Does driving, sailing, or flying a purchased vehicle, vessel, or aircraft directly out of California count as taxable use?

Plain-English summary

Randy Pace asked how section 6009.1 worked after Stockton Kenworth. He attached an absent April 18, 1986 Donald Hennessy memorandum about a meeting with Gary Jugum and Glenn Bystrom.

Those participants concluded that actively driving, sailing or flying planes, vehicles and vessels out of California was excluded when it was the property's sole activity here before solely outside use. A purchaser coming only to collect and drive directly out qualified. An independent California reason indicated other use, but actual property activity—not the reason alone—controlled.

The exclusion applied only to use tax. It did not erase sales tax on a taxable California sale. Vehicle/vessel sales by persons required to hold seller's permits due to sale frequency remained taxable unless another exemption applied; section 6366 was noted for aircraft.

Pace asked for opinions on two stated—not actual—examples:

• A purported nonresident bought a vessel in California for outside use. After 1.5 years of extensive repairs, the purchaser lived aboard during a six-week southbound trip from San Francisco to Mexican waters toward the West Indies. Repairs did not create tax on the stated theory, but whether the trip was direct removal remained unresolved.
• A California resident bought a vessel for claimed Mexico use, kept it here over three years and gave it to a son in California; it might later have reached Mexico. The gift itself was ownership activity outside section 6009.1 and taxable.

Direct removal did not require the fastest due-west route. A reasonable southbound route and stops solely for refueling/restocking could qualify. Sport fishing, tourism, California port use or another interruption supported taxable use.

The memo separately addressed resident/nonresident purchases from a person not required to hold a seller's permit by that sale, followed by California-address registration. Registration supported a rebuttable inference of other California use; a resident bore a greater proof burden. No fixed time applied because actual reason and activity controlled.

The live annotation publishes only the active-transport and route/stop rules. It omits the sales-tax boundary, complete examples, gift result, registration inference and no-set-time guidance.

Common questions

Did driving a purchased vehicle out under its own power always qualify?

No. It had to be the only California activity and serve later solely outside use. Additional vehicle activity could create tax.

Did a purchaser's independent California reason automatically create tax?

No. It was evidence about actual property use. The memo made activity the controlling fact.

Was the shortest possible route required?

No. Time and route had to be appropriate for direct removal; necessary refueling/restocking differed from fishing, tourism or other use.

Did 1.5 years of repairs defeat the exclusion?

Not on the stated first example. Missing facts about the later six-week departure prevented a definitive conclusion.

Could direct removal eliminate sales tax?

No. Section 6009.1 affected otherwise-applicable use tax, not a separately taxable California sale.

What did the in-state gift show?

Giving the vessel to the purchaser's son exercised ownership power in California and was taxable use outside the exclusion.

Were actual petition facts decided?

No. The memo expressly analyzes stated rather than actual facts and supplies no final determination or tax outcome.

Citations and references

• California Revenue and Taxation Code sections 6009.1, 6051, 6282 and 6283 — use exclusion and sales-tax boundary
• California Revenue and Taxation Code section 6366 — aircraft exemption mentioned without conditions
• Stockton Kenworth v. State Board of Equalization, printed as (1985) 157 C.A.3d 334 — reporter resolves to a 1984 decision
• April 18, 1986 Hennessy memorandum and meeting — identified, not reproduced
• October 4, 1988 Pace memorandum and oral instructions — stated rather than actual case facts
• Six-week West Indies-removal and three-year gift hypotheticals — direct-removal and taxable-use examples
• Registration and no-fixed-time questions — related guidance omitted live
• Official Annotation 325.2200 — publishes only the active-transport and route rules

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 325.2200
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-2200.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum

To:

Mr. Randy Pace
Petition Unit

From:

David H. Levine
Tax Counsel

Subject:

Section 6009.1 Exclusion after
Stockton Kenworth

325.2200
December 1, 1988

This is in response to your memorandum dated October 4, 1988 regarding the interpretation of the Section 6009.1 exclusion from the definition of use in light of Stockton Kenworth v. State Board of Equalization, (1985) 157 C.A.3d 334. You have included a copy of a memorandum dated April 18, 1986 by Donald Hennessy regarding a meeting he attended with Gary Jugum and Glenn Bystrom on this issue. The participants of that meeting concluded that the Section 6009.1 exclusion from the definition of use would apply to the active transportation of planes, vehicles, and vessels out of California if that transportation was the sole use of the item in California. Thus, if a vehicle purchaser comes into California only for the purpose of picking up the vehicle and driving it directly out of California for use solely thereafter outside California, no use tax would be applicable. On the other hand, if the purchaser were in California for some independent reason other than taking delivery of the vehicle, the purchaser’s driving of the vehicle in California would be regarded as a taxable use. The exclusion from use provided by Section 6009.1 is only relevant in circumstances when the use would otherwise be subject to use tax. The exclusion is not relevant when the sales tax is applicable because under such circumstances it is the sale that is being tax and not the use. Thus, if a sale occurs in California which is subject to sales tax and no other exclusion or exemption applicable, that sale is subject to sales tax without regard to whether the purchaser thereafter directly transports the vehicle or vessel outside California. This means that when a vehicle or vessel is sold in California by a person required to hold a seller’s permit by virtue of the number of vehicles or vessels that person sells, that sale is subject to sales tax unless otherwise exempted without regard to the purchaser’s use or direct removal of the vehicle or vessel from the state. (Rev. & Tax. Code §§ 6009.1, 6051, 6282, 6283.) Section 6366 sets forth a relevant exemption with respect to aircraft. The discussion below applies only in circumstances that use tax, and not sales tax, would be applicable. You have cited two specific examples. You have orally indicated to me that you wish our opinion on these two examples based on the facts you have stated, and not on the facts that may actually be involved in those cases. You believe both examples are taxable based not only on the length of time the vessels remained in California, but also based on the use made of the

