Were time charters of oil tankers carrying crude oil from Alaska to California taxable leases of tangible personal property?

Plain-English summary

A Board audit included in unreported tax the California-waters portion of payments under time charters between a redacted oil company and two redacted tanker owners. No tax had been paid under the charters. The PDF says crude oil moved from a redacted origin to Long Beach; the live annotation identifies the route as Alaska to California.

The company argued that its agreements bought transportation services rather than a lease, rental or hire of tangible personal property. Its November 23, 1970 and January 20, 1971 letters/briefs are absent, as are the time-charter contracts and audit.

After reviewing those briefs and conferring with Attorney General staff, Board counsel agreed. Maritime and admiralty law had often characterized vessel time charters as contracts of affreightment, so these tanker agreements supplied transportation services and were not taxable leases.

No specific maritime statute, case, treatise, tax provision or contract term is cited. The conclusion was deliberately limited to time charters of vessels and does not state a general control/crew test.

Counsel said the decision would be communicated so audit staff could make necessary adjustments. The source provides no amount, revised workpaper, assessment, refund/payment or final disposition.

The live annotation publishes only that Alaska-to-California tanker time charters were transportation services. It omits the audit's California-time measure, supporting briefs/contracts, Attorney General consultation, lack of cited authority, express vessel-time-charter limit and missing adjustment.

Common questions

Were payments for charter time spent in California waters taxable?

No under these vessel time-charter contracts.

Why were the tankers not treated as rented tangible property?

The governing maritime framework characterized the agreements as transportation-service contracts of affreightment.

Which route did the source identify?

The live annotation says Alaska to California; the PDF redacts the origin and names Long Beach as the California destination.

Does this answer apply to every vessel charter?

No. The opinion expressly limited itself to time charters of vessels.

Did the opinion address other equipment leases?

No. Its reasoning depended on maritime and admiralty law.

Did counsel cite a maritime case or statute?

No. The letter invokes the body of maritime/admiralty law generally.

Were the charter contracts and briefs published?

No. They were reviewed but are absent from the PDF.

Was the audit actually adjusted?

The letter said staff would receive the decision for necessary adjustments, but no calculation or final assessment is supplied.

Citations and references

• Maritime/admiralty time-charter law — general contract-of-affreightment basis; no specific authority cited
• November 23, 1970/January 20, 1971 letters and briefs — reviewed; absent
• Time-charter contracts with two tanker owners — reviewed; absent/redacted
• Board audit/recommended California-time assessment — described; period, amounts and workpapers absent
• Attorney General staff conference — referenced; record absent
• June 7, 1971 counsel letter — narrow result and prospective audit communication without final adjustment
• Official Annotation 330.2045 — Alaska-to-California summary without evidence/procedural limits

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2045
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2045.pdf

Original ruling text

330.2045

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 7, 1971
Tax Coordinator – Western Area

Dear Mr.
This is in response to your letters and attached briefs of November 23, 1970 and January 20, 1971 addressed to Mr. Robert Nunes which were referred to the undersigned for reply. In an audit of --- by the State Board of Equalization, the measure of unreported tax liability includes amounts paid under certain time charter contracts between --- --- --- and various owners of tankers. The owners involved in the contacts forwarded to us were --- --- --- --- Inc., and --- --- --- Inc. The tankers in question transported crude oil for --- from --- Long Beach, California. No tax was paid by --- --- --- under the time characters in question. The Board’s auditor is including in his recommended assessment that portion of the monies paid to the owners of the tankers which represent payment for character time spent in California waters. --- --- --contends that the time characters constitute the rendition of transportation services, and that no lease, rental, or hire of tangible personal property or tax liability arises. After reviewing your briefs and conferring with the Attorney General’s staff, we have concluded that the time characters of oil tankers in question represent agreements for transportation services and are not taxable as leases under the Sales and Use Tax Law. Our conclusion in this matter is predicted on the body of maritime and admiralty law which has often discussed time characters as contracts of affreightment. We, therefore, consider our decision to have application only to time charters of vessels. We shall communicate our decision to the audit staff so that the necessary adjustments can be made in the audit of --- --- ---. If you have further questions on this matter, feel free to contact the undersigned.

Very truly yours,
Donald J. Hennessy
Legal Counsel

DJH:lt
Bc:

Los Angeles Dist. – Dist. Admin.,
Hollywood – Subdist. Admin.,

Mr. Robert Nunes
Mr. J. D. Dotson