Was an Oregon-to-California flight to collect named business passengers an aircraft's first use outside California?

Plain-English summary

An aircraft bought in Oregon would have its first functional use outside California if its first flight came here to pick up specific executives for transport to a specified destination. That conclusion depended on Oregon delivery serving a sufficient business purpose rather than being only a tax-avoidance device.

Under the historical policy described, California use tax would not apply if the aircraft then spent at least half of the six months after entry used or stored outside California. Storage and hangar time counted in that comparison.

Common questions

Was merely flying an empty aircraft into California always an out-of-state first use?

No. The flight had to be directed to specific passengers and a specific destination on the assumed facts.

Did the letter finally establish exemption?

No. It stated conditions and assumptions for the proposed facts.

Citations and references

• Business Taxes Law Guide Annotation 570.0100 — tax-avoidance delivery example discussed
• Business Taxes Law Guide Annotation 570.0430 — historical functional-use and six-month tests applied

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/570-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/570-0308.pdf

Original ruling text

570.0308

STATE OF CALIFORNIA
MEMBER
First District

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916)920-6563

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego

January 27, 1994

MATTHEW K. FONG
Fourth District, Los Angeles
GRAY DAVIS
Controller, Sacramento

Re: Aircraft – Use Tax Opinion
Dear REDACTED TEXT,

BURTON W. OLIVER
Executive Director

This is in response to your letter of October 22, 1993 regarding the application of California Use Tax to the purchase of an aircraft. We understand that REDACTED TEXT is an “S” corporation and a general partner in REDACTED TEXT, a California limited partnership. REDACTED TEXT is purchasing an Astra Jet (“aircraft”) in Oregon. REDACTED TEXT will use the aircraft in two capacities; first, to provide transportation for executives and clients of REDACTED TEXT and REDACTED TEXT and second, in a charter business when the aircraft is not used for REDACTED TEXT or REDACTED TEXT business. REDACTED TEXT anticipates the first functional flight of the aircraft will be from Oregon to California to pick up one or more executives of REDACTED TEXT for transportation to a specific destination which may be within or without California. Thereafter, the aircraft will be used for flights both in California and outside California. Your letter cited two Business Tax Law Guide annotations. You noted: “If the airplane is first flown from Oregon to California to pick up a specific passenger or passengers for transport to a specific destination, then the first functional use will be outside of California. A 1958 SBE Ruling appears to hold that when a truck was purchased outside of California and ‘deadheaded’ to California for its first payload, the use tax applied. SBE Sales Tax Counsel Ruling (1/24/58), Business Taxes Law Guide, ¶570.0100. However, subsequent to the 1958 Ruling, the SBE promulgated a more comprehensive ruling which held as follows: “Functional use means use for which the vehicle was designed. For example, if the only use of a truck outside of California to pick any payload it could find, the first functional use would be in California. However, if it were dispatched to California to pick up a specific payload, the first functional use would be outside of California.” SBE Sales Tax Counsel Ruling (1/7/74; 3/22/84; and 1/28/91), Business Taxes Law Guide, 570.0430(1).” You note that under the board’s current policy, if the aircraft is flown to California to pick up passengers, and transport them to specific destination, the first functional use will be outside of California.

Annotation 570.0430 does not reflect a change in policy. Rather, it is predicated on the assumption that the property is delivered to the purchaser outside California for a sufficient business purpose other than only as a device to escape payment of use tax. Under the facts of Annotation 570.0100, the purpose of the out-of-state delivery was solely a device to escape sales or use tax. We will assume that, under the facts you present, REDACTED TEXT does not take delivery or the aircraft in Oregon solely to escape payment of sales or use tax but has sufficient business purpose for taking delivery in Oregon to justify it as a means of avoiding sales or use tax. With that assumption, we advise REDACTED TEXT: 1. If the aircraft is first flown from Oregon to California to pick up a specific passenger or passengers for transport to a specific destination within or out of California, then the first functional use will be outside of California. 2. REDACTED TEXT use of the aircraft will not be subject to the California use tax if the first functional use of the aircraft is outside of California and the aircraft is used or stored outside California one-half or more of the time during the six-month period immediately following its entry into California. 3. Storage or hanger time shall be counted in determining whether the airplane is used within or outside of California during the six-month test period. Very truly yours,

Ronald L. Dick
Staff Counsel