Was the Queen Mary's acquisition in Long Beach exempt as an occasional sale or under the watercraft exemption when used as a tourist attraction?

Plain-English summary

The purchaser planned to take title and delivery of the Queen Mary in Long Beach and use the ocean liner as a tourist attraction.

Counsel said the ship was a vessel under section 6273. Section 6367 specifically excluded a retail vessel sale from the occasional-sale exemption, so the liner acquisition could not qualify on that basis.

The tourist-attraction plan also did not satisfy section 6368's watercraft exemption because the purchaser's intended use controlled. The vessel's use was subject to use tax, with the purchaser liable under sections 6291 and 6401, while the seller's vessel sale was exempt from sales tax under section 6283.

Separate movable contents could receive different treatment. Bedding, linens, and tableware might qualify as occasional sales under section 6006.5(a), while items held or used in a selling activity—such as glassware used for cocktail sales—could be subject to sales tax. Because the city took title in Long Beach, any tax on those contents would fall on the seller rather than the purchaser.

What this means for you

Buyers repurposing a vessel as a stationary attraction

Planned nonnavigation use did not remove vessel status at acquisition or create an occasional-sale exemption.

Accountants and tax professionals

Separate the vessel from loose contents, identify the purchaser's intended use, and assign sales versus use tax to the correct party for each property category.

Common questions

Q: Was the Queen Mary a vessel for this analysis?

A: Yes.

Q: Did the occasional-sale exemption apply?

A: No. Section 6367 excluded retail vessel sales.

Q: Did tourist-attraction use qualify under the watercraft exemption?

A: No.

Q: Who owed tax on the vessel itself?

A: The purchaser owed use tax; the seller's vessel sale was exempt from sales tax.

Q: Could loose contents be treated differently?

A: Yes. Their treatment depended on whether they were occasional-sale property or used in a selling activity.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a), 6273, 6275, 6283, 6291, 6367, 6368, and 6401

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0160
• Original supporting opinion: 585.0160 PDF

Original ruling text

STATE OF CALIFORNIA

585.0160

STATE BOARD OF EQUALIZATION
August 22, 1967

Gentlemen:
This is with reference to your letter of August 10 addressed to our Long Beach office. Your inquiry related to the application of tax on the acquisition of the liner A.. We understand that title to and delivery of the ship will be in Long Beach. The transaction, in our opinion, would not qualify as an occasional sale. Section 6273 of the Sales and Use Tax Law contains the definition of a "vessel" for purposes of the application of use tax on sales of vessels. The A falls within the definition. Under Section 6275 the "C" would be a retailer of the vessel. Section 6367 specifically excludes the retail sale of a vessel from being an exempt occasional sale. In other words, there is no occasional sale exemption on the retail sale of any boat, ship, barge, craft or floating thing that meets the definition of a vessel. The fact that the vessel is going to be used by the purchaser as a tourist attraction would preclude finding the purchase to be exempt under the watercraft exemption in Section 6368. The use to be made by the purchaser, and not the seller, is controlling. The sale of the tangible personal property which is not a part of the ship itself, such as bedding, linens, tableware, may be exempt as an occasional sale under Section 6006.5(a). There may be some items of tangible personal property held and used in an activity which would require a seller's permit if that activity were conducted in California. The sale of these items would be subject to sales tax. For example, the glassware used in the sale of cocktails. However, since the city is taking title to the ship and its contents there, the tax liability, if any, would be on the seller and not on the purchaser. Summarily, the use of the vessel is subject to use tax under Section 6401, and the purchaser is liable for that tax under Section 6291. The sale of the vessel is exempt from sales tax under Section 6283. Offhand, it would appear that the value of the tangible personal property that is not a part of the ship would be small compared to the sales price of the vessel. Very truly yours,

Robert H. Anderson
Tax Counsel