Under the 1992 rules, did aircraft fuel qualify for the air-carrier exemption when the flight went first to Alaska or Hawaii?

Plain-English summary

Under the 1992 section 6357.5 test described in the letter, fuel sold to an air common carrier for immediate shipment or consumption on a flight whose first destination was foreign qualified for exemption. A flight to Alaska or Hawaii did not qualify because neither was a foreign destination.

The letter separately explained that fuel sellers still had to make the statutory sales-tax prepayment on California fuel sales even if the ultimate retail sale was exempt. The seller could seek the refund or credit procedures identified in sections 6480.6 and 6480.21.

It also discussed out-of-state shipment under section 6396 and said related-party carriage required a genuine compensated transportation business. A third fuel-to-common-carriers theory was described as based on a provision repealed July 15, 1991, so the letter rejected that scenario under the law then in effect.

Common questions

Was Hawaii a foreign destination for this exemption?

No. The letter expressly treated both Hawaii and Alaska as domestic destinations.

Did an exempt retail sale eliminate fuel-tax prepayment?

No. The prepayment was still required, with a refund or credit mechanism for specified exempt sales.

Did related ownership automatically defeat out-of-state shipment treatment?

Not automatically, but the carrier had to be genuinely engaged in transporting other persons' property for compensation, and the incomplete facts prevented a conclusion.

Citations and references

• California Revenue and Taxation Code section 6357.5 — 1992 air-common-carrier fuel exemption applied
• California Revenue and Taxation Code section 6396 and Regulation 1620 — interstate and foreign-commerce shipment exemption discussed
• California Revenue and Taxation Code sections 6480.6 and 6480.21 — fuel prepayment refund or credit procedures quoted
• California Revenue and Taxation Code section 6385 — historical fuel provision described as repealed effective July 15, 1991

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/500-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/500-0090.pdf

Original ruling text

500.0090

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

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

August 3, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

P. G. D--Tax Assistant
S--- Company
P.O. Box XXXX
---, TX XXXXX
Re:

S- -- XX-XXXXXX

P. G. D---:
Your letter to Mr. Jose Arcadio dated June 11, 1992 was referred on July 3, 1992 to the Legal Division for response. You ask confirmation of your understanding of exemptions from the requirement to prepay sales tax (which you refer to as PPST). You state: “Our understanding is PPST follow[s] the same regulations as Sales and Use Tax including but not limited to the following exemptions: “1)

Product loaded onto a common carrier for immediate export
regardless of nominee.
“a)

Common carrier can be owned by same as purchasing
company if they are separate entities and common
carrier is registered with the ICC Authority.

“2)

Airlines whose first destination is foreign or Alaska or Hawaii.

“3)

Product when title passes in California but, is directly loaded onto a vessel for immediate export.”

P. G. D---

-2-

August 3, 1992
500.0090

Discussion
Quoted above are three scenarios under which you believe that sales of fuel would be exempt. The first is unclear, the second is misstated, and the third is misstated as well as repealed as of July 15, 1991. Thus, before addressing your specific question regarding whether transactions which are exempt from sales tax are also exempt from the requirement to prepay sales tax, it will be helpful to your understanding of exemptions from sales tax to discuss the application of sales tax to your three scenarios. Exemptions from sales tax Your first scenario appears to relate to the exemption for sales in interstate and foreign commerce. This exemption is for a sale of tangible personal property which, as required by the contract of sale, is shipped outside California by a common carrier or by facilities of the seller. (Rev. & Tax. Code § 6396, Reg. 1620.) I do not understand what you mean by “regardless of nominee” and therefore make no comment with respect to that statement. Regarding the scenario where the carrier and the purchaser are related, the person performing the carriage must be “engaged in the business of transporting for compensation tangible personal property owned by other persons . . . .” (Rev. & Tax. Code § 6396.) Since you state that the person in question is a common carrier, I assume that it is engaged in the business of transporting for compensation tangible personal property owned by other persons. However, since the carrier is related to the purchaser and you have not stated whether that person is being compensated a fair consideration for the transportation in question, we are unable to determine whether we would regard the purchaser as taking possession of the property in California (meaning that the sale would not be exempt under section 6396). Your second scenario appears to relate to the exemption provided by Revenue and Taxation Code section 6357.5. That provision exempts from sales tax sales of fuel to an air common carrier for immediate shipment or consumption in its business as an air common carrier, on a flight whose first destination is a foreign destination. Neither Alaska nor Hawaii are foreign destinations. A sale of fuel for consumption on a flight to either Alaska or Hawaii would not qualify for the section 6357.5 exemption. Rather, that sale would be subject to sales tax. Your third scenario appears to relate to the exemption that had been provided by Revenue and Taxation Code section 6385 with respect to sales of fuel to a water, air, or rail common carrier for immediate shipment outside California. This provision did not exempt the fuel that would be consumed by the purchaser to reach its first out-of-state destination. Rather, if the transaction qualified for the exemption, only the sale of that portion of the fuel consumed by the purchaser after reaching its first out-of-state destination was exempt from tax. This exemption is no longer relevant since it was repealed as of July 15, 1991.

P. G. D---

-3-

August 3, 1992
500.0090

Prepayment of sales tax
The requirement to prepay sales tax on sales of fuel is set forth in Revenue and Taxation Code section 6480 et seq. or in section 6480.10 et seq. The former covers motor vehicle fuel distributions (essentially sales of gasoline) while the latter covers sales of diesel and aircraft jet fuel. When a person is required to prepay sales tax on its sales of fuel in California, it must prepay sales tax with respect to all such sales: there are no exemptions from the requirement to prepay sales tax. Even if that person makes a retail sale of fuel that is exempt from sales tax, it nevertheless must prepay sales tax with respect to that sale. Revenue and Taxation Code sections 6480.6 (motor vehicle fuel distributions) and 6480.21 (sales of diesel and aircraft jet fuel) apply to such situations. Section 6480.6 is substantially the same as section 6480.21, which states: “(a) The following persons who have paid prepayment amounts, either directly to the board or to the person from whom it was purchased, shall be refunded those amounts: “.... “(2) Any person who sells the fuel that is exempt from the sales or use tax pursuant to Sections 6352, 6357, 6381, and 6396. “.... “(b) In lieu of a refund, the board may authorize a credit to be taken by the person to whom the refund is due upon his or her prepayment form or sales and use tax return.” If you have further questions, feel free to write again. Sincerely,

David H. Levine
Senior Tax Counsel
DHL:wk