Were helicopter repair parts exempt when a pilot flew the repaired aircraft from California to its out-of-state owner?

Plain-English summary

A redacted helicopter repairer sought interstate-commerce treatment for parts furnished and installed while repairing helicopters owned by out-of-state customers. Redacted Board audit staff's June 30, 1992 memorandum asked about two pilot-delivery arrangements. The audit request itself is absent.

Section 6396, as quoted by counsel, required the sales contract to call for outside delivery and required actual outside delivery by retailer facilities or retailer delivery to a carrier, customs broker or forwarding agent. Regulation 1620(a)(3)(B)2 defined a carrier as a person or firm regularly transporting other people's tangible personal property for compensation, including common and contract carriers. If the pilot met that definition, counsel said the agency question did not control. The remainder of the memorandum assumed the pilots did not qualify as carriers; it supplies no pilot-business record resolving that threshold.

The first arrangement came from “case 2” in the company's absent March 30, 1992 letter. The quoted passage said the company would contract with a pilot for a specified route and delivery to the owner outside California. The pilot would not be the company employee or aircraft owner, would agree to act as the company's delivery agent, and would have expenses paid by the company and then charged to the owner; the owner would bear liability for transport damage. Counsel also assumed the pilot was not the owner's employee. Because the pilot contracted with the repairer, the repairer controlled the manner of delivery and made the payment, counsel treated the flight as delivery by retailer facilities. If the sales contract required outside delivery in that manner, the installed-part sale was exempt.

In the second arrangement, the aircraft owner supplied the pilot and usually reimbursed the pilot directly; the repairer did not pay or reimburse pilot expenses. The company had supplied several documents, including contract language that owner-supplied pilots remained under company direction and control until the aircraft left California, and a pilot declaration stating company control. Those documents are not reproduced beyond the quoted language. Counsel called the identity of the hiring party critical. Because the owner hired and paid the pilot, the delivery was not by the repairer's facilities and the sale was not exempt.

The source does not identify an aircraft, part, owner, pilot, route, destination, contract, amount, completed delivery, exempt or taxable measure, return, assessment, payment, claim, appeal or later result. The two conclusions remain conditional rather than documented dispositions of specific transactions.

The live annotation preserves the company-hired and owner-hired distinction, the first scenario's nonemployment assumptions, the contract-required delivery condition and the direction-and-control clause. It omits section 6396, the carrier definition and threshold, case 2's provenance, expense chargeback and damage-liability terms, the missing requests and documents, the absence of applied transaction records and reliance limits.

Common questions

Did every independent-pilot delivery qualify as exempt?

No. Under the memorandum's noncarrier assumption, the result depended on who hired, controlled and paid the pilot and whether the sales contract required outside delivery.

What if the pilot was a qualifying carrier?

Counsel said a regularly compensated transporter of other persons' property could be a common or contract carrier. If so, agency would not control, although the sales contract still had to require outside delivery.

Why did the repairer-hired pilot count as retailer facilities?

The pilot contracted with the repairer, the repairer controlled the manner of delivery and made the payment, and counsel assumed the pilot was employed by neither the repairer nor the owner.

Did charging the pilot expenses back to the owner change that result?

Not in the described first arrangement. The repairer initially paid all pilot expenses and then charged the owner for delivery; counsel still treated the pilot as retailer facilities.

Why did the owner-supplied pilot fail despite company-control language?

Counsel treated who hired the pilot as critical. The owner supplied, hired and paid that pilot, so contractual direction and a declaration of company control did not make the flight delivery by retailer facilities.

Does the source prove either arrangement was completed?

No. It supplies no complete contract, hiring or payment record, flight record, destination, invoice, tax measure, audit disposition or later outcome.

