Could an out-of-state aircraft-parts seller rely on a foreign-air-carrier sales-tax certificate for parts delivered into California?

Plain-English summary

An out-of-state company sold aircraft parts to airline common carriers in California. Because the sales occurred outside California, section 6385's sales-tax exemption did not apply; the seller had to collect use tax unless another exclusion covered the purchasers' California receipt.

Certificate F under Regulation 1621 was inadequate because it covered a sales-tax exemption and only foreign air carriers. Section 6009.1 could instead exclude qualifying California retention, installation, and direct removal when the property was thereafter used solely outside the state.

Because the seller had not timely accepted a certificate establishing a use-tax exemption in good faith, it bore the burden of proving the actual facts. Under the historical administration described in the memo, it had to show the property was used entirely outside California for at least six months after removal.

The Board also could not refuse to enforce section 6201 as unconstitutional without an appellate decision, under California Constitution article III, section 3.5.

The requested analysis came through an absent August 29 memorandum. Counsel also reviewed two memoranda and a letter from 1982 concerning a redacted corporation that had been told a blanket section 6009.1 certificate would be acceptable. Those three communications did not address the sole-outside-use requirement discussed here and are not included in the official PDF.

The memo contrasted the two historical provisions. Section 6385 covered only common-carrier purchasers and barred carrying a payload or other use before out-of-state delivery. Section 6009.1 could cover any purchaser and could allow installing an engine and flying the aircraft directly out without passengers or property, provided the aircraft did not return within six months.

The record is incomplete. The opening redacts the seller as “xx,” while a later burden-of-proof paragraph names Sundstrand and a parenthetical refers to Sundstrand prevailing in an unspecified court matter. No pleading, citation, decision, audit schedules, certificates, invoices, parts or aircraft records, tax amount, assessment, appeal, or later result is supplied. Counsel also could not confirm which of two account numbers belonged in the central file.

The live annotation adds that the out-of-state retailer was engaged in business in California and states that use tax remained due unless the seller proved section 6009.1 applied. The supporting memo does not provide the underlying nexus facts or the proof and does not record an applied audit amount or final outcome.

Common questions

Why did Certificate F not resolve the use tax?

It claimed the section 6385 sales-tax exemption for foreign air carriers. These sales occurred outside California, so the seller needed a use-tax exclusion or exemption instead.

Could section 6009.1 still apply without the right certificate?

Possibly, but the seller then carried the factual burden. The memo required proof that otherwise qualifying parts were used entirely outside California for at least six months after removal.

Did installation in California automatically defeat section 6009.1?

No under the historical example. Counsel said an engine could be installed and flown directly out without passengers or property if the aircraft did not return within six months.

Did the Board decide the foreign-commerce constitutional claim?

No. It said article III, section 3.5 prevented it from refusing to enforce section 6201 without an appellate decision holding the statute unconstitutional in the asserted way.

Was Sundstrand definitely the redacted seller?

The PDF does not expressly resolve that identity. It begins with “xx,” later assigns Sundstrand the burden of proof, and mentions an unspecified Sundstrand court matter.

Was the tax amount or final audit result supplied?

No. The official material gives the legal analysis but no audit schedules, tax measure, assessment, appeal, court result, or other applied outcome.

Citations and references

• California Revenue and Taxation Code section 6385 and Regulation 1621, including Certificates D, E and F — cited for the carrier sales-tax exemption and pre-export-use restrictions; complete authorities, certificate forms, conditions, amendments, later history, and current law not supplied
• Section 6009.1 and Regulation 1620(b)(5) — cited for the historical retention, installation, direct-removal and sole-outside-use exclusion; complete authorities, proof rules, amendments, later history, and current law not supplied
• Section 6201 and California Constitution article III, section 3.5 — cited for use tax and the Board's limit on constitutional nonenforcement; complete authorities, case law, amendments, later history, and current law not supplied
• August 29 request and three 1982 communications — not reproduced; the earlier blanket-certificate advice and its facts, scope and reliance record cannot be independently checked here
• September 26 response — supplies no invoices, certificates, delivery or aircraft records, outside-use proof, audit schedules, tax amount, assessment, appeal, litigation record, or later outcome; seller identity and account-number filing remain unresolved
• Official Annotation 325.0190 — adds engaged-in-business language and summarizes the collection and proof result without the nexus facts, prior communications, constitutional discussion, Sundstrand reference, missing records, audit amount, later outcome, or reliance status

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/325-0190.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
325.0190
To:

Mr. Jack Warner
Out-of-State District Principal Auditor

Date:

September 26, 1989

From:

