the reasoning of an aircraft case to distinguish parts by their status when they entered California.

Repair, replacement, or additional parts installed outside California before the freight car entered the state were treated as part of the rail freight car and received the exemption. Parts brought into California before installation did not; tax applied to those parts.

Counsel reached that line by reading the case phrase “to be installed at some future date” as modifying replacement parts, repair parts, and additional items. He described this as an existing aircraft practice that staff should continue and extend to freight cars, not as an express rail-car-parts provision.

The August 28 request, identified cars and parts, purchase and installation evidence, entry and interstate-use records, tax calculation, and any applied outcome are absent. The live annotation states the bottom line but omits the statutory contrast, administrative-practice provenance, and analogical posture.

Common questions

Did section 6368.5 expressly exempt repair parts?

No according to the memorandum. It exempted rail freight cars for interstate or foreign commerce, unlike section 6368's express reference to property becoming a watercraft component.

Why did outside-installed parts receive the freight-car exemption?

Counsel analogized to Pan American, where required items installed before an aircraft arrived had already become integral to the exempt aircraft rather than remaining parts for later installation.

Why were uninstalled parts taxable?

Parts entering California as parts had not yet become part of a rail freight car. The memorandum said tax applied even if installation occurred later.

Did the source apply the rule to a real car or part?

No car, part, price, installation date or location, entry record, interstate-use proof, tax amount, audit, assessment, claim, appeal, or later outcome is supplied.

Citations and references

• California Revenue and Taxation Code sections 6368.5 and 6368 — cited and contrasted for rail cars, watercraft, and component parts; complete authorities, requirements, proof rules, amendments, later history, and current law not supplied
• Pan American World Airways, Inc. v. State Board of Equalization, 131 Cal.App.2d 638 — quoted and extended by analogy; opinion, complete facts and holding, C.A.A. rules, procedural history, later treatment, and analogy limits not supplied
• August 28 request and August 30 guidance — no request, car, part, transaction, use, tax, audit, assessment, claim, appeal, or later outcome records supplied
• Official Annotation 325.0100.500's historical conclusion and date — omits provenance, statutory contrast, practice history, analogical posture, missing records, applied outcome, and reliance status and supplies no additional rail-car record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0100.500
• Original supporting opinion: 325.0100.500 PDF

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82
Telephone: 445-3723

Memorandum
325.0100.500

To :

Mr. Glenn A. Bystrom
Deputy Director
Sales and Use Tax Department
MIC:43

From :

Gary J. Jugum
Assistant Chief Counsel

Subject:

Rail Car Parts

Date:

August 30, 1996

This is in response to your memorandum of August 28, 1996.
Your inquiry concerns Revenue and Taxation Code section 6368.5, which provides an exemption for “rail freight cars for use in interstate or foreign commerce.” Unlike Revenue and Taxation Code section 6368, which provides an exemption for watercraft and “property becoming a component part” of a watercraft, there is no express reference in section 6368.5 to parts. However, under Pan American World Airways, Inc. v. State Board of Equalization (1955) 131 Cal.App.2d 638, parts installed outside this state necessary to qualify the aircraft for a certificate of airworthiness are considered to be subject to the aircraft exemption, when the aircraft is brought into this state. It is our understanding that we have extended this concept to replacement parts, repair parts, and additional items provided that the items are installed outside this state before the aircraft is brought into this state. This is consistent with the language of the Pan American decision, as follows: “These items at the time the planes arrived at San Francisco Municipal Airport had become an integral part of an ‘aircraft,’ which under C.A.A. regulations would have been incomplete without them. They were not replacement parts, repair parts nor additional items to be installed at some future date.”

Mr. Glenn A. Bystrom

-2-

August 30, 1996
325.0100.500

We have interpreted the words “to be installed at some future date” used in the last quoted sentence above to modify “replacement parts,” “repair parts,” and “additional items”. We should continue to do so in the future. Thus, tax would apply to repair parts brought into California prior to installation but not to parts previously installed outside this state.

GJJ:sr
cc:

Mr. Dennis Fox - MIC:92
Mr. Vic Anderson - MIC:38
Mr. Brian Manuel - MIC:40
Ms. Sharon Jarvis - MIC:82