How did California apply sales and use tax to passenger photos, merchandise, supplies, and equipment sold or used aboard a San Diego-to-Ensenada cruise ship?

Plain-English summary

A business operated aboard a cruise ship making daily San Diego-to-Ensenada trips. It photographed passengers, developed and printed boarding, deck and one-hour-lab images, displayed and sold photos from its onboard retail store, sold cameras, film, frames and batteries, and bought photo equipment in California, New York and Arizona for shipboard use.

Merchandise held for retail resale without prior use could be purchased for resale. Shipboard retail sales inside California's three-mile limit were subject to sales tax. Sales outside that limit did not occur in California for sales-tax purposes under Regulation 1620(a).

Outside-the-limit sales still created use tax when property was bought for California use. Section 6247 presumed California use when a retailer delivered outside California to a purchaser known to be a resident. A signed written statement retained by the vendor could rebut the presumption by designating out-of-state use points; other satisfactory evidence could also rebut it.

The source distinguished a wholly outside-California over-the-counter sale, for which an engaged retailer was not always required to collect, from this operation. The ship entered California daily, picked up passengers, and returned them and their purchases here. Those contacts supported collection from known California residents, and the letter said boarding and disembarking facts justified treating passengers as California residents unless they established otherwise. A good-faith signed statement could relieve the retailer's collection duty, but the purchaser still owed use tax if the property was actually bought for California use.

Film, paper, chemicals, cameras and similar property used to produce photographs rather than resold as such were taxable supplies under Regulation 1528(a)(1). They could not be bought ex tax with a resale certificate. Film was therefore either resale merchandise or a consumed input depending on actual use.

For New York or Arizona equipment assumed used rather than resold, no California sales tax applied to the out-of-state purchase, but California use tax could. First functional use in California meant the property was bought for California use. If first functionally used elsewhere but brought into California within 90 days, the same presumption applied unless it was used or stored outside California at least half the time during the six months immediately after entry. The letter applied that historic timing test to onboard equipment.

The source told the retailer to report total gross sales on line 1 and purchases subject to use tax on line 2 of the then-current State, Local & District return. Those line instructions are historical, not current filing directions.

Source posture and live annotation

The letter answers a request received August 26, 1994 and quotes six questions, but supplies no inquiry, identity, cruise contract, ship log, three-mile sale record, passenger address, resident determination, signed statement, receipt, resale certificate, supply invoice, equipment purchase date, first-use record, six-month use/storage log, return, audit, assessment or later outcome. It assumes photo equipment means used property rather than resale inventory and assumes the requester already understands the photographer rules from Pamphlet 68.

The live 420.0176 annotation, in the 2026 revision of the Business Taxes Law Guide, retains the daily route, shipboard photo and merchandise sales, resale inputs, three-mile rule, California-customer collection, consumed production materials, out-of-state equipment and November 10, 1994 date. It says a customer must certify property will be used only at a specified outside point, while the source requires a good-faith signed statement that it was purchased for use at designated outside points and separately allows other satisfactory evidence; it does not use only. The live page replaces the source's 90-day and half-of-six-month rules with principal use (including storage) is inside the state, obscuring the stated historic test. It omits the daily-contact nexus reasoning, Montgomery Ward, purchaser's continuing liability, presumption that boarding passengers were residents, consumed-item examples, six quoted questions, return-line instructions, missing enclosure and absent applied outcome.

Legal research independently resolved 272 Cal.App.2d 728 to Montgomery Ward & Co. v. State Board of Equalization, filed May 12, 1969; the official letter remains the basis for its use here.

CDTFA's Annotated Legal Opinions collection says the letters are summarized as annotations and that statutory law controls whenever a statute and annotation conflict. The official four-page PDF has a clean native text layer and one page-1 letterhead stencil rather than scanned text, so no OCR was required. Both fresh direct PDF downloads and both live-page downloads were byte-identical, duplicate default PDF text extractions matched, and the original-text section remains byte-identical to its committed version and fresh extraction after removal of only the extractor's terminal newline and form feed.

What this means for you

Cruise retailers, photographers and tax professionals

Record the exact sale location, property use, passenger residency evidence and delivery back into California. Separate resale merchandise from consumed production inputs. For equipment, keep purchase, first-use, entry and use/storage logs, and apply current law rather than assuming the 1994 timing tests or return lines remain operative.

Common questions

Q: Did moving outside the three-mile limit end every California obligation?

A: No. It removed California sales tax from the sale location under the letter, but California use tax and retailer collection could still apply.

Q: Why did the onboard retailer have to collect from California customers?

A: The ship entered California daily, picked up passengers and returned them with purchases, supplying the California contacts the letter relied on.

Q: Did a signed out-of-state-use statement erase the purchaser's tax?

