Was cable bought and transferred to the U.S. Navy to replace property the taxpayer damaged exempt as a sale or government transfer?

Plain-English summary

A firm bought cable material and transferred it to the U.S. Navy to replace property the firm had damaged.

California said the transfer was not a sale in the regular course of business because it involved no bargain or new consideration. The firm's purchase and exercise of ownership power to satisfy its replacement obligation were therefore taxable use under section 6009.

The Navy's ultimate beneficial ownership did not exempt the firm's purchase. The letter found no legal basis to adjust the determination.

Common questions

Was the transfer treated as a sale to the Navy?

No. It was an uncompensated replacement of damaged property, without the bargain or consideration needed for a sale.

Did Navy ownership create an exemption?

No. The letter said the government's ultimate beneficial title did not exempt the taxpayer's purchase and use.

Citations and references

• Cal. Rev. & Tax. Code § 6009 — exercise of ownership power as use, except a regular-course sale

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/570-1420.pdf

Original ruling text

570.1420

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
September 17, 1964

Attention:

______
Office Manager

Gentlemen:
We have reviewed your petition for redetermination of sales and use tax in the light of information obtained at the preliminary hearing on this matter in San Francisco. It is our opinion that no legal basis exists for adjustment. Section 6009 of the Revenue and Taxation Code provides as follows: “’Use’ includes the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business.” The transfer of the cable material to the United States Navy was made to replace property damaged by your firm. The transfer was made without any element of bargain or new consideration such as to warrant a finding of a sale. Accordingly, we have concluded that there was no sale of the property in the regular course of business. It follows that your firm’s purchase of the property and its exercise of right and power over the property for purposes of replacing the damaged property constitutes a taxable use under the provisions of the above quoted section. While the United States Navy ultimately acquired the beneficial title to the property, this provides no basis for exempting the purchase from use tax. Very truly yours,

W. E. Burkett
Associate Tax Counsel
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San Francisco – District Administrator