Did California use tax apply to a Florida-bought yacht shipped here for reassembly before four to five months of use in Mexico?

Plain-English summary

The buyer planned to pay for a Bertram Manufacturing yacht in Florida and take delivery there personally or through an agent. The request said the buyer might use it there for as little as 14 to 21 days, then have it broken down and shipped by a licensed carrier to California. A paid third party independent of the buyer would reassemble it, after which it would launch at San Diego and voyage to Mexico for four to five months of continuous use in Mexican territorial waters.

The possible Florida use was not an established fact. Counsel assumed it would be the yacht's first functional use and that the yacht would enter California within 90 days, excluding time stored for shipment. Entry within that period created a presumption of California purchase. On the further assumption that it would remain here no more than one month and then be used in Mexico for at least four of the six months after entry, the buyer would overcome the presumption and owe no California use tax.

If the buyer did not actually use the yacht in Florida and its first functional use occurred in California, the yacht would instead be taxable on its sales price.

Counsel corrected the requester's apparent misunderstanding: the historical 90-day test concerned the period before California entry. The separate six-month calculation concerned use or storage after entry, and Regulation 1620 defined functional use as use for the purpose for which the property was designed.

The answer was expressly conditional. Counsel said it did not apply if the stated facts or assumptions were wrong and invited a new, specific request. No completed purchase, price, title record, Florida-use proof, entry date, California duration, Mexico log, tax filing, audit, payment, claim, appeal, or later outcome is supplied.

The live annotation adds 2006–1 and 2008–1 amendment markers and a note about a temporary twelve-month presumption from October 2, 2004 through June 30, 2007. The supporting 1996 opinion supplies none of those later texts.

Common questions

Was 14 to 21 days of Florida use proved?

No. The request said the buyer “may” use the yacht in Florida for that period. Counsel treated that statement as an assumption of first functional use outside California.

Did the 90-day period measure Mexico use after California entry?

No. Counsel said the historical 90-day test applied before entry. The amount of outside use after entry was measured during the separate six-month period.

Did California reassembly by itself make the yacht taxable?

Not under the stated assumptions. The result depended on prior Florida functional use and sufficient outside time after entry; the letter did not treat paid independent reassembly alone as defeating the showing.

What if Florida use never occurred?

First functional use would then occur in California, and the opinion says use tax would apply to the yacht's sales price.

Was the planned result ever confirmed?

No. The source records no completed transaction, travel log, tax return, audit, assessment, claim, appeal, or later result.

Citations and references

• California Revenue and Taxation Code section 6201 — cited for California use tax; complete statute, definitions, rate, measure, amendments, later history, and current law not supplied
• California Sales and Use Tax Regulation 1620(b)(3) — quoted for first functional use, the historical 90-day entry presumption, the six-month outside-use test, and designed-purpose use; complete regulation, calculation, proof, amendments, later history, and current law not supplied
• Request letter and proposed transaction records — not reproduced; purchase, price, title, delivery, use, shipment, reassembly, voyage and location facts remain unproved
• October 21 opinion — conditional on stated facts and assumptions; no completed transaction, applied calculation, tax proceeding, or later outcome supplied
• Official Annotation 325.0198 — adds later amendment markers and a temporary twelve-month note without the governing texts, and omits the prospective posture, assumptions, missing proof, actual outcome, and reliance limits

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0198
• Original supporting opinion: 325.0198 PDF

Original ruling text

325.0198

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 323-3787
FAX (916) 323-3387

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

October 21, 1996

KATHLEEN CONNELL
Controller, Sacramento
___
E. L. SORENSEN, JR.
Executive Director

Mr. C--- J--- W--W--- & C--Attorneys at Law
XXXX --- --- --- Drive, Suite XXX
--- ---, CA XXXXX
Re:

D--- L---

Dear Mr. W---:
This is in response to your request for an opinion regarding the application of California use tax to D--- L---’ (“L---”) purchase of a yacht from Bertram Manufacturing in the state of Florida. You state that L--- is purchasing a vessel from Bertram Manufacturing in the state of Florida. L--- will pay for the vessel in Florida, and Bertram will deliver the vessel to L---, or his agent, in Florida. After the purchase, L--- may use the vessel in Florida for a short period of time, possibly as little as 14-21 days. L--- will then have the vessel broken down in Florida and shipped by a licensed carrier to California. Upon arrival in California, a third party (independent of L---) will, for a fee paid by L---, reassemble the vessel. Upon that reassembly, L--- will have the vessel placed into the ocean at San Diego, California and the vessel will then be voyaged to Mexico for a minimum of 4 to 5 months of continuous usage in Mexican territorial waters. You inquire as to whether the transaction will be subject to California use tax under the “6 month test” as long as the yacht, after arriving in California for reassembly is “used or stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state.”

Mr. C--- J--- W---

-2-

October 21, 1996
325.0198

Revenue & Taxation Code section 6201 imposes a use tax on the storage, use or other consumption in this state of tangible personal property purchased from any retailer. Regulation 1620(b)(3) explains when property purchased outside California is regarded as purchased for use in California: “[P]roperty 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 is in California. When the property is first functionally used outside California, the property will nevertheless be presumed to have been purchase 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 this state.... “For purposes of this subparagraph ‘functional use’ means use for the purposes for which the property was designed.” You state that the yacht will be purchased in the state of Florida and may be used in the state of Florida for as little as 14-21 days. We understand this to mean that the first functional use of the yacht will be outside California, and that the yacht will be brought into California within 90 days after its purchase, exclusive of any time of storage for shipment to California. It appears from your letter that you misunderstand the 90 day test. The 90 day test only applies to the period before the yacht enters California. Since the yacht enters California within 90 days of purchase, it is presumed to be purchased for use in California. Tax applies unless Mr. L--- overcomes that presumption. The manner in which the presumption can be overcome is by showing that the yacht will be used outside of California one-half or more of the time during the six month period immediately following its entry into California. You state that after the yacht is reassembled in California, it will be placed in the ocean at San Diego and will then be voyaged to Mexico for a minimum of 4 to 5 months of continuous usage in Mexican territorial waters. Although you do not specify the amount of time the yacht will be in California prior to leaving California waters, for purposes of this opinion, we assume that the yacht will be in California no more than one month prior to departing California waters for Mexico. Based on this assumption, the yacht will be used outside California for at least four months during the 6 months immediately following its entry into California. As such, Mr. L--- will overcome the presumption that he purchased the yacht for use in California and use tax will not apply. We also note that you state that your client may use the yacht in Florida for a short period of time before arriving in California. If your client does not use the yacht in Florida and the yacht is first functionally in used in California, the yacht will be considered to be purchased for use in California and will be subject to California use tax measured by the sales price of the yacht.

Mr. C--- J--- W---

-3-

October 21, 1996
325.0198

This opinion is based on the facts stated in your letter and the assumptions made above. If our assumptions are incorrect, this opinion does not apply. If such is the case and you wish an opinion applicable to the actual facts of the transaction, please write again and describe the transaction with specificity. Yours very truly,

Charlotte Chyr
Tax Counsel
CC:cl

cc:

--- --- District Administrator