Which offshore boat operators counted as carriers, and what records supported sales shipped to Outer Continental Shelf drilling sites?

Plain-English summary

The July 26 request and an earlier-year conference concerned oil-company purchases in California transported by boat to drilling locations outside California waters on the Outer Continental Shelf. Neither the letter nor conference record is reproduced. Board counsel addressed both carrier status and records vendors could use to support section 6396 treatment.

Independent boat operators qualified when they regularly transported other owners' property for compensation. Boat operators that were also drilling contractors could qualify too, even under a lump-sum contract, because approximately 15 to 20 percent of compensation related to transportation and the transportation was not merely incidental to drilling.

The letter accepted three linked records: a blanket or individual purchase order limited to outbound Outer Continental Shelf deliveries and containing a tax fallback for nonqualifying shipments; a vendor invoice referencing that order and identifying both the vendor's delivery point and the drilling destination; and a carrier receipt or receipted invoice retained by the vendor.

The official source prints State v. Glenwood Mercantile Company, 74 So. 2d 155. Citation verification did not find that citation, but visual review confirmed the published text, which remains unchanged.

The first carrier class could contract directly with an oil company or indirectly through a drilling contractor. The second combined transportation and drilling under a possible lump sum, with approximately 15 to 20 percent allocated to transportation. Counsel's conclusion depended on those stated regular-compensation and nonincidental-transport facts; no contracts or allocation records are supplied.

The purchase-order form had to cover only qualifying Outer Continental Shelf deliveries and require the purchaser to pay applicable state and local sales or use taxes when property was not shipped in the exempt manner. The matching invoice had to identify both vendor delivery point and drilling destination, and the vendor had to retain the carrier's receipt.

No actual operator, oil company, drilling contractor, property, vendor, route, site, contract, purchase order, invoice, receipt, exemption claim, taxable measure, tax filing, audit, appeal, or later outcome is included.

Common questions

Could an independent boat operator qualify?

Yes on the stated facts when it regularly transported other owners' property for compensation under a direct oil-company contract or an indirect contract through a drilling contractor.

Could a drilling contractor also be the carrier?

Yes when it regularly transported for compensation and transportation was not merely incidental, even under a lump sum combining drilling and transportation.

Why did the 15–20-percent allocation matter?

It supported counsel's view that transportation was a compensated, nonincidental part of the combined drilling contract.

What had to appear in the purchase order?

An outbound-only Outer Continental Shelf scope and a fallback promise to pay applicable state and local tax if a purchase was not shipped in the qualifying manner.

What did the vendor need after the order?

A cross-referenced invoice naming the vendor-delivery and drilling-site points and a retained carrier receipt or receipted invoice.

Did counsel approve an actual shipment or tax return?

No. The letter accepts a proposed procedure on stated facts and includes no executed records or applied outcome.

Citations and references

• California Revenue and Taxation Code section 6396 and Regulation 1620(a)(3)(B)2 — cited for carrier delivery and outside shipment; complete authorities, proof, amendments, later history, and current law not supplied
• Boyes v. State and Brown v. Blanton — cited for nonincidental carrier activity; complete opinions, comparison facts, later treatment, and current law not supplied
• State v. Glenwood Mercantile Company, 74 So. 2d 155 — printed by the official source, unresolved in citation verification, and not independently relied on
• July 26 request, conference record and operating contracts — not reproduced or absent; carriers, compensation, allocation, property and routes remain unproved
• Proposed order, invoice and receipt records — described but no executed example or applied exemption supplied
• September 21 response — stated-fact and procedure-specific, with no tax proceeding or later result
• Official Annotation 325.0345 — reproduces the classes and records but omits the provenance, case-citation issue, missing evidence, applied 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/325-0345.pdf

Original ruling text

325.0345

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)

September 21, 1971

Mr. G--- L. P--Excise Tax Counsel
S--- O--- C--Of California
XXX --- Street
--- ---, CA XXXXX

IN REPLY REFER TO:

SZ -- XX XXXXXX

Dear Mr. P---:
We have completed our review of your letter of July 26, 1971 and the authorities you have cited in support of your position. Your first concern is whether certain parties will qualify as “carriers” within the meaning of section 6396 of the Revenue and Taxation Code. For purposes of this section, our regulation 1620(a)(3)(B)2 provides that the term “carrier” means a person or firm regularly engaged in the business of transporting for compensation tangible personal property owned by other persons, and includes both common and contract carriers. The operations in question involve the transportation by boat of property purchased by oil companies from points in California to oil drilling locations in waters outside of California. The parties with which you are concerned fall in two classes: 1.

Independent boat operators, other than drilling contractors, who contract with an oil company, either directly or through a drilling contractor, to transport the property regularly for compensation.

2.

Boat operators who are also drilling contractors, who contract with an oil company to transport the property regularly for compensation. The contract may be for a lump sum, including compensation for transportation and drilling operations. Approximately 15-20 percent of the total compensation is allocable to the transportation.

It is our opinion that the parties in both of the above classes qualify as “carriers” within the meaning of section 6396. Although we did have some question about the parties in class 2, we believe that the authorities you have cited (Boyes v. State, 459 P.2d 86; Brown v. Blanton, 180 S.W.

Mr. G--- L. P--SR -- XX XXXXXX

-2-

September 21, 1971
325.0345

2d 288; and State v. Glenwood Mercantile Company, 74 So. 2d 155), support the view that those parties are also carriers since on the facts you have stated the transportation is not merely incidental to the drilling operations. Your second concern is with documentation acceptable to us in support of the exemption requirements of section 6396 and Regulation 1620. Combining the statements in your letter with record of the understanding at our conference with you earlier this year, the following documentation will be acceptable: 1.

A blanket or individual purchase order given the vendor solely covering sales with delivery to Outer Continental Shelf locations wherein a statement in substantially the following form is made: All property purchased under this order shall be shipped by carrier to those specific locations situated in the Outer Continental Shelf beyond the territorial waters of the State of California as designated to the vendor by the purchaser. Should any property purchased hereunder not be so shipped to a location outside the State of California in the exempt manner prescribed under section 6396 of the Revenue and Taxation Code, purchaser agrees to pay any applicable state and local sales or use taxes that might be imposed with respect to the purchase of the property.

2.

The vendor issues an invoice which makes reference to the blanket purchase order and indicates thereon the point at which the goods are to be delivered by the vendor and the drilling site to which the property is to be taken by the carrier.

3.

The vendor obtains a receipt, or a receipted invoice, from the carrier to whom the property is delivered. The receipt is retained by the vendor.

If you have any questions concerning this letter, please let us know. Very truly yours,

T. P. Putnam
Assistant Chief Counsel

TPP:kc