Did a seller's permit for vehicle sales make that seller's one aircraft sale subject to sales tax instead of buyer-paid use tax?

Plain-English summary

A partnership bought helicopters for business use. One seller held a seller's permit covering a leasing company with occasional farm-equipment, truck, and vehicle sales. The buyer argued that the permit made the helicopter sale subject to sales tax, which would exempt the buyer from use tax.

The hearing officer disagreed. Section 6283 examined whether the seller was required to hold a permit because of sales of that category—aircraft in this case. A permit required for vehicles or vessels did not by itself make one aircraft sale taxable to the seller.

No evidence showed that the seller regularly sold aircraft, so the aircraft sale qualified for the sales-tax exemption and the purchaser owed use tax. The same analysis applied to another seller that transferred three helicopters in one transaction: the Board counted transactions rather than individual items, and no evidence showed more than two aircraft-sale transactions or that the seller held itself out as an aircraft seller.

The recommendation also applied the eight-year no-return limitations period because the purchaser itself had not filed returns, and it denied penalty relief because no sworn factual statement was submitted.

What this means for you

Businesses selling multiple property types

A seller's permit for one category did not automatically cover tax responsibility for another. Aircraft, vessels, and vehicles were tested separately under the historical rule.

Accountants and tax professionals

Count sale transactions, not merely the number of aircraft in one transaction, and look for advertising or other evidence that the seller held itself out as an aircraft seller.

Common questions

Q: Did the seller's vehicle permit make the helicopter sale subject to sales tax?

A: No. The seller had to be required to hold a permit because of aircraft sales.

Q: Did three helicopters transferred together count as three sales?

A: No. The Board applied the frequency rule transaction by transaction.

Q: Could one or two transactions still make someone an aircraft seller?

A: Yes, if the person otherwise held itself out as engaged in aircraft sales, but no supporting evidence was produced here.

Q: Who owed tax on the purchases?

A: The purchaser owed use tax because the sellers' transactions were exempt from sales tax.

Citations and references

• California Revenue and Taxation Code §§ 6014, 6019, 6283, 6401, 6487, and 6592
• California Sales and Use Tax Regulation 1595(a)(1)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0190
• Original supporting opinion: 585.0190 PDF

Original ruling text

585.0190
STATE OF CALIFORNIA
BOARD OF EQUALIZATION
In the Matter of the request
for Administrative Hearing
Under the Sales and Use Tax Law of:

Taxpayer

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DECISION AND RECOMMENDATION

The preliminary hearing on the above taxpayer’s request for administrative hearing was held on December 9, 1986, in Sacramento, California. Hearing Officer:

James E. Mahler

Appearing for Petitioner:

______

Appearing for the Board:

Kurt Kunert
Petition Unit

Protested Item
The protested tax liability for the period October 1, 1979, through March 31, 1984, is measured by: State, Local and County

Item
Ex-tax purchases of four helicopters

$481,630

The determination includes a ten percent penalty in the amount of $2,801.16 for failure to file returns. Taxpayer’s Contentions 1.

Any applicable taxes are sales taxes on the vendors and not use tax on petitioner.

2.

The determination is partially barred by the statute of limitations.

3.

The penalty for failure to file returns should not apply.

Summary

Petitioner is a partnership which was engaged in a number of business activities, including farming, aircraft rentals, farm equipment rentals, and sales of grape cuttings through a nursery. It did not hold a seller’s permit or file sales and use tax returns during the periods in question. However, it appears that some sales by petitioner were reported on returns filed by a related corporation, __, which held seller’s permit _. On October 4, 1979, petitioner purchased helicopter , for use in its business, for a price of $270,000. held a seller’s permit issues by this Board to engage in business as “leasing company with occasional sales of farm equipment, trucks, vehicles”. did not charge tax reimbursement or report tax on the sale to petitioner. Tax was asserted against petitioner in an audit. On April 28, 1982, petitioner traded helicopter to for two smaller helicopters for use in its business operations. The auditor treated this transaction as a purchase of the two smaller helicopters by petitioner for $173,572, which was the book value of helicopter
at the time.
The Board has no record of a seller’s permit issued under the name . The auditor spoke to a , and concluded that was not in the business of selling helicopters. Nevertheless, the audit also found that “the seller” had reported tax measured by $60,000 on this transaction. We therefore assume that held a permit and reported taxes under a different name. The audit asserted tax against petitioner measured by the $173,572 purchase price, less a credit for the taxes reported by for a net measure of $113,572. On August 17, 1982, petitioner purchased a third helicopter from for use in its business, for $76,265. Neither nor petitioner reported any tax with respect to this transaction, and tax was asserted against petitioner in the audit. Finally, the audit also asserted tax against petitioner on the purchaser or a “wing strap” (presumably a helicopter) for $21,793. At the preliminary hearing, petitioner’s representative conceded that the use tax was properly asserted. Accordingly, this transaction will not be discussed further. Analysis and Conclusion Revenue and Taxation Code Section 6401 authorizes an exemption from the use tax when the purchaser establishes to the satisfaction of the Board that the gross receipts from the sale of the property were include in the measure of the sales tax. Petitioner contends that the sales by ___ were subject to sales tax, so that petitioner should not be held liable for use tax. The audit, on the other hand, found that the sellers were entitled to an exemption from sales tax under Revenue and Taxation Code 6283, so that petitioner would not be entitled to an exemption from the use tax. We agree with the audit.