Mr. Randy Pace

-2-

December 1, 1988
325.2200

vessels before leaving California. The critical question is one of fact: is the vessel used in California in any way other than as described in Section 6009.1. If so, that use is taxable. If not, tax does not apply. As discussed in Mr. Hennessy’s memorandum, a purchaser’s independent business reason for being in California was evidence that the purchaser actually used the vehicle in California other than merely to transport it directly out of California. That is, it is not the purchaser’s independent business reason for being in California that is determinative; rather, the significance of that fact is what it tells us about the purchaser’s use of the vehicle in California. Similarly, the only significance to the length of time an item is in California after purchase before it is removed from California is how that length of time clarifies the use to which the purchaser put the item. The inference is that the longer that length of time is, the more likely the purchaser used the item in some manner other than in a manner entitled to the exclusion provided by Section 6009.1. However, we note that the exclusion includes “storage” for the purpose of subsequently transporting the item outside the state. Thus, the length of time is merely an indicator. In your first example, a purported nonresident purchased a vessel in California for use outside California. For the year and one-half following the purchase, the vessel remained in California undergoing extensive repairs. The vessel was then sailed to the West Indies. It took approximately six weeks from the time the vessel departed from San Francisco sailing south until it reached Mexican waters. During the six weeks, the purchaser lived aboard the vessel. The initial one and one-half years during which the vessel was repaired does not subject the purchaser’s use to use tax. As set forth in your memorandum, the only use for which the purchaser could arguably be subjected to use tax would be the transporting it outside California. It is a question of fact whether the six weeks taken to remove the vessel from California territorial waters constitutes direct removal. We do not require for Section 6009.1 that the purchaser take the fastest route out of California waters (e.g., due west). Rather, the question is whether six weeks is an appropriate time period for direct removal south. Six weeks appears to be a longer period than necessary to effect direct removal and indicates that the purchaser may have used the vessel in California for some additional purpose. For example, the purchaser may have stopped along the way for sport fishing or may have docked at California ports on its route outside California. If so, this would support the conclusion that the purchaser made taxable use of the vessel. On the other hand, if the purchaser could show that all stops were merely for refueling and restocking and not for tourist or other purposes, and that there was no interruption in departing from California waters for purposes such as fishing, Section 6009.1 would remain applicable and no tax would be due. In your other example, a California resident purchased a vessel in California arguing that the vessel was purchased for use in Mexico. The vessel remained in California for a period of over three years during which the vessel was given to the purchaser’s son. The vessel may now be located in Mexico.

Mr. Randy Pace

-3-

December 1, 1988
325.2200

The period of three years the vessel remained in California is certainly evidence that the vessel was purchased for use in California. When coupled with the fact that the purchaser was a California resident, we must presume that the vessel was purchased for use in California and use tax would be assessed unless the purchaser supplies evidence that establishes that the vessel was not used in California except in the manner described by Section 6009.1. However, we need not reach this analysis under the facts you present. A California resident purchased the vessel in California, kept it in California, and then gave it to the purchaser’s son. The gift of the vessel to the son while the vessel was in California is an exercise of power in California that is not described in Section 6009.1 and is therefore a use which is subject to tax. In asking for additional guidelines in matters such as these, you have set forth several questions. I have not analyzed the examples you presented in the context of these questions since the questions do not seem to relate to the actual examples you set forth. Rather, I deal with those questions separately. They involve the purchase of a vehicle, vessel, or aircraft from a person not required to hold a seller’s permit by virtue of that sale. In one scenario the purchaser would be a California resident while in another scenario the purchaser would be a nonresident. However, in each scenario you present, the purchaser would register the item at a California address. If we conclude under either scenario that the transaction is not subject to tax, you ask how long the property may remain in California before it becomes taxable. When a person purchases a vehicle, vessel, or aircraft in California and then registers that property in California showing a California address, we may infer from that registration that the purchaser will use the property in a manner not excluded from the definition thereof by Section 6009.1. Use tax would apply unless the purchaser could establish that the property would be used in California only in a manner described by Section 6009.1. We reach this conclusion without regard to whether the purchaser is a California resident or not. If the purchaser is a resident, his burden of showing use within the description of Section 6009.1 will be greater. The question you ask regarding the time property may remain in California before Section 6009.1 ceases to apply is discussed above. There is no set time period for property to remain in California before Section 6009.1 ceases to apply. Rather, although time remaining in California may be evidence of tangible use, we must look to the reason for the item’s presence in California and to the actual use of that item in California. If the reason the item remains in California is described by Section 6009.1, tax does not apply. If the reason is not described by Section 6009.1, tax does apply. If you have further questions on the subject, feel free to write again.

DHL:ss

bc:

325.2200.doc

Mr. D. J. Hennessy