Did charitable or nonprofit status exempt supplies and equipment bought for a medical-teaching ship from California sales or use tax?

Plain-English summary

A redacted organization bought supplies and equipment for an unidentified ship that traveled extensively to foreign countries to conduct a medical-teaching program. California concluded that charitable activity or nonprofit status did not create a general sales- or use-tax exemption.

The opinion mentioned an exception when the purchaser was the beneficiary of charity and other requirements were met, but those qualifications appeared only in an absent July 19, 1962 Board letter. Property-tax and income-tax privileges did not supply a sales- or use-tax exemption.

Section 6385's common-carrier exemption did not apply because the organization was not engaged in transporting persons or property for hire. Section 6368's watercraft exemption required qualifying interstate or foreign transportation for hire or commercial deep-sea fishing. Foreign travel alone was insufficient.

California identified a narrower possible adjustment: section 6009.1 excluded storage or retention of items bought outside California and merely stored here before subsequent use solely outside the state. First use in California made use tax apply. Citing Southern Pacific and American Airlines, counsel described a taxable moment after property entered California and before removal or entry into interstate or foreign commerce.

Board records said a 1960 Willys Jeep had been excluded because it was not purchased for California use. Counsel said the same principle could apply where property was bought outside California for service in another state and only afterward was placed in California service.

The matter was a petition for redetermination. Counsel gave the organization 30 days to submit more data or argument before sending it to the Board; the source contains no final Board action.

Source and live-annotation limits

The official PDF does not include the June 26 request, July 3 acknowledgment, July 19, 1962 letter, ship or program records, supplies or equipment, common-carrier or watercraft operations, purchase or delivery records, storage or first-use evidence, interstate or foreign-commerce records, 1960 Willys Jeep or Board records about it, use-tax determination or workpapers, additional data or argument, petition, Board submission or action, prices, invoices, sales or uses, returns, exemption documentation, tax calculations or payments, assessment, claim, refund, appeal, or later outcome. The organization, ship, beneficiaries, vendors, locations, transactions, quantities, prices, determined adjustment, and tax amounts are redacted or unidentified.

The source says the ship conducted a medical teaching program; the live entry instead says professional teaching activities. The original-text section preserves the source wording and does not reconcile the difference.

The live annotation preserves the no-general-exemption rule, California delivery, ship use in foreign countries, date, and equal treatment with other purchasers. It calls the organization a charitable foundation and the program professional teaching. It omits the request and counsel, redactions, beneficiary-of-charity exception and absent 1962 letter, sections 6385 and 6368 and their for-hire/fishing analysis, section 6009.1 storage issue, first-use and taxable-moment analysis, two cases, Jeep treatment, petition and 30-day evidence window, missing records, source/live wording difference, and absent final action.

What this means for you

Charities, nonprofits, vessel operators, and tax professionals

Preserve organizational and beneficiary facts, every purchase and California delivery, ship operations, transportation-for-hire or fishing evidence, storage and first-use location, interstate or foreign movement, contracts, invoices, returns, exemption documents, audit workpapers, petitions, tax calculations, and payments. Nonprofit status alone does not answer the transaction-level question.

Common questions

Did charitable or nonprofit status create an exemption?

No.

Did the ship's foreign travel qualify it for the watercraft exemption?

No, because it was not engaged in the specified transportation for hire or commercial fishing.

When could out-of-state property avoid use tax under the opinion?

When it was merely stored in California before being used solely outside the state, rather than first used here.

Did the opinion recognize any charity-related exception?

It referenced a purchaser that was the beneficiary of charity plus other qualifications, but those requirements were only in an absent 1962 letter.

Was the petition finally decided in this source?

No. Counsel allowed 30 days for more submissions before Board action.

How do the source and live entry describe the program?

The opinion says medical teaching; the live entry says professional teaching.

