What records should a boat dealer keep to support offshore delivery and the buyer's claimed out-of-state use of a sailboat?

Plain-English summary

A partially redacted vessel retailer's June 6, 1997 letter asked what records would substantiate nontaxability for a sailboat delivered offshore to a California resident and whether a return for California provisioning changed the result. Counsel assumed the requester was the retailer; “offshore” meant beyond California territorial waters; both title and possession transferred there; the buyer took no earlier possession, traveled to the delivery point by other transportation, and then sailed the purchased boat back.

Under those assumptions, no title or possession transferred to the purchaser in California, so the sale produced no California sales-tax liability. The retailer should document the transfer with a bill of sale stating delivery and title terms, signed by the delivery person and buyer at transfer, with the buyer recording its date and place. The retailer should also obtain and retain the trip's ship logs. No completed bill of sale or log is supplied.

On the stated transaction, counsel treated sailing through outside waters back to California as first functional use outside the state, while citing BTLG Annotation 570.0430 as a caution. Entry within 90 days nevertheless created a presumption of purchase for California use. Use or storage outside California at least half the time during the six months immediately after entry would overcome it; more than 90 days of prior outside use could instead prove outside intent, excluding shipment or shipment-storage time.

The letter advised the retailer, especially when it knew or had reason to know the buyer was a California resident, to retain a purchaser statement signed under penalty of perjury promising outside use for more than half of that six-month period. The buyer should keep complete logs, berthing-payment receipts, and other records establishing the sailboat's location and use. No statement, receipt or later location evidence is supplied.

Counsel separately noted that the requester's January 25, 1988 seller's-permit application reportedly identified it as both broker and retailer and enclosed revised Regulation 1610(c)(2)(C) about brokered vessel purchases. The application and enclosure are absent, and counsel expressly called this general information unrelated to the opinion request.

The current annotation turns the advice into a four-part seller-and-purchaser documentation list. It carries 2006 and 2008 amendment markers and adds a Regulation 1620(b)(5) note about a conditional twelve-month presumption from October 2, 2004 through June 30, 2007; neither later layer appears in the 1997 letter. No actual delivery, exemption claim, use-tax result or proceeding is documented.

Common questions

What offshore delivery did the opinion assume?

Both title and possession transferred outside California territorial waters, the buyer had no earlier possession, and the buyer reached the transfer point without traveling aboard the purchased boat.

What did the seller need to record?

A bill of sale with delivery and title terms, signatures by the delivery person and purchaser at transfer, the transfer date and place, and retained copies of the trip's ship logs.

Was the return trip for provisioning first functional use outside California?

Counsel said yes on the described facts because the purchaser sailed through outside waters, but expressly directed readers to BTLG Annotation 570.0430 as a caution.

Did entry within 90 days automatically settle use tax?

It created a California-use presumption. The cited historical rule allowed it to be overcome through the six-month outside-use-or-storage test.

What sworn statement did counsel recommend?

A purchaser statement under penalty of perjury promising outside use for more than half of the six months immediately after California re-entry, especially for a known California resident.

What records belonged to the purchaser?

Complete ship logs, berthing-payment receipts, and other documents establishing when and where the sailboat was used or located during the first six months after entry.

Was the broker rule part of the requested holding?

No. Counsel described the missing 1988 permit application and enclosed revised Regulation 1610 as unrelated general information.

Did the opinion approve completed records or an actual exemption?

No. Every transaction and documentation point was prospective or assumed, and no applied tax outcome is supplied.

Citations and references

• California Revenue and Taxation Code sections 6012, 6051 and 6006(a), and Regulation 1620(a)(1) — cited for sales, title or possession transfer and outside sale; complete contract and transfer evidence absent
• California Revenue and Taxation Code sections 6011, 6201, 6401, 6203 and 6247, and Regulation 1620(b)(3) — cited for use tax, collection, resident presumption and timing tests; complete current authorities not supplied
• BTLG Annotation 570.0430 — cited as a caution on first functional use; underlying opinions and later treatment not supplied
• June 6 request and transaction records — request only partly reproduced; parties, vessel, transfer, logs, statement, receipts, use and tax records remain absent
• January 25, 1988 seller's-permit application and revised Regulation 1610(c)(2)(C) — described but absent and expressly unrelated to the request
• June 23 response — advice on assumed facts, with no completed documents, tax proceeding or later result
• Official Annotation 325.0428 — later amended in 2006 and 2008 and supplemented with a temporary 2004–2007 Regulation 1620(b)(5) note absent from the opinion

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0428
• Original supporting opinion: 325.0428 PDF

Original ruling text

325.0428

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
TELEPHONE: (916) 324-2634
FAX : (916) 324-2586

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
___
JOHN CHIANG
Acting Member
Fourth District, Los Angeles
_____