Section 6283 authorizes a sales tax exemption for certain sales of vehicles, vessels and aircraft. By its terms, the exemption does not apply if the retailer is “required to hold a seller’s permit…by reason of the number, scope, and character of his or her sales of those vehicles, vessels, or of aircraft, as the case may be.” As a general rule, a person is required to hold a seller’s permit if he or she makes “three or more sales for substantial amounts in a period of twelve months…” (Sales and Use Tax Regulation 1595(a)(1); see also Rev. & Tax. Code, § 6019.) Purchase from __. Petitioner points out that _ held a seller’s permit for sales of vehicles, among other things. Accordingly, petitioner believes that the 6283 exemption should not apply to any sales of aircraft by . Petitioner’s argument would require us to ignore the words “those…as the case may be” in Section 6283. This we cannot do. As we read the statute, a sale of an aircraft qualifies for the sales tax exemption unless the retailer is required to hold a permit for aircraft sales, even if the retailer is required to hold a permit for sales of vehicles or vessels. At the preliminary hearing, petitioner’s representative stated that is a finance company which repossesses and sells many types of property. He suspected that “must have” repossessed and sold many aircraft in addition to the helicopter involved herein. He offered to investigate the matter further and forward any evidence to the hearing officer, but as of this date, no such evidence has been received. Lacking evidence that was required to hold a seller’s permit by reason of aircraft sales, we conclude that the transaction was not subject to sales tax, and that petitioner is therefore not entitled to a use tax exemption under Section 6401. Purchase from . Petitioner points out that it purchased a total of three helicopters from within a 12-month period. Petitioner argues that ___ therefore was required to hold a seller’s permit under the “three or more” rule of Regulation 1595. We disagree. The Board has consistently applied the “three or more” rule on a transaction-bytransaction basis, rather than on an item-by-item basis. That is, a person who only makes on sale transaction in a 12-month period is generally not required to hold a seller’s permit, even if a number of items are sold in that one transaction. This policy is based on Revenue and Taxation Code Section 6014, which defines “seller” as a person who is “engaged in the business” of selling certain types of tangible personal property. A person who makes three or more sales transaction per year may reasonable be viewed as engaged in business as a seller. On the other hand, a person who makes one or two sales transactions per year is not necessarily engaged in business, even if several items are sold in each sale transactions. Of course, a person who makes one or two sales transactions per year may nonetheless be engaged in business as a seller, if he holds himself out to the public as being engaged in a selling business. The typical example is a shipyard which is capable of building and selling only one

vessel per year. Such a person is a seller and is required to hold a seller permit, despite the limited number of sales transactions. At the preliminary hearing, petitioner’s representative argued that __ holds itself out to the public as a seller of helicopters. The basis for this allegation is that the word “helicopter” appears in _ business name. However, the staff advises that the word “helicopter” appears in the business name only because is engaged in the business of repairing helicopters, and that is not engaged in the business of helicopter sales. We requested petitioner’s representative to compile additional evidence, such as advertising materials, to show that held itself out to the public as a seller of helicopters. As of this date, no such evidence has been presented. Lacking evidence that made more than two sales transactions during a 12-month period, or was otherwise engaged in the business of selling aircraft, we conclude that the transactions in question qualified for a sales tax exemption and that petitioner is therefore liable for use tax. 2. Revenue and Taxation Code Section 6487 includes a statute of limitations for deficiency determinations. As a general rule, a determination must be issued within three years of the due date of the return on which it has determined taxes should have been reported. In the case of failure to file returns, however, the limitations period is eight years from the due date of the return. The purchase from ___ is within the eight-year period but outside the three-year period. Petitioner argues that the three-year period applies on the ground that some of its tax liability was reported on returns filed by a related taxpayer. However, petitioner itself did not hold a seller’s permit or file returns. In our opinion, therefore, the eight-year period applies and the tax was timely determined. 3. Revenue and Taxation Code Section 6592 provides that a person requesting relief from a penalty for failure to file returns must submit a statement signed under penalty of perjury setting forth the facts on which the request is based. We advised petitioner’s representative of this requirement at the preliminary hearing and he indicated that an appropriate statement would be submitted. As of this date, none has been received. Accordingly, we cannot recommend relief from the penalty.

Recommendation
It is recommended that relief from the jeopardy assessment not be granted.

10/14/87
James E. Mahler, Hearing Officer