Citations and references

• California Revenue and Taxation Code §§ 6009.1, 6368, and 6385
• Southern Pacific Co. v. Gallagher, 306 U.S. 167
• American Airlines, Inc. v. State Board of Equalization, 216 Cal. App. 2d 180
• July 19, 1962 Board letter concerning a beneficiary-of-charity exception — described but not included
• June 26 request, ship and property records, tax determination, Jeep records, petition and additional submissions, Board action, and outcome — described or implicated but not documented

Verbatim support

From the official Tax Counsel opinion:

We first call your attention to the fact that there is no exemption from either the sales tax or the use tax upon the basis that the user of the property purchased is engaged in charitable activities or is a nonprofit organization, except where the purchaser is the beneficiary of the charity, together with other qualifications explained in our letter to you of July 19, 1962.

If, however, the first use of the property occurs in this state, the use tax, in our opinion, applies.

We shall wait 30 days before submitting the matter to the Board for action on your petition for redetermination to give you the opportunity if you desire to submit any additional data or argument.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/390-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/390-0020.pdf

Original ruling text

390.0020
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 24, 1964

REDACTED TEXT
Your letter of June 26, 1964 to Mr. H. F. Freeman, Executive Secretary, was acknowledged under date of July 3 and referred to the undersigned for attention. It appears that REDACTED TEXT purchased various items of supplies and equipment for use on the ship REDACTED TEXT, which travels extensively to foreign countries conducting a medical teaching program. We first call your attention to the fact that there is no exemption from either the sales tax or the use tax upon the basis that the user of the property purchased is engaged in charitable activities or is a nonprofit organization, except where the purchaser is the beneficiary of the charity, together with other qualifications explained in our letter to you of July 19, 1962. Sales and use taxes are imposed under specific statutory provisions which in California do not contain exemptions that are found in property tax statutes and income tax statutes in favor of some types of nonprofit or charitable organizations. Therefore, any exemption from sales or use taxes must be based on other considerations. An exemption (Section 6385, Sales and Use Tax Law) affecting sales to certain for hire common carriers would appear to be inapplicable because REDACTED TEXT is, according to our understanding, not engaged in transportation of persons or property for hire. An exemption (Section 6368) applicable with respect to certain watercraft is not available because the California statute limits the exemption to watercraft for use in interstate or foreign commerce involving the transportation of persons or property for hire, or for use in commercial deep-sea fishing operations. There is no question but what the REDACTED TEXT travels to foreign countries, but this alone does not meet the requirements of the exemption statutes in the California law. Sales by California retailers of goods delivered to your organization or to the REDACTED TEXT in this state for use in your activities do not fall under any exemption either constitutional or statutory insofar as we are able to determine. There is one area in which there could be basis for an adjustment in the measure of the use tax if the determination included the purchase price of any items purchased outside this state and merely stored in this state for subsequent use solely outside this state. In this situation, a section of our statute, 6009.1, would exempt from the use tax such storage or retention of the property in this state. If, however, the first use of the property occurs in this state, the use tax, in our opinion, applies. Many court decisions including those of the U.S. Supreme Court have emphasized that there is a "taxable moment" between the time property purchased outside the state is

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Aug. 24, 1964
390.0020

brought into the state and before it is removed from the state or placed in use in interstate or foreign commerce. See Southern Pacific Co. v. Gallagher, 306 U.S. 167, American Airlines, Inc. v. State Board of Equalization, 216 Cal. App. 2d 180. Unless some of the items in controversy were purchased outside this state and merely stored in this state for subsequent use solely outside the state, there does not appear to be any basis upon which the staff can recommend adjustment in the tax as determined. The basis for considering the use tax inapplicable to your 1960 Willys Jeep was, according to our records, that the Jeep was found not to have been purchased for use in California within the meaning of the Use Tax Law. This principle would be applicable to any property included in our determination that you might have purchased outside this state intending to place it in service in some other state, but which you decided to place in service in California after it had been purchased. We shall wait 30 days before submitting the matter to the Board for action on your petition for redetermination to give you the opportunity if you desire to submit any additional data or argument. Very truly yours E. H. Stetson Tax Counsel EHS:fb [lb]