Did time spent refurbishing an aircraft in Florida count as out-of-state use or storage under California's six-month test?

Plain-English summary

The aircraft was delivered outside California, first flown with a passenger from an out-of-state point, entered California seven days after purchase, and then went to Florida for about three months of major refurbishment. Its first functional use occurred outside California, but early entry created a California-use presumption.

Florida refurbishment counted as out-of-state storage or use. If that time plus other out-of-state activity equaled at least half the six months after the aircraft's California entry, no use tax was due on the aircraft.

A jet engine bought at the same time had its own analysis. More than 90 days of qualifying out-of-state repair and attachment before California entry could establish that it was not bought for California use, but shipment time and storage for shipment did not count. If it entered sooner, the engine's own six-month test remained available.

The dates were specific but the results remained prospective. The resident accepted outside delivery and title to the Gulfstream III on January 5, 1995, flew it into California with a passenger on January 12, and delivered it to a Florida company on February 5 for refurbishment then expected to take about three months. The relevant aircraft six-month period ran from January 12 through July 12.

The separate engine was bought January 5 while located in Canada. The request anticipated about two months of maintenance, shipment to Florida, and attachment to the aircraft, and asked whether entry after April 5 would avoid tax. Counsel said the actual repair and attachment duration was unclear and made no final factual finding that the 90-day threshold was met.

Counsel regarded the engine's outside-state purchase as clear and inferred the aircraft's outside-state purchase from its California entry chronology. The letter supplies no purchase price, agreement, invoice, payment, title or delivery proof, passenger or flight log, refurbishment or repair record, engine attachment, shipment, actual entry, six-month allocation, tax computation, or later outcome.

The live annotation says the engine underwent maintenance, although the supporting request described anticipated work. It also adds 2006–1 and 2008–1 amendment markers and a temporary October 2, 2004 through June 30, 2007 twelve-month presumption note without supplying those later texts.

Common questions

Why was the aircraft's first functional use outside California?

It entered California carrying a passenger. Counsel treated the flight with that passenger as beginning outside California and therefore as the aircraft's first designed transportation use.

Why did California entry seven days after purchase matter?

Entry within 90 days triggered the presumption that the aircraft was bought for California use even though its first functional use occurred elsewhere.

How could the aircraft rebut that presumption?

By being used or stored outside California at least one-half of the six months beginning January 12, 1995. Florida refurbishment counted toward that outside-state time.

Did the same timeline govern the separate engine?

No. Qualifying outside-state repairs and attachment lasting beyond 90 days before California entry could show non-California purchase intent, but shipment and storage-for-shipment time were excluded. If that test failed, the engine could still use its own half-of-six-month analysis after entry.

Did counsel confirm entry after April 5 was enough by itself?

No. The letter required more than 90 days of qualifying outside-state use, excluding shipment and shipment-storage time, and said the actual repair and attachment duration was unclear.

Are the later amendment rules supplied?

No. The live annotation identifies 2006–1 and 2008–1 and summarizes a temporary 2004–2007 twelve-month rule, but the supporting PDF contains none of those later texts.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6007 — cited for sales tax and retail-sale status; complete authorities, exemptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6201 and 6401 and Regulation 1620 — cited for use tax on outside-state purchases; complete authorities, measures, exceptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6246 and Regulation 1620(b)(3) — cited for functional use, entry presumptions, 90-day and six-month tests, and shipment exclusions; complete authorities, proof and counting rules, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6008 and 6009 — quoted for storage and use; complete authorities, exceptions, amendments, later history, and current law not supplied
• February 15 request and May 15 response — no underlying purchase, flight, work, shipment, entry, allocation, tax, audit, assessment, claim, appeal, or later-outcome records supplied
• Official Annotation 325.0165's historical summary, date and later-rule markers — hardens anticipated maintenance and supplies no amendment or temporary-rule text, transaction record, applied outcome, or reliance status

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0165
• Original supporting opinion: 325.0165 PDF

Original ruling text

325.0165

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 322-2976
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

May 15, 1995

KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. T--- L. P--Law Offices of A---, P--- & A--XXX South --- Street, Suite XXX
--- ---, CA XXXXX-XXXX
Re:

