How did California tax a satellite sold after reaching orbit and the parts used to build the satellite and its launch vehicle?

Plain-English summary

Counsel represented a company assembling and launching commercial satellites. The March 24 request attached an absent 1991 Board letter that reportedly found no California sales tax when a California-launched satellite was sold to its owner only after reaching orbit. The new request asked about component-part use tax and argued launch was de minimis and incidental.

The 1993 response assumed assembly and launch at a California site and sale only after orbit. Under those assumptions, the satellite sale occurred outside California and was not subject to California sales tax.

The builder could buy parts and materials incorporated into the satellite for resale. Removing the completed satellite from California by launch vehicle was not itself taxable use, so no use tax applied to those component purchases if the builder did nothing beyond retaining and removing the satellite.

Launch-vehicle components were different. The vehicle's purpose was to carry satellites and other property into orbit, so it was functionally used in California from the time it was placed on the launch pad or connected to the satellite. That use made its component purchases taxable even if the California use was brief.

The letter mentioned Assembly Bill 279 as a proposal that might change the treatment of qualifying space-flight property if enacted; it did not rely on the bill for its conclusion.

The cases illustrated functional use rather than elapsed time. Stockton Kenworth involved trucks leaving without payload and thus without functional California use. Parfum-Corday treated even minimal California use of promotional displays as taxable because it was the use for which they were designed.

CDTFA's live annotation adds that even if functional use began only at blast-off, the nature of California use outweighed its short duration. The supporting response says type rather than amount controls and begins use at launch-pad placement or satellite connection; it does not frame a separate blast-off assumption.

No contract, satellite or launch-vehicle specification, part list, resale certificate, launch-site record, title or orbit proof, payload record, tax filing, audit, claim, appeal, or later outcome is supplied. Nor does the source establish what happened to Assembly Bill 279.

Common questions

Why was the satellite sale outside California?

Counsel assumed title or sale did not occur until the satellite was already in orbit.

Why could satellite components be bought for resale?

They became components of the satellite, and removal by launch was not itself taxable satellite use when the builder did nothing beyond retention and removal.

Why were launch-vehicle components different?

Carrying satellites and other property into orbit was the vehicle's designed purpose, so placing it on the pad or connecting the satellite began functional use in California.

Did brief California use make the result de minimis?

No under the opinion. The kind of use, not its duration, controlled.

Did Assembly Bill 279 govern the answer?

No. Counsel described it only as introduced legislation that might change the result if passed; its text and outcome are absent.

Was an actual launch or sale reviewed?

No complete transaction record is supplied, and the response rests on stated assumptions and an absent earlier opinion.

Citations and references

• California Revenue and Taxation Code sections 6007 and 6051 — cited for retail sales and sales tax; complete statutes, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6009.1 and 6201 — cited for use tax and sole-outside-use exclusions; complete statutes, proof, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6094 and 6244 and Regulation 1525 — cited for resale certificates, first use and satellite components; complete authorities, proof, amendments, later history, and current law not supplied
• Stockton Kenworth and Parfum-Corday — cited for payload-free removal and minimal but functional use; complete opinions, comparison facts, later treatment, and current law not supplied
• Prior 1991 letter and March 24 request — not reproduced; assumptions and transaction facts remain incomplete
• Assembly Bill 279 — described only as introduced; bill text, enactment and current status not supplied
• April 9 response — no completed transaction, applied tax proceeding or later outcome supplied
• Official Annotation 325.0342 — compresses the results and adds alternative blast-off reasoning while omitting the provenance, assumptions, cases, proposed-bill limit, missing evidence, outcome, and 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/325-0342.pdf

