Would a yacht avoid California sales and use tax if title and possession passed offshore before same-day California entry and later use was mostly outside the state?

Plain-English summary

An unidentified adviser's March 26, 1997 facsimile described a client's proposed purchase of an approximately $600,000 new yacht from a redacted California manufacturer and seller. The client had paid progress installments for completed work. The request, contract, vessel and payment records are absent.

Under the described contract, the buyer would travel separately to a point more than three nautical miles from California. The seller would retain possession and control until final inspection and approval; the buyer then would make final payment, receive a bill of sale and, in counsel's understanding, take title. Because neither title nor possession would transfer in California, counsel concluded that the planned sale would not create California sales-tax liability.

The buyer then planned to pleasure sail offshore for the day and return the yacht to a California harbor. Counsel treated that pleasure sailing as its first functional use. The yacht would remain in California for less than 90 days while being prepared for common-carrier shipment to Florida, where it would be reassembled and sailed through international waters to the Bahamas and ultimately the Mediterranean Sea.

Same-day California entry triggered the historical presumption that the yacht was bought for California use. The letter expressly assumed, rather than proved, that it would be used or stored outside California at least half the six months immediately after entry. On that assumption, counsel said the presumption was overcome and use tax would not apply.

The source supplies no completed inspection, acceptance, payment, title transfer, delivery, sailing, shipment, reassembly, location log, tax filing or later result. The live annotation preserves the proposal and result, marks amendments in 2001, 2006 and 2008, and adds a note that a different twelve-month presumption applied under certain conditions from October 2, 2004 through June 30, 2007. It does not identify the language changed by each amendment or supply a later transaction record.

Common questions

Did progress installments transfer the yacht in California?

Not under the facts counsel used. The seller would retain possession and control, and counsel understood title to pass only after offshore inspection, approval, final payment and delivery.

Why did the same-day California return not automatically produce use tax?

It created a presumption of California purchase. Under the cited historical rule, the buyer could overcome that presumption by establishing at least half of the first six months after entry was use or storage outside California.

Was the outside-use condition proved?

No. Counsel expressly assumed it for the opinion; the PDF supplies no log, marina record, carrier record or other time-and-location evidence.

What counted as the yacht's first functional use?

Counsel treated the offshore pleasure sailing after transfer as the first use for which the yacht was designed.

Did the letter document a completed sale or voyage?

No. It describes a proposed sequence and supplies no later transaction, tax or dispute record.

Does the temporary twelve-month note govern this 1997 proposal?

No. The live annotation says that note concerns a period from October 2, 2004 through June 30, 2007; it is later historical context, not a fact of the 1997 proposal.

Citations and references

• Revenue and Taxation Code sections 6006(a), 6012 and 6051; Regulation 1620(a)(1) — sale, gross receipts and offshore-transfer analysis
• Revenue and Taxation Code sections 6011, 6201 and 6401; Regulation 1620(b)(3) — use tax, first functional use, 90-day presumption and historical six-month exception
• March 26 facsimile and transaction records — proposal described; underlying request, contract and proof absent
• Official Annotation 325.0602.600 — preserves the planned facts and result, three amendment markers and a later temporary twelve-month-presumption note

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.0602.600
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-0602-600.pdf

Original ruling text

325.0602.600

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
May 30, 1997
Dear
This responds to your facsimile transmittal dated March 26, 1997 to Supervising Tax Counsel David H. Levine regarding the purchase of a yacht by your client --- You ask whether the transaction qualifies as exempt from California sales or use tax pursuant to Regulation l620(b)(3). You describe the following factual situation. --- is purchasing a new vessel for approximately $600,000 from the California manufacturer and seller (seller), --- Inc. --has paid progress installments to the seller for work completed on the vessel. Under the terms of the contract of sale, --- will make final payment for the vessel after final inspection and delivery of the vessel at a point more than three nautical miles from California.
--- will take a separate transport vessel to meet the vessel for final inspection and approval. Seller will retain possession and control until the final inspection and approval by ---. After final inspection and approval, --- will give the final payment to the seller and the seller will give --- a bill of sale. Our understanding is that title will pass at that time. After --- obtains possession and control of the vessel at a point more than three nautical miles from the California coast, --- will pleasure sail the vessel for the day and return the vessel to a California harbor. You indicate that thereafter the vessel will remain in this state for less than 90 days. While in California, it will be prepared for shipment via common carrier to Florida. You state that in Florida, the vessel will be reassembled and sailed in International waters to the Bahamas, and then to its final destination at a point in the Mediterranean Sea. For purposes of this opinion letter, we understand and assume that the vessel will be stored or used outside of California for one-half or more of the time during the six-month period immediately following its entry into this state after the final inspection, approval, and taking of possession and control by ---. 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 --- of title to or possession of the vessel, the sale of the vessel to --- will not result in a California sales tax liability. (Rev. & Tax. Code § 6006; Reg. 1620(a)(1).)

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 be 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 vessel is first functionally used in California, use tax applies. "Functional use" means the use for which the vessel was designed. The first functional use of the vessel after its transfer to --- will occur outside of California when it is used for pleasure sailing. However, since the vessel 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. 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, it is used principally outside California. Since during the six-month period immediately following the vessel's entry into this state after its purchase by --- it will be used or stored outside of California one-half or more of the time, the vessel will not be considered purchased for use in California, and will not be subject to use tax. (Reg. 1620(b )(3).) I hope this information is of assistance. Please write again if we may answer any further questions. Sincerely, Sharon Jarvis Senior Tax Counsel SJ:cl cc:

District Administrator