Citations and references

• California Revenue and Taxation Code section 6396 — cited for contract-required actual outside delivery through specified methods; complete current authority and proof not supplied
• Sales and Use Tax Regulation 1620(a)(3)(B)2 — cited for compensated common and contract carriers; no pilot qualification record supplied
• March 30 company letter, June 30 audit memorandum, company-pilot contract and pilot declaration — only selected descriptions or quotations reproduced; complete records absent
• August 14 response — conditional company-hired and owner-hired results, with no identified tax measure, proceeding or later outcome
• Official Annotation 325.0490 — preserves the two results but omits the carrier threshold, provenance, missing evidence, unapplied posture and reliance limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0490
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0490.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum
To

:

AB - - - Audit

From : David H. Levine

Senior Tax Counsel

Subject:

325.0490
Date: August 14, 1992

ATSS 485-5550
(916) 445-5550

-----

This is in response to your memorandum dated June 30, 1992. --- repairs helicopters, some of which are owned by out-of-state customers. When performing repairs for such customers, --- seeks to arrange the transactions so that the transfers of the parts furnished and installed during the repairs are regarded as exempt sales in interstate commerce. You inquire about two types of transactions presented by ---. The first is set forth as case 2 in ---'s letter to the A district office dated March 30, 1992: "--- signs a contract with a pilot, whereby the pilot agrees to fly a specified route and deliver the aircraft to the owner outside the State of California. The pilot is neither an employee of --- nor the owner of the aircraft. The pilot does agree to be the agent of --- for purposes of delivering the aircraft outside California. However the owner agrees to be liable for any damages which may occur while transporting the aircraft. --- would pay for all the expenses of the pilot and then charge the owner accordingly for delivery charges." As you describe the second type of transaction, an overhauled aircraft is flown out of state by a third party pilot who is not paid or reimbursed for expenses by ---. You state that expense reimbursement is usually made directly by the aircraft owner to the pilot. --- has provided you several documents which it asserts show that the pilot is its agent. The contract includes a statement that states:

AB - - Audit

-2-

August 14, 1992
325.0490

"Aircraft not subject to California sales tax shall either be shipped outside of California by facilities operated by --- or by common carrier. If shipment by -- is selected, owner may supply pilot, subject to ---'s approval. However, any pilot, whether supplied by owner or ---, shall remain under the direction and control of --- at all times until aircraft leaves California." We have also been provided a declaration from a pilot stating that he contracted with --- to deliver the aircraft out of California and flew the aircraft pursuant to ---'s instructions and at all times during the flight remained under the direction and control of ---. You ask whether these items satisfy the requirements of Regulation 1620 and, if not, how --- can prove that the pilot is its agent rather than the agent of the owner. As set forth in Revenue and Taxation Code section 6396, to qualify as an exempt sale in interstate commerce, the contract of sale must require delivery outside California, and the property must, in fact, be delivered outside California by means of facilities of the retailer or by delivery by the retailer to a carrier, customs broker, or forwarding agent, whether hired by the purchaser or not, for delivery outside California. Thus, although the question of agency may be relevant in ascertaining whether the shipment qualifies as by facilities of the retailer, it is not relevant if a qualified carrier, customs broker, or forwarding agent transports the property outside California. If the pilot in question is a carrier within the meaning of section 6396, then the transaction in question would qualify for the exemption if the contract of sale requires such delivery outside California. As explained in subdivision (a)(3)(B)2 of Regulation 1620, 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. If the pilot does not qualify as a carrier under this definition, the sale is not an exempt sale in interstate commerce unless the shipment out of California qualifies as by facilities of ---. The remainder of this opinion is based on the assumption that the pilot in question does not qualify as a carrier under Regulation 1620. In the first type of transaction, case two from ---'s letter, quoted above, the pilot contracts with ---. --- controls the manner of delivery and makes the payment to the pilot. The pilot is neither the owner of the aircraft nor an employee of ---. Additionally, I assume that the pilot is not an employee of the aircraft owner. We believe that under these facts, such delivery should be regarded as delivery by facilities of the retailer within the meaning of Regulation 1620. If the contract requires delivery out of state in this manner, we conclude that the sale would be an exempt sale in interstate commerce. The second type of transaction is when the pilot is furnished by the aircraft owner, as permitted by the terms of the contract, and is paid by that owner. We believe that the critical factor is the answer to the question, who hired the pilot? In this scenario, the pilot is hired by

AB - - Audit

-3-

August 14, 1992
325.0490

the aircraft owner. Thus, we conclude that the delivery is not by facilities of --- and that the sale would not be an exempt sale in interstate commerce. In future memoranda to us, please provide the printed name of the memorandum author and his or her telephone number so that we can contact the author if necessary. If you have further questions, feel free to write again.

DHL:cl
----

cc:

A District Administrator