Original ruling text

325.0342

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

MEMBER
First District

450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-8208

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS

April 9, 1993

Controller, Sacramento

BURTON W. OLIVER

Executive Director

Mr. N--- H. L--Law Office of B--- C--XXX ---, Suite XXX
--- ---, CA XXXXX-XXXX
Dear Mr. L---:
This is in response to your letter dated March 24, 1993 in which you state: "I represent a company that is engaged in the assembly and launch of commercial satellites. My client has sent me a copy of a letter that you wrote in 1991, to the W--- S--- T--- & E--- C---, regarding sales tax liability on sales of satellites which are launched from California and sold to the ultimate owner after they reach orbit. Your letter, a copy of which is attached for your convenience, concluded that under the facts represented, the sale of the satellite to the user/owner would not be subject to California sales tax. "I am concerned about a related point, i.e., use tax liability on the materials, etc. purchased in connection with the building and assembly of the satellite and launch vehicle. Assuming that assembly and launch are from a site in California, would the Board view be that the launch is a 'taxable use' in this state. It seems to me to be de minimis and incidental to the sale, and hence not taxable under Rev.
& Tax. C. 6009.1. See also Stockton Kenworth, Inc. v. SBE, 157 CA 3d 334, 203 Cal. Rptr. 698 (1984). but I would appreciate hearing from you if you have given any thought to this issue." Revenue and Taxation Code section 6051 imposes a sales tax on all retailers measured by their gross receipts from retail sales of tangible personal property. A "retail sale" or "sale at

Mr. N--- H. L---

-2-

April 9, 1993
325.0342

retail" means a sale for any purpose other than resale in the regular course of business in the form of tangible personal property. Rev. & Tax. Code § 6007. Revenue and Taxation Code section 6201 imposes an excise tax, commonly referred to as the use tax, on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer for storage, use, or other consumption in this state. The use tax complements the sales tax and is most frequently imposed upon in-state leases, out-of-state purchases of property for use in California, and use of property purchased with a resale certificate. "Storage" and "use" do not include the keeping, retaining, or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state, or for the purpose of being processed, fabricated, or manufactured into, attached to or incorporated into, other tangible personal property to be transported outside the state and thereafter used solely outside the state. Rev. & Tax. Code § 6009.1. A purchaser who will hold property for resale in the regular course of business may purchase the property ex tax by issuing a resale certificate. If a purchaser who has given a resale certificate makes any storage or use of the property other than retention, demonstration, or display while holding it for sale in the regular course of business, the storage or use shall be taxable to the purchaser as of the time the property is first used by him. The sales price of the property is the measure of tax. Rev. & Tax. Code §§ 6094 and 6244. With respect to the satellite, we understand that the builder of the satellite will sell the satellite to another entity but that the sale will not occur until the satellite is in orbit. As noted in our previous letter, since the sale occurs outside of California, that sale is not subject to California sales tax. The builder may purchase with a resale certificate parts and materials which become component parts of the satellite. See Regulation 1525, copy enclosed. The removal of the satellite from the state by the launch vehicle is not a taxable use of the satellite. Thus, assuming that the builder makes no use of the satellite other than retention and removal, no use tax is due under section 6094 or 6244 on the builder's ex tax purchase of the component parts. The purchase of the component parts of the launch vehicle are subject to either use tax or sales tax because the launch of the vehicle is a taxable use of the vehicle for purposes of sections 6094 and 6244 and of section 6009.1. The purpose of the launch vehicle is to carry satellites and other property into orbit. Thus, the vehicle is functionally used in California from the time that it is placed on the launch pad or that the satellite is connected to it. We do not agree that the use of the launch vehicle in California is de minimis. But even if it is, it is the type of use in California, not the amount of use, that determines whether a taxable use is made of the vehicle. In Stockton Kenworth, Inc. v. SBE, cited in your letter, the trucks

Mr. N--- H. L---

-3-

April 9, 1993
325.0342

were removed from California without a payload, and thus the taxpayer made no functional use of the trucks in California. In Parfum-Corday, Inc. v. SBE, (1986) 187 Cal.App.3d 630 the purchaser made only minimal use of promotional displays in California but that use was a functional use subject to tax. A bill has been introduced into the Legislature (AB 279, copy enclosed) that would exempt from sales and use tax sales and purchases of qualified property for use in space flight. If this bill passes, it appears that the purchase of the component parts of a launch vehicle will not be subject to tax. If you have further questions regarding Sales and Use Tax Law, please do not hesitate to write again. Sincerely,

Elizabeth Abreu
Tax Counsel

EA:cl
Enclosures