Did California tax a yacht purchase when ownership transferred offshore to an out-of-state corporation before a short California refit?

Plain-English summary

A redacted Arizona correspondent's December 12, 1995 letter proposed a Delaware corporation's purchase of a sailing yacht then berthed in California and documented by the United States Coast Guard. No corporate member resided in California. The purchase was to occur outside California's offshore limit and be documented by the Coast Guard.

The yacht then would return to California for refit, provisioning and sea trials needed for seaworthiness and safe long-range cruising. That return would not exceed 90 days. The yacht would next cruise worldwide for several years with no plan to return to California. The request, company and vessel records, agreement, locations, refit plan and later-use evidence are absent.

Assistant chief counsel said neither California sales nor use tax would apply if yacht ownership transferred on the high seas outside California territorial limits. For the stated purpose, the sale occurred where the property was located when ownership or title transferred. The parties should retain written documentation that the sale occurred outside California.

The response does not cite a statute or regulation. It also does not separately state that possession transferred offshore, analyze first functional use, explain the planned California refit under use-tax rules or apply a six-month presence test. It records no completed purchase, coordinates, title instrument, possession record, payment, Coast Guard filing, refit, departure, cruise, return, filing, audit or later outcome.

The current annotation materially extends the evidence instructions. Marked amended in 2006 and 2008, it advises proof that the sale occurred outside California, the yacht was first functionally used outside California, and it remained outside California at least half of the first six months after entry. Those two added use-and-presence instructions are absent from the 1996 PDF.

The annotation also carries a historical note: from October 2, 2004 through June 30, 2007, Regulation 1620(b)(5) imposed a stated 12-month presumption under certain conditions for a vehicle, vessel or aircraft purchased outside and brought into California. The note does not establish current law or an applied result for this proposed 1995–1996 transaction.

The live title says ownership and possession transferred outside California, while the supporting letter expressly addresses ownership and title but not possession. No supplied record resolves that addition.

Common questions

What fact controlled the 1996 letter's no-tax answer?

Ownership had to transfer on the high seas outside California territorial limits.

What documentation did the letter itself request?

Written proof that the sale occurred outside California. It did not itself request first-use or six-month evidence.

What did the amended annotation add?

It later advised proof of first functional use outside California and proof that the yacht was outside the state at least half of the first six months following entry.

Did the letter analyze the planned 90-day California return?

No. It recites refit, provisioning, sea trials and the 90-day limit but separately analyzes none of them.

Did the source prove possession also transferred offshore?

No. The live annotation title says so, but the supporting letter discusses only ownership and title location, and no possession instrument is supplied.

Was the proposed purchase completed?

The source does not say. It supplies no executed agreement, offshore coordinates, title or possession instrument, payment, Coast Guard filing, vessel log, refit record or later outcome.

Citations and references

• December 12 proposal — eight stated facts concerning the yacht, buyer, offshore purchase, California return and world cruise; underlying records absent
• January 3 response — no-tax conclusion conditional on offshore ownership transfer and written sale-location proof; no statute, completed transfer or outcome supplied
• Official Annotation 325.0570.300, amended 2006-1 and 2008-1 — adds first-use and six-month proof absent from the supporting PDF
• Regulation 1620(b)(5) historical note — states a limited October 2, 2004 through June 30, 2007 presumption; complete provision and current law not supplied
• Annotation title — adds possession transfer, which the supporting response does not separately state or analyze

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 325.0570.300
• Original supporting opinion: 325.0570.300 PDF

Original ruling text

325.0570.300

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION - MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
(P. O. BOX 942879, SACRAMENTO, CA 94279-0082)
TELEPHONE: (916) 445-3723
FAX: (916) 323-3387

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

BURTON W. OLIVER
Executive Director

January 3, 1996

Mr. J--- T--- H--XXX --- Street, Suite XXXX
---, AZ XXXXX
Dear Mr. H---:
This is in reply to your letter of December 12, 1995, addressed to Chief Counsel E. L. Sorensen. Your letter was referred to the undersigned for reply. Your have sought our opinion as to the application of the California Sales and Use Tax Law to the purchase of a sailing yacht under the circumstances described below: 1.

The yacht currently berthed in California is
documented by the United States Coast Guard
(USCG).

2.

A Delaware Corporation proposes to purchase the
yacht.

3.

No members of the corporation reside in the State
of California.

4.

The purchase is to be documented by the USCG
will take place outside the offshore limit of
California.

5.

The yacht will return to California for the
purpose of refit, provisioning and sea trials
to the extent to ensure its sea worthiness and
safety for long-range cruising.

Mr. J--- T--- H---

-2-

6.

The period that the yacht is returned to
California will not exceed 90 days.

7.

The yacht will then be involved in extensive
world cruising for several years.

8.

There will be no plans to return to California.

January 3, 1996
325.0570.300

If ownership of the yacht transfers on the high seas, that is, outside the territorial limits of the State of California, neither California sales tax nor California use tax will apply to the purchase of the yacht in question. For California sales and use tax purposes, a sale occurs at the place the property is located at the time ownership (title transfer) occurs. The parties to the agreement should retain in their files written documentation that the sale occurred outside this state. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel

GJJ:sr