J--- R---

Dear Mr. P---:
This is in response to your letter dated February 15, 1995 regarding the application of tax to your client's use of an aircraft he purchased. You state: "J--- R--- (R---') is a California resident. On January 5, 1995, R--- accepted delivery of and took title to a Grumman Gulfstream III, -XXXXX (the aircraft'). The aircraft (carrying a passenger) was first flown into California on January 12, 1995. On February 5, 1995, the aircraft was delivered to a company in Florida to complete a major refurbishing of the aircraft. It is anticipated that it will take three months to complete the refurbishment. At the time the aircraft was purchased, a jet engine (jet engine') was also purchased. At the time of the purchase, the jet engine was located in Canada where it is anticipated it will undergo maintenance which will take approximately two months. After the maintenance is complete, the jet engine will be shipped to Florida and attached to the aircraft." You state that R--- wishes for us to "rule that the refurbishment of the aircraft in Florida will be consideredused or stored outside of California' for purposes of Regulation 1620(b)(3) so that if the time it takes to refurbish the aircraft, aggregated [with] other out of state uses, equals or exceeds three months during the six-month period ending July 12, 1995, then no California sales or use tax will apply to the aircraft." You explain that R--- also wants us to confirm that "no California sales or use tax will apply to the jet engine if it does not enter California until after April 5, 1995."

Mr. T--- L. P---

-2-

May 15, 1995
325.0165

DISCUSSION
Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) When sales tax does not apply, such as when sales take place outside of California, the use tax, measured by the sales price of the property sold, applies to the use of property purchased from a retailer for storage, use, or other consumption in California. (Rev. & Tax. Code §§ 6201, 6401, Reg. 1620.) It is clear from the facts you provide that the jet engine was purchased outside this state. From your statements regarding when the aircraft entered California, it appears that the aircraft was also purchased outside this state. Since the sales took place outside of California, the sales tax does not apply, but if the property was purchased for use in this state, R--- owes use tax measured by the purchase price of the property unless the use is exempt from tax. Property purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the property (use for which the property is designed) is in California. (Reg. 1620(b)(3).) You state that when the aircraft entered California, it was already carrying a passenger. Thus, its first functional use took place outside of California at the place where the aircraft's flight with the passenger aboard commenced. Revenue and Taxation Code section 6246 provides a presumption that tangible personal property shipped or brought into this state by a purchaser was purchased for use in this state. Thus, when the purchaser uses property in California, it is presumed to have been purchased for use in this state even if the property has been first functionally used outside of California. As explained in Regulation 1620(b)(3), property is presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, unless the property is used or stored outside of California one-half or more of the time during the six-month period immediately following its entry into California. Since the aircraft was brought into California seven days after its purchase, it will be presumed to have been purchased for use in this state unless it is used or stored outside of California one-half or more of the six-month period beginning with January 12, 1995, the day the aircraft entered this state. You indicate that on February 5, 1995, the aircraft was delivered to a company in Florida in order to undergo refurbishment expected to last approximately three months. You ask whether the refurbishment taking place in Florida is considered to be a storage or use outside of California. "Storage" includes any keeping or retaining for any purpose except sale in the regular course of business. (Rev. & Tax. Code § 6008.) "Use" includes the exercise of any right or power over tangible personal property incident to the ownership of that property, except for the sale of that property in the regular course of business. (Rev. & Tax. Code § 6009.) The

Mr. T--- L. P---

-3-

May 15, 1995
325.0165

refurbishment of the aircraft in Florida would therefore be considered storage or use outside of California. If the time for refurbishment, added to any other storage and/or use taking place outside of California, equals or exceeds one-half of the six-month period beginning January 12, 1995, no California use tax will be due on the purchase price of the aircraft. You state that the jet engine, purchased on January 5, 1995, was purchased in Canada and was expected to remain there for approximately two months while undergoing repairs. After completion of repairs, the jet engine was scheduled to be shipped to Florida to be attached to the aircraft. It is unclear how much time the repairs and attachment actually took. If the jet engine was not brought into this state within 90 days of its purchase and did not enter California until after April 5, 1995, then prior out-of-state use, such as the scheduled repairs and attachment, in excess of 90 days from the date of purchase to the date of entry into California, exclusive of any time of shipment to California or time of storage for shipment to California, will be accepted as proof of an intent that the jet engine was not purchased for use in this state. (See Reg. 1620(b)(3).) If it was not purchased for use in this state, no California use tax will apply with respect to the purchase of the jet engine. On the other hand, time during which the jet engine was being shipped to California or was being stored for shipment to California does not count toward the prior out-of-state use in excess of 90 days that will be accepted as proof of intent that the jet engine was not purchased for use in California. (See Reg. 1620(b)(3).) If prior out-of-state use, excluding time for shipment to California or time during which the jet engine was stored for shipment to California, does not exceed 90 days from the date of purchase to the date of entry into this state, R--- will owe California use tax measured by the sales price of the jet engine unless it is used outside of California one-half or more of the six-month period immediately following its first entry into California. If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel

KWC:cl
cc:

--- District Administrator