Was an owner-skippered 35-foot sailboat charter a lease eligible for FRV reporting?

Plain-English summary

A sailing-cruise partnership reportedly obtained a seller's permit on June 22, 1984, bought a 35-foot sailboat ex tax on August 21, issued a resale certificate, characterized its charters as leases, and timely reported tax on lease receipts. Audit staff said the owner skippered every charter; counsel's answer expressly assumed owner-skippering was a condition of providing the vessel.

California said the arrangement was a transportation service rather than a lease. A true rental requires giving possession and control to the hirer; here the owner retained possession, custody, and the license to use the vessel.

Because the transaction was not a lease, the taxpayer could not use FRV reporting. The official annotation states that use tax was due on the sailboat's total purchase price. The memorandum declined to answer unrelated hypothetical variants while legal staff reviewed them.

Assumption, date conflict, and split source holdings

The memorandum does not make an independent factual finding that the owner was required to skipper. It says, “Assuming” that owner-skippering was a condition, the owner provided transportation services because possession, custody, and license to use remained with the owner or employees. No charter contract, bareboat option, captain agreement, customer instruction, operating record, insurance term, control evidence, or invoice is included.

The stated chronology is internally unresolved. Audit staff reported no use of the sailboat from its August 21 purchase “until October 31, 1984,” but also reported an October 21 “lease” and timely election. The source does not explain whether the date, no-use statement, or characterization is mistaken. The BT-400 application, seller's permit, purchase invoice, resale certificate, return, filing evidence, lease receipts, and tax payments are absent.

The PDF's substantive response decides only that the assumed owner-skippered arrangement was transportation service rather than a lease. It does not expressly state that lease-receipt/FRV reporting was unavailable or that purchase-price use tax was due. Those consequences appear on the live 335.0130 annotation, which supplies no amount or additional record. This page attributes those propositions to the live source rather than silently treating them as text from the memorandum.

The PDF cites Entremont v. Whitsell, 13 Cal.2d 290; the live entry spells the surname “Whitesell.” The reporter citation resolves to Entremont v. Whitsell, matching the PDF. The source also says legal staff was still reviewing other hypothetical questions and gives no answers or later follow-up.

Common questions

Did calling the transaction a charter or lease control?

No. Actual possession and control controlled the classification.

Could the owner use FRV because a timely return had been filed?

No. FRV depended on a qualifying MTE lease, which the source found absent.

Did the PDF itself order purchase-price use tax?

No. The PDF classifies the arrangement as a service rather than a lease; the live annotation adds the unavailable lease-receipt option and purchase-price result.

Citations and references

• California Civil Code sections 1925 and 1955
• Entremont v. Whitsell (1939) 13 Cal.2d 290
• California Sales and Use Tax Regulation 1660(a)
• Business Taxes Law Guide Annotation 330.2660
• San Mateo Audit's August 11, 1987 memorandum and deferred hypothetical questions — referenced but not included
• Form BT-400 seller's-permit application, resale certificate, sailboat purchase, charters, skipper evidence, lease-receipt returns, and tax records — not included

Verbatim support

From the official January 29, 1988 memorandum:

Assuming that the owner requires, as a condition to his providing the vessel, that he skipper the vessel, we believe that the vessel owner is providing transportation services to the customers.

When possession, custody, and license to use equipment remains totally in the hands of the owner or his employees, such a transaction is not a lease for sales and use tax purposes.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/335-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/335-0130.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

San Mateo Audit (D.S.)

From:

Headquarters – Legal (RLD)

Subject:

G--- M--- S---

335.0130

January 29, 1988

SR -- XX-XXXXXX

This is in reply to your August 11, 1987 memorandum regarding the application of use tax to the purchase and purported lease of a vessel by G--- M--- S--- (taxpayer), a partnership owned by Mr. M--- K. and Mrs. D--- L. G---. We understand that the taxpayer obtained a seller’s permit on June 22, 1984. The form BT-400, Application For Seller’s Permit and Registration As A Retailer, shows the nature of business to be “sailing cruises”. On August 21, 1984, the taxpayer purchased a 35-foot sailboat and issued a resale certificate to the seller. The taxpayer made no use of the vessel between August 21, 1984 until October 31, 1984. You note that, on October 21, 1984, the taxpayer “leased” the vessel and timely elected to report and pay use tax on lease receipts. You also note that, in all cases, where the taxpayer charters the vessel, the taxpayer skippers the vessel. The taxpayer bills a lump sum for the charter. Given this information, you asked the following: “1) When the owner ‘skippers’ the vessel, does it qualify as a bonafied (sic) lease or is the rental a hire of a transportation service, since control of the vessel is exercised by owner (Reg. 1660(a))?” Assuming that the owner requires, as a condition to his providing the vessel, that he skipper the vessel, we believe that the vessel owner is providing transportation services to the customers. The chief characteristic of a renting or leasing is the giving up of possession to the hirer, so the hirer and not the owner uses and controls the rented property (Entremont v. Whitsell, 13 Cal.2d 290, citing Civ. Code §§ 1925, 1955). When possession, custody, and license to use equipment remains totally in the hands of the owner or his employees, such a transaction is not a lease for sales and use tax purposes. (BTLG Annot. 330.2660.)

San Mateo Audit (D.S.)

-2-

January 29, 1988
335.0130

You also posed various hypothetical situations concerning similar situations. As we discussed, the legal staff is reviewing the application of sales tax to situations posed by the hypothetical questions you raised; therefore, we are not providing answers to your questions at this time. However, if you have further questions as to this case or other actual cses as to which you need answers, feel free to write again.

RLD:sr