June 23, 1997

E. L. SORENSEN, JR.
Executive Director

Ms. D--- R--P--- Y--XXXX --- Cove
--- ---, CA XXXXX
Re:

P--- Y---, Inc. SR -- XX-XXXXXX

Dear Ms. R---:
This responds to your letter dated June 6, 1997 to the Legal Division of the State Board of Equalization. You write: “I would like a response in writing as to what documents I need to have in file to substantiate a nontaxable status of a sailing boat we are delivering offshore to a California resident. He will be purchasing the boat for use outside of California. “Would you please address the issue of him returning the boat to California for provisioning and if that affects our nontaxable status on this boat.” For purposes of this opinion letter we assume that you are the retailer of the vessel. We further assume that by the term “offshore” you mean a point outside of California territorial waters, and that by the term “delivering” you mean the transferring of both possession to and title of the sailboat to the purchaser. We also assume that the purchaser will not take possession of the sailboat prior to the offshore transfer and will travel to the offshore delivery point by means of transportation other than the sailboat which he is purchasing. We also assume that the purchaser will sail the boat back to California after title and possession are transferred to him.

Ms. D--- R---

-2-

June 23, 1997
325.0428

Discussion
A retail sale of tangible personal property in California is subject to sales tax measured by the retailer’s gross receipts from the sale, unless specifically exempted or excluded by statute. (Rev. & Tax. Code §§ 6012, 6051.) Any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration is a sale. (Rev. & Tax. Code § 6006(a).) However, since there will be no transfer in California to the purchaser of title to or possession of the sailboat, the sale of the vessel will not result in a California sales tax liability. (Rev. & Tax. Code § 6006; Reg. 1620(a)(1).) To document where and when the transfer of title and possession occur, you should prepare a bill of sale which states the terms of delivery of the vessel and transfer of title and which is signed by both the person making the delivery and the purchaser. The purchaser should sign the bill of sale at the time at which the transfer takes place and note on the document the date and place of transfer. You should also obtain and retain copies of the ships’ logs showing the trip. In general, when sales tax does not apply, use tax measured by the sales price applies to the use of tangible personal property purchased from a retailer for storage, use, or other consumption in California. (Rev. & Tax. Code §§ 6011, 6201, 6401.) Regulation 1620(b)(3), in pertinent part, explains when property is regarded as having been 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 of California, the property will be nevertheless 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 this state. Prior out-of-state use not exceeding 90 days from the date of purchase to the date of entry into California is of a temporary nature and is not proof of an intent that the property was purchased for use elsewhere. Prior out-of-state use 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 property was not purchased for use in California.” Thus, if the sailboat was first functionally used in California, use tax would apply. "Functional use" means the use for which the vessel was designed. Under your description of the transaction, the first functional use of the sailboat after the transfer of title and possession to your purchaser will occur outside of California when the purchaser sails the boat through out-ofstate waters back to California for provisioning. (But see BTLG Annot. 570.0430 (1/7/74, 3/23/84, 1/28/91).) However, since the sailboat will re-enter California within 90 days of its completed delivery and purchase, it will be presumed to have been purchased for use in California. (See also Rev. & Tax. Code § 6247.)

Ms. D--- R---

-3-

June 23, 1997
325.0428

As explained in Regulation 1620, this presumption can be overcome for the vessel if the purchaser establishes that for the period of six months after its entry into California, the sailboat is used principally outside California. If during the six-month period immediately following the vessel’s entry into this state after its purchase, it will be used or stored outside of California onehalf or more of the time, the vessel will not be considered purchased for use in California, and the use of the vessel will not be subject to California use tax. (Reg. 1620(b)(3).) It would be advisable for you to obtain and retain a statement signed under penalty of perjury by the purchaser stating that the sailboat will be used outside of California for more than one-half of the six month period immediately following its re-entry into this state after purchase from you. This is especially true when you know or have reason to know the purchaser is a resident of this state. (See Rev. & Tax. Code §§ 6203 & 6247.) The purchaser should keep adequate records to document the location of principal use of the vessel for the first six months immediately following its re-entry into California, e.g., complete ship’s logs of dates and periods that the sailboat is in and out of California, receipts of payment for berthing, and any other receipts or documents supporting out-of-state use and location of the vessel. Before closing, I note that on your January 25, 1988 application for a seller’s permit you indicated that P--- Y---, Inc. is both a broker and a retailer. Therefore, for your general information (unrelated to your request for this opinion letter), I am enclosing a copy of recently revised Regulation 1610 which now includes subdivision (c)(2)(C) relative to purchases of vessels through brokers. I hope the information in this letter is of assistance. Please write again if we may answer any further questions. Sincerely,

Sharon Jarvis
Senior Tax Counsel
SJ:rz
Enclosure:
cc:

Regulation 1610

Oakland District Administrator - CH