Did California overhaul and a lessee's outbound revenue flight tax an aircraft sold and delivered outside the state for principal use abroad?

Plain-English summary

A certificated carrier sold and delivered an airplane outside California to a noncertificated carrier. The buyer planned to fly it into California for overhaul, transfer it to a lessee, and have the lessee fly it overseas on a revenue flight without returning it here.

California found no use-tax liability. The quoted prior advice treated California storage, repair, or modification as excluded when undertaken solely before out-of-state use. Although the lessee's revenue flight was attributable to the lessor, the plane's principal use would remain outside California.

Common questions

Did California overhaul itself trigger tax?

No under the stated section 6009.1 analysis when the subsequent use was entirely outside the state.

Did the lessee's revenue flight count as use by the lessor?

Yes, but the source still found no tax because principal use was outside California.

Citations and references

• Cal. Rev. & Tax. Code § 6009.1 — California storage, repair, and modification before sole out-of-state use

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/570-1440.pdf

Original ruling text

570.1440

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
October 4, 1960

This is in regard to our telephone conversation of September 24 concerning the application of use tax to the use of an aircraft in this State by the lessee thereof. It is our understanding that A, a certificated carrier, sold an airplane to B, a noncertificated carrier, and delivered it at a point outside this State. B then agreed to lease the plane to C, for use in foreign commerce. B will fly the plane into this State, and have it overhauled in this State. B then will transfer possession to C, the lessee, who thereafter will fly it overseas on a revenue flight. C does not plan to fly the airplane back to this State. Following are excerpts from the letter which was mentioned in our telephone conversation, which appears to be applicable to the situation described: “1. A person who purchases a place outside of California, takes delivery and title to the plane outside of California, executes a lease and delivers the place to a lessee outside of California does not incur liability for California use tax, whether or not he is a California resident or the holder of a seller’s permit. The execution of the lease in California, if everything else were the same, would not itself cause the tax to apply. “ The bringing of the aircraft into California solely for the purpose of storing it until a lease was executed and then delivering it to the lessee outside of California for use outside of California would not result in application of the tax. Section 6009.1 would prevent the storage from giving rise to tax liability, it being assumed that the subsequent use of the plane would be entirely outside this State. Section 6009.1 would also exempt the plane from the use tax if it were repaired or modified in this State for subsequent use solely outside the State. The fact that such excluded use as repairing or modifying occurred at the end of one lease and before another would not appear to be material, again on the assumption that the subsequent use by leasing or otherwise occurs entirely outside this State.” It is likewise our opinion that, although the use of the plane by the lessee for a revenue flight to an overseas port is attributable to the lessor, no use tax liability will be incurred thereby, inasmuch as the principal use of the plane will be made outside this State. If we can be of further assistance, do not hesitate to call on us. Very truly yours,

George A. Trigueros
Associate Tax Counsel