Was diesel loaded into Mexican fishing boats export cargo because it was transported and burned outside United States territorial waters?

Plain-English summary

A San Diego Marine Dock seller delivered diesel into compartments on Mexican fishing boats. The compartments stored both fuel and fish: purchased fuel propelled the vessel during fishing, and the same space held fish after fishing. The boats departed the dock on diesel already in their main tanks.

Tax counsel recommended denying the export-exemption claim. Ruling 55 required every exemption condition and proper proof, including purchaser-conveyance delivery for carrying goods abroad and actual carriage to a foreign destination. Counsel viewed this diesel as fuel for fishing operations, not export cargo, even though the boats transported and used it outside California and United States territorial waters.

An absent Attorney General letter supported the position by treating fuel oil sold to Mexico's government for naval-vessel use as taxable and not a federal-constitutional export burden. Counsel reasoned that private Mexican fishing-boat fuel should likewise be taxed.

The recommendation was not unconditional. A recent D.C.A. Shell Oil opinion had barred California tax on fuel sold as ships' stores to vessels exclusively carrying export cargo. The Board would retain its position pending California Supreme Court review, revisit it if that court agreed, and keep taxing propulsion fuel to the first foreign port if the court disagreed.

The source supplies no completed exemption allowance, assessment, final Board action or California Supreme Court outcome. The live annotation publishes only the negative export-cargo result and omits the pending-review limit.

Common questions

Why was fuel carried outside territorial waters not export cargo?

The purchaser brought it for vessel propulsion during fishing operations, not for carriage abroad to a foreign destination as goods.

What role did the dual-use compartments play?

They held the purchased fuel and later the caught fish. The vessel departed on fuel already in its main tank, reinforcing counsel's description of the purchased product as fishing-operation fuel.

What proof did Ruling 55 require?

Counsel said every exemption condition needed proper proof and quoted purchaser-furnished conveyance, purpose of carrying goods abroad and actual carriage to a foreign destination.

Was counsel's result final?

No. It was a recommendation maintained pending a California Supreme Court decision in Shell Oil, with promised reconsideration if that court agreed with the D.C.A.

What did the missing Attorney General opinion contribute?

As described, it treated Mexican-government naval fuel as taxable and rejected a federal-constitutional export-burden argument. The opinion itself is absent.

Citations and references

• California Sales and Use Taxes Ruling 55-A(1)(e) — purchaser-conveyance and foreign-destination conditions
• Unidentified Attorney General letter opinion — described but not reproduced
• Shell Oil Co. v. State Board of Equalization, 237 A.C.A. 310 — source cite; state Supreme Court review then pending
• March 8, 1966 seller claim — identified but not reproduced
• Official Annotation 325.1300 — publishes the fishing-operation/export-cargo distinction

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.1300
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1300.pdf

Original ruling text

325.1300

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

May 19, 1966

Dear
This is in reply to your letter of March 8, 1966, concerning your claim that certain sales of diesel fuel to Mexican fishing boat owners made at your San Diego Marine Dock are exempt from sales tax under Sales and Use Taxes Ruling 55. It is our understanding from your letter that you sell and deliver certain fuel oil (which is used to propel the boats) to certain Mexican fishing boat owners at your San Diego dock. The boats operate off a main fuel tank and are compartmentalized in a way so that they can be used for storing fish as well as fuel. The purchased fuel is taken from these compartments and used for propelling the vessel in its fishing operations. After fishing, the same compartments are used for storing the fish. The boats depart from your dock by using diesel fuel already in the main fuel tank. In order to claim exemption from sales tax upon the ground that the sales are immune from taxation as sales in foreign commerce or as export sales, it is essential that all of the conditions of such exemption be present and adequately supported by proper proof. Ruling 55-A(1)(e) expressly provides as a condition of exemption that the goods shall be delivered to a conveyance furnished by the purchaser for the purpose of carrying the goods abroad and which in fact are actually carried to a foreign destination. Since your foreign purchaser (i.e., Mexican boat operator) uses the purchased fuel in its fishing operations, it has not brought goods for the express purpose of carrying them to a foreign destination. Thus, it is our opinion that sales of fuel oi1 to Mexican fishing boat operators for purposes of refueling their vessels while engaged in fishing operations are not to be considered as sales of "export cargo" within the meaning of the aforementioned ruling, notwithstanding the fact that the foreign purchaser transports the goods outside the state and uses them In his fishing operations outside United States territorial waters. Accordingly, we are unable to recommend allowance of the sales in question as being exempt export sales. In support of our position is a letter opinion from the Attorney General's office stating that the California sales tax applies to the sale of fuel oil to the government of Mexico for use in its naval vessels. The opinion also stated "that such a tax would not be a burden on an act of exportation contrary to the federal Constitution." Thus, if tax applies to the sale of fuel oil to the Mexican government, undoubtedly it should also

apply to the sale of fuel oil to private Mexican fishing boat operators who use the fuel in their fishing operations. However, our recommendation must be considered in the light of the recent D.C.A. Opinion of Shell Oil Co. v. State Board of Equalization, 237 A.C.A. 310, which held that California cannot constitutionally apply its sales tax to fuel oil sold as ships stores to vessels engaged exclusively in the carriage of export cargo. Our position, of course, on this matter will remain the same pending a final decision before the California Supreme Court. If the Supreme Court holds the same as the D. C. A. Opinion, we will review our position in light of that decision. However, if the Supreme Court holds contrary to the D.C.A. Opinion, our position requiring the application of sales tax to the sale of fuel oil used to propel a vessel to the first foreign port of call will remain the same. If you have any further questions or arguments to present in connection with this matter, please do not hesitate to forward the same to this office for our reply.

Very truly yours,

E. H. Stetson
Tax Counsel
By
Elliott D. McCarty
cc: