Was use tax refundable on a vessel received as trade-in consideration and resold three weeks later without any intervening use?

Plain-English summary

A person bought vessel A for $15,000 by paying $10,100 cash and transferring vessel B at an agreed $4,900 value. The recipient immediately listed vessel B for sale and sold it about three weeks later for $5,500.

During those three weeks, vessel B was used only for demonstration and display to sell it. Use tax had been paid on both the $15,000 vessel A purchase and the later buyer's $5,500 vessel B purchase. The refund claim concerned tax measured by the $4,900 trade-in acquisition.

Counsel concluded that no storage, use, or consumption occurred because vessel B was acquired solely for resale and had no intervening use beyond sales demonstration and display. The Board should therefore grant the refund claim.

What this means for you

Businesses or individuals receiving property as a trade-in

Immediate resale intent and no personal or operational use supported resale treatment. Demonstration and display for sale did not defeat it here.

Accountants and tax professionals

Document acquisition intent, listing date, possession period, every use, demonstrations, resale agreement, and tax paid on each leg of the exchange.

Common questions

Q: What value was assigned to the trade-in vessel?

A: $4,900.

Q: How long was it held?

A: About three weeks.

Q: What use occurred before resale?

A: Only demonstration and display for sale.

Q: What was the resale price?

A: $5,500.

Q: Why was a refund recommended?

A: The vessel was acquired solely for resale and was not otherwise used or consumed.

Citations and references

• The letter does not cite a section number; the official annotation places the result within the historical vehicle, vessel, and aircraft retailer rules.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0180
• Original supporting opinion: 585.0180 PDF

Original ruling text

585.0180

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
March 11, 1966

Attention:

______

Gentlemen:
This is in reply to your letters of March 3 and January 25, 1966. Upon receipt of your most recent letter, a search was made for your letter of January 25 since it had not yet been received by this office. This disclosed that the letter had been included with a routine processing of a large volume of paid returns which was not completed until March 7. Please accept our apologies for this inadvertent delay. Your letter of January 25 restates in detail the fact situation related to me by telephone on January 20. It has been treated as a claim for refund of taxes paid by __ Co., Inc. We understand that the underlying facts of the subject transactions are as follows: A Mr. _, a nonpermittee, sold the vessel “[A]” to a Mr. for a total consideration of $15,000, receiving in payment cash of $10,100 and the vessel “[B]” priced at $4,900. Mr. immediately listed the “[B]” for sale. An offer to purchase was received, and this vessel was sold by Mr. for the sum of $5,500 to a Mr. . The period of time which elapsed from the receipt of the vessel “[B]” by Mr. and its subsequent sale was approximately three weeks. During this period, no use whatsoever was made of this vessel other than demonstration and display for purposes of sale. Use tax was paid by Mr. measured by the $15,000 purchase price for the vessel “[A]”. Use tax was also paid by Mr. measured by the $5,500 purchase price of the vessel “[B]”. Your tax payment is measured by the agreed price of Mr. acquisition of the vessel “[B]”. Your position is that this later tax should not be imposed because the purchaser
___ intended to sell the vessel at the time of purchase and did, in fact, sell it without prior use. After conducting further review of the applicable law and discussing with tax counsel, we have concluded that your claim for refund be granted. We have reasoned that there was no storage, use, or other consumption of the vessel since it was acquired for the sole purpose of resale. Your claim for refund will now be submitted for board action. Upon approval of our recommendations by the board, a warrant for the amount of tax refund will be issued.

Very truly yours,

W. E. Burkett
Associate Tax Counsel
WEB:hm
cc:

Santa Rose – District Administrator
Headquarters – Occasional Sales (LR)
Headquarters – Petition Unit (RNZ)