A: No. Accepted in good faith, it relieved the retailer's collection duty, but the purchaser still owed use tax if the property was bought for California use.

Q: Could film always be bought for resale?

A: No. Film sold unchanged as merchandise could be resale inventory; film used to make photographs was a taxable consumed input.

Q: What historical test applied to outside equipment?

A: First functional use in California triggered the presumption. First use elsewhere followed by California entry within 90 days also did, unless at least half the next six months' use or storage occurred outside California.

Citations and references

• California Revenue and Taxation Code sections 6007, 6051, 6201, 6203, 6247 and 6401 — cited for retail sale, sales/use tax, collection and resident-use presumption
• California Civil Code section 1656.1 — cited for contractual tax reimbursement
• California Sales and Use Tax Regulations 1528(a)(1) and 1620(a), (b)(3) — cited for photographer supplies, sale location and equipment timing
• Montgomery Ward & Co. v. State Board of Equalization, 272 Cal. App. 2d 728, 765 (1969) — cited for wholly outside-state sale activities; citation independently verified
• August 1994 inquiry; ship and sale logs; passenger records; statements; receipts; certificates; supply and equipment invoices; use logs; returns; audits; assessments; and outcomes — described or implicated but not included

Verbatim support

From the official November 10, 1994 Staff Counsel letter:

When your sales to passengers occur outside the 3-mile limit, the sales do not occur in California and sales tax does not apply.

However, your store, on board the ship, comes into California every day and picks up the passengers. They make purchases from you, then you deliver them, with their purchases, back into California. This is sufficient contact between the state and your sales to support the requirement that you collect the applicable use tax.

If you do accept such a statement in good faith, the purchaser will still owe the use tax if purchasing the property for use in California, but you will not be required to collect that tax.

Tax applies to sales to photographers of materials used in the process of making the photographs and not becoming an ingredient or component part thereof, such as chemicals, trays, films, plates, proof paper and cameras.

When the property is first functionally used outside of California, it will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, unless the property is used or stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 420.0176
• Original supporting opinion: 420.0176 PDF

Original ruling text

420.0176

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001
TELEPHONE (916) 920 - 7445

MEMBER
First District
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG,
JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

November 10, 1994

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Dear X-----------------,
This is in response to your letter received by us on August 26, 1994 in which you ask how sales and use tax apply to your business of photography sales on board cruise ships. Your company, X---------------------, currently operates aboard a cruise ship that makes daily trips from San Diego, California to Ensenada, Mexico. During these trips, you take photographs of passengers, and later develop, print, display, and sell the photos from your retail store on the ship. You also sell items such as cameras, film, frames, and batteries from your store. You indicate in your letter that you have read a copy of our pamphlet entitled "Tax Tips for Photographers, Photo Finishers, & Film Processing Laboratories." Therefore, I assume you understand that as a photographer, you will be regarded as the consumer or certain items, meaning that you may not purchase such items for resale, and you will be regarded as purchasing certain other items for resale, meaning that the sales to you are nontaxable. Regulation 1528, a copy of which is enclosed, explains which items you are regarded as purchasing for use, or consuming, and which items you can purchase for resale. Thus, as relevant to this opinion, there are two categories of property you purchase: property you purchase for use, and property you purchase for resale. You ask about tax liability in several situations, each of which is quoted below and followed by our response. "1) Photo related items, i.e. cameras, film, frames, and batteries. a) Do I need to pay sales tax on these items when I purchase them in the state of California, for resale aboard the ship? b) Must I collect sales tax aboard the ship for these items?" Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) Although the sales tax is imposed upon the retailer, the retailer may collect sales tax reimbursement from the purchaser if the contract of sale so provides. (Civ. Code § 1656.1.) When sales tax does not apply, use tax, measured by the sales price of the property sold, applies to the use of property purchased from a retailer for storage, use, or other consumption in California. (Rev. & Tax. Code §§ 6201, 6401.)

