Did California tax an out-of-state locomotive purchase when the locomotive entered California in interstate service and stayed in that service?

Plain-English summary

California concluded that neither sales tax nor use tax applied to the described locomotive purchase.

The purchaser bought the locomotive from an out-of-state manufacturer and took title outside California, so the opinion treated the sale as outside California. The purchaser immediately leased the locomotive to another railroad, which used it to haul property into California. Within 90 days, the purchaser took possession and continued using it solely in interstate commerce, both inside and outside California.

Under Regulation 1620, the decisive use-tax facts were that the locomotive was bought for interstate-commerce use, entered that service before reaching California, and remained continuously in that service. The opinion noted that most of the later use was in California, but did not treat that fact as changing the result.

Common questions

Did the opinion change an earlier Legal Department position?

Yes. It said the Department had reconsidered its September 4, 1969 letter and changed its view.

Was taking possession in California within 90 days automatically taxable?

No, not on the stated facts, because the locomotive had already entered interstate service and was thereafter used continuously in interstate commerce.

Citations and references

• Cal. Code Regs. tit. 18, § 1620 — interstate-commerce rule applied by the opinion

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/570-1500.pdf

Original ruling text

570.1500

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-3723

August 1, 1978

W--- [---] Co.
XXX --- ----- ---, CA XXXXX
Re:

SZ -- XX-XXXXXX

Gentlemen:
On September 4, 1969, we wrote a letter to you, a copy of which is enclosed. Since writing that letter, we have had occasion to reconsider the question involved and have changed our view. It is now our opinion that no California sales or use tax will apply under the following facts. W--- purchases a locomotive from an out-of-state manufacturer, taking title out-of-state. W--immediately leases the locomotive to another railroad company which uses it in for-hire transportation of property into California where, within 90 days after purchase, W--- takes possession of the locomotive and immediately proceeds to use it solely in interstate commerce both in and out of California, although principally in California. It is our view that in accord with Regulation 1620, a copy of which is enclosed, no sales tax will apply since the sale is outside of California and no use tax will apply since the property is purchased for use in interstate commerce, placed in use in interstate commerce prior to its entry into this state, and is thereafter used continuously in interstate commerce. Sincerely,

Thomas P. Putnam
Assistant Chief Counsel

TPP:po
Enclosures