Could a machine be tested in California before its productive use solely in Illinois without triggering use tax?

Plain-English summary

A machine could qualify for the section 6009.1 exclusion when its only California use was testing before production, it was then shipped out of state, and its productive use occurred solely outside California.

The result changed if testing included practice runs to evaluate the machine's suitability for a job or an operator's capabilities. Those activities were taxable California use. Once property qualified for use tax, a short period of use did not create a separate exemption.

Common questions

Did one month of California activity automatically qualify?

No. The character of the activity, not merely its duration, controlled.

Did the letter address tax paid to another state?

Yes. It noted a statutory credit for sales or use tax paid to another state on the same property.

Citations and references

• Cal. Rev. & Tax. Code § 6009.1 — out-of-state-use exclusion applied
• Cal. Rev. & Tax. Code §§ 6201 and 6246 — use-tax imposition and California-use presumption discussed
• Cal. Rev. & Tax. Code § 6406 — other-state tax credit noted
• Business Taxes Law Guide Annotations 570.1180 and 570.0400 — testing distinction cited

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/570-0690.pdf

Original ruling text

570.0690

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 324-3828

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

April 28, 1993

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. H--- L--Controller
B---, Inc.
XXXX East --- Circle
--- ---, CA XXXXX

Re: SR -- XX-XXXXXX

Dear Mr. L---:

This is in response to your letter of December 21, 1992, wherein you stated that your P--machine was received in September 1992, but has not yet functioned. You had previously anticipated using it in California for several months before shipping it to Illinois. It is now anticipated that it will be tested in California for about a month before shipping to Illinois. You inquire as to whether a California sales or use tax would still be due. Revenue and Taxation Code section 6201 imposes a use tax on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer for storage, use, or other consumption in this state. Revenue and Taxation Code section 6246 provides that it shall be presumed that tangible personal property shipped or brought to California by the purchaser was purchased from a retailer for storage, use, or other consumption in this state. Once the property qualifies for the use tax, there is no exemption for a "short term" use. Revenue and Taxation Code section 6406 provides for a credit for sales or use taxes paid to another state on the same property. Most states give a similar credit for sales or use taxes paid to another state. Revenue and Taxation Code section 6009.1 provides an exemption for property which is retained in California for the purpose of subsequently transporting it outside the state for use thereafter solely outside the state. If the sole use of the property within California is testing prior to its productive use, and the property is subsequently shipped out of state and its productive use

Mr. H--- L---

-2-

April 28, 1993
570.0690

is solely outside of California, the exemption requirements of section 6009.1 are met. (Bus. Taxes Law Guide Annot. 570.1180.) However, if the testing is not limited to a pre-productive test of the machine itself, but includes practice runs for such purposes as “testing” for its suitability for a particular purpose, or an operator's capabilities, the use tax will apply. (BTLG Annot. 570.0400.)

If you have further questions, please contact me.
Sincerely yours,

Donald L. Fillman
Tax Counsel

DLF:wk