Since sales for resale are not retail sales, the sale to you of cameras, film, frames, and batteries which you will resell without prior use is not subject to sales tax. As long as you resell that property without using it first, use tax will not apply. However, you owe sales tax on your retail sales of those items inside California, for which you may collect reimbursement from the purchasers if your contract of sale so provides. When your sales to passengers occur outside the 3-mile limit, the sales do not occur in California and sales tax does not apply. (Reg. 1620(a).) However, use tax, measured by the sale price to the passengers, applies to the use of property purchased from you for use in California. (Rev. & Tax. Code § 6201.) When a retailer delivers tangible personal property outside of California to a purchaser known by the retailer to be a resident of this state, it is presumed that the property was purchased from that retailer for storage, use, or other consumption in California, and that it was stored, used, or otherwise consumed in this state. (Rev. & Tax. Code § 6247.) This presumption may be controverted by a statement in writing, signed by the purchaser or his or her authorized representative, and retained by the vendor, that the property was purchased for use at a designated point or points outside this state. This presumption may also be controverted by other evidence satisfactory to the Board that the property was not purchased for storage, use, or other consumption in this state. Although the purchaser owes the use tax, a retailer engaged in business in this state-is required to collect the tax from the purchaser and pay it to this state. (Rev. & Tax. Code § 6203.) Even when a retailer engaged in business in California makes a sale of property to a known California resident for use in California, the retailer is not always required to collect the use tax (of course, it may always do so voluntarily). When all activities related to the sale occur outside California, such as a purchase over the counter at the retailer's store outside California, the retailer would not be required to collect the use tax. (See Montgomery Ward & Co. v. State Board of Equalization (1969) 272 Cal.App.2d 728, 765.) However, your store, on board the ship, comes into California every day and picks up the passengers. They make purchases from you, then you deliver them, with their purchases, back into California. This is sufficient contact between the state and your sales to support the requirement that you collect the applicable use tax. Thus,' as a retailer engaged in business in this state, you are required to collect use tax from the purchasers you know to be California residents and pay it to this state, unless you in good faith accept a written statement signed by the purchaser or his or her authorized representative that the property was purchased for use at a designated point or points outside this state. If you do accept such a statement in good faith, the purchaser will still owe the use tax if purchasing the property for use in California, but you will not be required to collect that tax. Under the circumstances of your transactions where passengers board the cruise ship in California and disembark from the ship in California, we believe that you should regard your customers as California residents unless they establish otherwise. "2) Do I pay sales or use tax on film, purchased in California, used for the purpose of photographing boarding and deck photos?" Tax applies to sales to photographers of materials used in the process of making the photographs and not becoming an ingredient or component part thereof, such as chemicals, trays, films, plates, proof paper and cameras. (Reg. 1528 (a) (1) .) When a retailer sells film to you inside California, that retailer owes the sales tax, but may collect reimbursement from you if the contract of sale provides for such reimbursement. You may not purchase such property extax by issuing your vendor a resale certificate.

"3) Do I pay sales or use tax on paper and chemicals, purchased in California, for the use of developing and printing boarding, deck, and one hour lab photos?" The answer to this question is the same as the answer to question 2. "4) Do I pay sales or use tax on photo equipment, purchased in New York, for use aboard the ship?" I assume for purposes of this opinion that your use of the term "photo equipment" refers to items you use and do not resell. Since you are purchasing the property outside California, sales tax does not apply. (Reg. 1620(a).) However, if you purchase the property for use in California, use tax applies to your use in this state. Property purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the property (use for which the property is designed) is in California. (Reg. 1620(b) (3).) When the property is first functionally used outside of California, it will nevertheless be presumed to have been purchased for use in this state if it is brought into California within 90 days after its purchase, unless the property is used or stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state. (Id.) With respect to photo equipment you purchase in New York and first functionally use in California, you owe use tax measured by the sale price of the photo equipment. If the photo' equipment is first functionally used outside of California and brought into California within 90 days of purchase, and if the photo equipment was not used or stored outside of California onehalf or more of the time during the six-month period immediately following its entry into this state, it is presumed that you purchased it for use in California. You owe use tax on your California use of such property measured by the sale price to you. If photo equipment not first functionally used in California was brought into California within 90 days of purchase but was used or stored outside of California one-half or more of the time during the six-month period immediately following its entry into this state, the equipment will not be regarded as having been purchased for use in this state, and you will not owe California use tax on your use of such property. "5) Do I pay sales or use tax on photo equipment, i.e. film processor, printer processor, purchased in Arizona, for use aboard the ship?" The answer to this question is the same as the answer to question 4. "6) Do I pay sales or use tax on photo equipment, purchased In California, for use aboard the ship?" The answer to this question is the same as the answer to question 2. Certain items you purchase, such as film, are sometimes purchased for use, and at other times are purchased for resale. As discussed above, when you purchase such items inside California for your own use, the retailer owes the sales tax, and you may not purchase the property extax by issuing that vendor a resale certificate. When you purchase such items outside California for use in California, you owe use tax measured by the total sale price of the property to you.

When you purchase the property for resale, you may issue your vendor a resale certificate. When you thereafter sell the property to your customers inside California, you owe the sales tax, measured by your gross receipts. When you sell the property to the passengers outside of California, the sales tax does not apply but you may be required to collect use tax, as discussed above. You ask on which forms and at which lines you should report amounts subject to sales or use tax. On your "State, Local & District Sales & Use Tax Return, " report your total gross sales on line 1, and report your own purchases subject to use tax on line 2. If you have any further questions, please feel free to write again. Sincerely, Kelly W. Ching Staff Counsel KWC:cl Cc: San Diego District Administrator