Was anchor chain delivered to a Chilean-flag naval vessel in San Francisco an export because the ship constituted foreign territory?

Plain-English summary

An unidentified firm sold several pieces of anchor chain to the Chilean Government for use as running gear on a naval vessel recently purchased from the United States Navy. The chain was delivered to the ship at the Port of San Francisco.

The Chilean Government and United States Navy legal counsel contended that the Chilean-flag vessel constituted foreign territory, so delivery aboard it was export and the sale was in foreign commerce. Neither legal submission nor the sale and vessel records are supplied.

The Chilean government and U.S. Navy counsel argued that a vessel flying Chile's flag was foreign territory, making delivery to the ship an export. The Board's counsel rejected that position based on Shell Oil Co. v. State Board of Equalization: a foreign flag alone did not mean the goods had been received at a foreign country or destination.

The letter therefore treated the anchor-chain transaction as a taxable California retail sale, not an exempt export, and declined to recommend an adjustment.

The official PDF visibly prints “64 A.C. 773.” The live annotation adds a period after “64,” changes several chain pieces to singular, and generalizes San Francisco to a California port.

No tax amount, proposed adjustment, final Board action, payment, claim, appeal or later outcome is supplied.

Common questions

Did a foreign flag turn the vessel into foreign territory for this sale?

No. Counsel rejected that contention under the quoted Shell Oil statement.

What did Shell Oil say?

As quoted, an article delivered to a foreign-flag vessel could not, for that reason alone, be deemed received at a foreign country or destination and therefore an export.

Where did delivery occur?

The PDF says at the ship in the Port of San Francisco. The live annotation states only a California port.

Who made the foreign-territory argument?

The letter attributes it to the Chilean Government and United States Navy legal counsel, but supplies neither party's submission or supporting authority.

Was there a final adjustment decision?

Not in this source. Associated tax counsel said the office could not recommend an adjustment; the audit, amount, final action and later procedural record are absent.

Citations and references

• Shell Oil Co. v. State Board of Equalization, 64 A.C. 773 — exact official-PDF cite and quoted foreign-flag rule
• Chilean Government and U.S. Navy counsel contention — described but submissions absent
• July 28, 1966 request — identified but not reproduced
• Official Annotation 325.1260 — publishes the taxable California-sale result

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1260
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1260.pdf

Original ruling text

325.1260

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 23, 1966

Attention:
Gentlemen:
Your letter of July 28, 1966, to Mr. B. H. Trice, Supervising Auditor, San Francisco, has been referred to this office for reply. It is our understanding that your firm sold several pieces of anchor chain to the Chilean Government for use as part of the running gear of a naval vessel recently purchased from the United States Navy. The anchor chain was delivered to the ship in the port of San Francisco. It is further our understanding that the Chilean Government and the United States Navy's legal counsel contend that, since the vessel flies the Chilean flag, it constitutes foreign territory and, therefore, the delivery of the chain thereto was an export and the sale was in foreign commerce. As indicated in the recent case of Shell Oil Co. v. State Board of Equalization, 64 A.C. 773, decided June 6, 1966, the California Supreme Court has held that: "An article delivered to a vessel which flies a foreign flag cannot, for that reason alone, be deemed to have been received at a foreign country or destination and thus to have become an 'export' within the definitions promulgated by the United States Supreme Court." In view of the foregoing, it is our opinion that the sale of the anchor chain to the Chilean Government was a taxable retail sale made in this state and not an exempt export sale. Accordingly, we cannot recommend any adjustment with respect to the application of sales tax thereto. Very truly yours, George A. Trigueros Associated Tax Counsel GAT: em cc: Mr. Hector Vurr Chilean Consulate 870 Market Street San Francisco, CA bcc: San Francisco - Auditing