Did interstate-commerce treatment exempt transportation equipment operating only between California points after entering the state?
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This page answers the general question as of 1996. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
Several districts questioned an inconsistency after Regulation 1620(b) was amended in September 1978 partly because of Complete Auto Transit v. Brady. Regulation 1620(b)(2)(B) taxed qualifying property after California entry and continuous operation between California termini, while Regulation 1594(a)(1) addressed exempt watercraft such as tugboats and Regulation 1620(c) addressed exempt rail freight cars. The district inquiries and amendment text are absent.
The 1981 headquarters-auditor memorandum described Complete Auto as a Mississippi case upholding tax on in-state transportation receipts even though the trips began outside Mississippi. The source gives no reporter citation; the case record is 430 U.S. 274 (1977).
Sections 6368, 6368.1 and 6368.5 supplied specific exemptions for qualifying watercraft and rail freight cars even when their use occurred entirely within California in connection with interstate or foreign commerce. Legal staff did not view the case as displacing those statutes.
Other transportation had no comparable exemption. After entering California through interstate or foreign commerce and then operating continuously between California termini, it was taxable even while carrying persons or property moving interstate.
On July 10, 1996, Gary Jugum's Legal Division memorandum to Glenn Bystrom reviewed the 1981 item under the subject Non-Attorney Opinions and expressly agreed. No taxpayer, equipment, route, measure, assessment or applied outcome is supplied. The live annotation publishes the agreed conclusion and both dates but omits the amendment, district-question, case and review provenance.
Common questions
Why did watercraft and rail freight cars remain exempt?
The memorandum identified specific statutory exemptions in sections 6368, 6368.1 and 6368.5.
Did entirely in-state operation defeat those specific exemptions?
No when the qualifying watercraft or rail-car use remained connected with interstate or foreign commerce, under the memoranda's conclusion.
What happened to other transportation equipment?
It became taxable when it entered California and then operated continuously between California termini, despite serving interstate movements.
What prompted the 1981 memorandum?
Districts asked whether the watercraft and rail regulations should change after the 1978 Regulation 1620(b) amendment and Complete Auto.
What did the 1996 memorandum do?
Legal Division reviewed the headquarters auditor's non-attorney opinion and agreed with its conclusion.
Did either memorandum decide a taxpayer's liability?
No. The source identifies no taxpayer, transportation property, purchase, route, tax measure, assessment or later outcome.
Citations and references
- Revenue and Taxation Code sections 6368, 6368.1 and 6368.5 — cited specific exemptions; complete current authorities absent
- Regulations 1594(a)(1), 1620(b), 1620(b)(2)(B) and 1620(c) — historical rules and amendment issue; full texts and current law absent
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) — named without reporter in the source and described for in-state transportation taxation
- March 11, 1981 auditor memorandum and July 10, 1996 Legal review — general internal guidance without a transaction or outcome
- Official Annotation 325.0597 — preserves the agreed conclusion while omitting its regulatory, case and review provenance
Source
- Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
- Annotation page: Annotation 325.0597
- Original supporting opinion: 325.0597 PDF
Original ruling text
State of California
Board of Equalization
Memorandum
To:
District and Subdistrict Principal Auditors
From:
Headquarters – Principal Tax Auditor
Subject:
Use in Interstate Commerce
325.0597
Date:
March 11, 1981
In September 1978, Regulation 1620(b) was amended. Part of the change was a result of the United States Supreme Court’s decision ion the case of Complete Auto Transit vs. Brady. The major change was that property purchased for use and used in interstate or foreign commerce prior to its entry into California, and used continuously thereafter between termini within California in connection with interstate and foreign commerce activities, became subject to tax. Recently, several districts have noted the inconsistency between Regulation 1620(b)(2)(B) and both Regulation 1594(a)(1), which covers the exemption for watercraft, such as tug boats, and Regulation 1620(c), which explains the exemption for rail freight cars. Specifically, they wanted to know if these sections should be amended as a result of the Complete Auto Transit case. The Complete Auto Transit case was a Mississippi case in which the State of Mississippi imposed a sales tax on gross receipts of transportation revenue. The taxable revenue consisted of only the revenue earned from the transportation performed in the State of Mississippi, notwithstanding the fact that the taxed trips were all interstate trips starting outside of Mississippi. The Supreme Court agreed that this revenue was subject to the sales tax. Sections 6368, 6368.1 and 6368.5 statutorily exempt watercraft and rail freight cars when they are for use in interstate or foreign commerce. It is the legal staff’s opinion that these sections provide specific exemptions for watercraft and rail freight cars and tha the exemption includes those that are used exclusively in California in connection with interstate and foreign commerce activities. However, the Complete Auto Transit case does support our position with regard to other modes of transportation which enter California in interstate or foreign commerce and thereafter operate continuously between termini located within California. Such property is subject to tax even though it is used in connection with the transporting of persons or property moving in interstate commerce.
D Brady
State of California
Board of Equalization
Legal Division
Memorandum
To:
Mr. Glenn Bystrom
From:
Gary Jugum
Subject:
Non-Attorney Opinions
325.0597
July 10, 1996
I have reviewed Headquarters – Principal Tax Auditor’s memorandum of March 11, 1981 to District and Subdistrict Principal Auditors. We are in agreement with his conclusion, as follows: Use in Interstate Commerce. Sales and Use Tax Law Sections 6368, 6368.1, and 6368.5 create exemptions for watercraft and rail freight cars when they are for use in interstate or foreign commerce, even if the use is entirely within this state in connection with interstate or foreign commerce activities. This exemption does not extend to other modes of transportation entering California in interstate or foreign commerce and then operating entirely between termini in this state, even though the transportation is in connection with interstate or foreign commerce. 3/11/81. Gary Jugum By MB
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