David H. Levine
Tax Counsel

(916) 445-5550
ATSS 485-5550

Subject:

---.
Account No. ---

This is in response to your memorandum dated August 29, 1989. xx is an out-ofstate company that makes sales of aircraft parts to common carrier airline companies in California. As I understand these transactions, had xx’s ssales been made in California, they would have been exempt from sales tax pursuant to Section 6385. However, since these sales occurred outside California and Section 6385 exempts only transactions subject to sales tax, xx was required to collect use tax from its purchasers unless the transactions were otherwise exempt from use tax. With respect to many of these transactions, the audit has disclosed that xx accepted Certificate F under Regulation 1621. As you note, this certificate covers only an exemption from sales tax and is improper with respect to these transactions. I also note that that this certificate covers only foreign air carriers, as does subdivision (b) of Section 6385 to which the certificate refers. I assume your memorandum relates only to foreign air carrier purchasers. You have provided us copies of memoranda and a letter from 1982 written on this subject with respect to the XXX Corporation. XXX was advised that a blanket certificate of exemption under Section 6009.1 would be acceptable. One aspect that was not covered in th memoranda or letter, and which you note, is that to qualify for the exclusion provided by Section 6009.1, the property must not be delivered out of state prior to use by the purchaser (as is the case with Section 6385 exemptions), but the property must also thereafter be used solely outside the state (as you know, we apply a six-month test to ascertain whether the exclusion applies). xx contends that this represents unconstitutional interference with foreign commerce. xx believes that it is unconstitutional to place stricter requirements for exemption from use tax (that is, that the property be used thereafter solely outside California) than those imposed on “similar” sales transactions. We do not believe that the Section 6009.1 exclusion is similar to the exemptions provided by Section 6385. Actually, in some ways the Section 6009.1 exclusion is much broader than the exemptions provided by Section 6385, while in other ways the Section 6009.1 exclusion is more narrow. For example, Section 6385 applies only to common carrier purchasers, while Section 6009.1 applies to any purchaser. Under Section 6385, the purchaser/carrier may not use the purchased property to carry a payload or for any other

Mr. Jack Warner

-2-

September 26, 1989
325.0190

purpose prior to its delivery out of state. (See, generally, Reg. 1621 & Certs. D & E.) On the other hand, some types of “use” which would cause purchasers to lose the Section 6385 exemptions would be excluded from the definition of use under Section 6009.1. For example, the Section 6009.1 exclusion would be applicable even if a purchaser installs an engine on an aircraft, a use otherwise subject to use tax, and flies the aircraft directly out of California (without carrying passengers or property) provided the aircraft does not return to California (within six months). (Reg. 1620(b)(5).) Regardless of the differences between Section 6009.1 and Section 6385, xx’s argument is not actually based on these differences. Section 6009.1 was not intended to be complimentary to the Section 6385 sales tax exemptions, and it is not. xx’s argument is actually that we are required to provide an exemption for use tax that is otherwise identical to Section 6385. We disagree. xx wants us to conclude that the taxing provisions of Section 6201 are unconstitutional with respect to transactions subject to use tax which would have been exempt from sales tax under Section 6385 had the transactions been sales in California. Section 3.5 of Article III of the California Constitution states that an administrative agency, such as this Board, has no power to declare a statute unenforceable, or refuse to enforce a statute, on the basis of its being unconstitutional unless an appellate court has made a determination that such statute is unconstitutional. Since no appellate court has made a determination that Section 6201 is unconstitutional in the manner asserted by xx, this Board has no power to declare that such is the case. (Even if Sundstrand prevails in court, the court might very well resolve the alleged unconstitutional discrimination by eliminating the Section 6385 exemptions.) Since xx did not take timely certificates in good faith that establish an exemption from use tax, it has the burden of establishing that the property it sold into California qualifies for the exemption provided by Section 6009.1. As opposed to taking a certificate in good faith at the time of the sale, in which case we would look to the purchaser to confirm that it met the requirements of use thereafter solely outside the state, Sundstrand must now show that the property purchased and delivered into California which otherwise qualifies for the Section 6009.1 exemption was actually used entirely outside the state for at lease six months after removal from this state. In future correspondence, please ensure that you include the taxpayer’s account number. Alpha had two account numbers for taxpayers with this name. I believe the account number cited above is correct; however, the central file was out so I could not confirm. Please contact my secretary, Wendy, at 324-4441 to inform her as to the correct account number so that a copy fo this memorandum is filed in the correct central file. DHL:wak 1527C cc:

Mr. E. L. Sorensen, Jr.

325.0190 (3-29-05)redacted.doc