Did California use tax apply to rents for equipment used on offshore jobs when the equipment might pass through or be stored in California?

Plain-English summary

Redacted company with several offshore California jobs asked about rented equipment/scaffolding. Counsel assumed use in waters outside California and leases as continuing sales/purchases under Regulation 1660(b)(1). Request/leases/property/location absent.

Section 6006.1 treated granting possession as continuing sale only for lease periods property situated California, regardless delivery time/place. Regulation 1660(c)(1) imposed rent-measured use tax on lessee; lessor collected at rent payment, gave Regulation 1686 receipt and remitted. Lessee remained liable until receipt or state payment.

Property outside California entire lease produced no California rent tax. Property inside any period was taxable for that time unless exclusion/exemption; source says actual situs unclear.

Section 6009.1 excluded keeping/retaining/control solely to later transport outside for use solely outside. It also excluded processing/fabricating/manufacturing property into, attaching to, or incorporating into other tangible property to be transported and used solely outside—a branch old page omitted.

Example California storage solely for transport to outside waters qualified. Any California use beyond storage/control for qualifying exclusive-outside shipment triggered tax.

Live 330.2560 adds company was out-of-state and property not MTE, neither stated in PDF. It publishes location/storage result but omits quoted processing/fabrication/manufacturing branch and payment-receipt mechanics.

Common questions

Were rents taxable while equipment remained outside California?

No.

Was temporary California storage automatically taxable?

No, if its purpose was later shipment and use solely outside the state.

What would defeat storage exclusion?

Using the property in California for something other than preparing or holding it for qualifying out-of-state shipment.

Did section 6009.1 cover processing before shipment?

Yes. Quote also covers processing/fabricating/manufacturing into or attaching/incorporating into other property for exclusive outside use.

Who owed, collected and documented tax?

Lessee owed rent-measured use tax; lessor collected/remitted and provided Regulation 1686 receipt.

Did PDF say company was out-of-state or equipment non-MTE?

No. Those facts appear only in live annotation.

Were actual offshore waters identified?

No. Counsel expressly assumed waters outside California; underlying jurisdiction/location evidence is absent.

May another offshore contractor rely on result?

No. It is assumption-heavy historical advice with no location/shipment records; current situs and exclusion rules must be checked.

Citations and references

• Regulation 1660(b)(1)/(c)(1); section 6006.1 — continuing lease and California situs periods
• Sections 6202-6204; Regulation 1686 — liability, collection, remittance and receipt
• Section 6009.1 — exclusive-outside shipment/storage and processing branches
• Request/lease/property/location/shipment/use/rent/tax records — absent
• Official Annotation 330.2560 — adds out-of-state/non-MTE facts and omits processing branch

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2560
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2560.pdf

Original ruling text

330.2560

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION – MIC: 85
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-2653
FAX (916) 324-2618

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

January 3, 1996

B--- E---, Inc.
Post Office Box XXX
---, --- XXXXX-XXXX

KATHLEEN CONNELL
Controller, Sacramento

E. L. SORENSEN, JR
Executive Director

Attention: S--- L--Re:

B--- E--No Permit Number

Dear Ms. L---:
This is in response to your letter dated October 31, 1995 regarding the application of tax to your rental of tangible personal property for use on offshore projects. You state: “Our company has several jobs offshore California. Often items used on these jobs are rented (i.e., equipment, scaffolding, etc.). I am concerned about the taxability of these rental items. I would appreciate your providing me with the California state guidelines as they relate to rental items used on offshore projects.” We assume you mean that you lease tangible personal property for your use in waters outside of California, and we assume that your leases are continuing sales and purchases as explained in Regulation 1660(b)(1). Revenue and Taxation Code section 6006.1 provides that the granting of possession of tangible personal property by a lessor to a lessee, or to another person at the direction of the lessee, is a continuing sale in this state by the lessor for the duration of the lease as respects any period of time the leased property is situated in this state, irrespective of the time or place of delivery of the property to the lessee or such other persons. Regulation 1660(c)(1) explains that in the case of a lease that is a “sale” and “purchase,” the tax is measured by the rentals payable. Generally, the applicable tax is a use tax upon the use in this state of the property by the lessee. The lessee owes the tax, which the lessor is required to collect from the lessee and pay to this Board. (Rev. & Tax. Code §§ 6202,6203, 6204; Reg. 1660(c).) The lessor must collect the tax from the lessee at the time rentals are paid by the lessee and give him or her a receipt of the kind called for in Regulation 1686. The lessee is not relieved from liability for the tax until he or she is given such a receipt or the tax is paid to the state.

Ms. S--- L---

-2-

January 3, 1996
330.2560

It is not clear whether the property will be situated in this state during any of the time you are leasing the property. If the property is not situated in California during the lease term, no California tax will be due on the rentals payable. If the property is inside California during any portion of the lease term, use tax will apply for the period of time the property is inside the state unless an exclusion or exemption from tax applies. Section 6009.1 provides the relevant exclusion: “‘Storage’ and ‘use’ do not include the keeping, retaining, or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state, or for the purpose of being processed, fabricated, or manufactured into, attached to or incorporated into, other tangible personal property to be transported outside the state and thereafter used solely outside the state." Thus, for example, if you were to store the property in California for the purpose of subsequently transporting it to waters outside California for use solely outside this state, such storage would come within the section 6009.1 exclusion, and you would not owe California tax on such storage. However, you will owe use tax if you make any use of the property in California other than the storage or other exercise of a right or power over the property for the purpose of shipment outside this state for use solely outside this state. If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel

cc: --- District Administrator