Was a testamentary trust's sale of an 85-foot vessel to the beneficiary's mother exempt as a family transfer?

Plain-English summary

A testamentary family trust owned an 85-foot motor vessel. The trust's sole beneficiary was the deceased settlor's son, and the trustee planned to sell the vessel to the son's natural mother, who was the settlor's former wife.

Counsel said the section 6285 family exemption did not apply. Section 6005 treated the trust as a separate person, so the trust—not the son—was the seller. A trust was not one of the parent, grandparent, child, grandchild, spouse, or limited sibling relationships listed in section 6285(a).

The revocable-trust rule in section 6285(b) also did not apply because the purchaser was an individual, not a revocable trust.

Assuming the trust was not a vessel dealer, sales tax did not apply to the trust's sale, but the purchaser owed use tax measured by the sales price. For a Coast Guard-documented vessel, the buyer had to report and pay the Board; for an undocumented vessel, the buyer paid DMV when registering it.

What this means for you

Trustees selling property within a family

The beneficiary's relationship to the buyer did not substitute for the trust's legal identity. The listed family relationship had to exist between the actual seller and purchaser.

Accountants and tax professionals

Determine who legally owns and sells the vessel, whether the seller is a dealer, and whether the vessel is Coast Guard documented. Those facts controlled both exemption and payment procedure.

Common questions

Q: Who was treated as the seller?

A: The testamentary trust, not its sole beneficiary.

Q: Why did the family exemption fail?

A: A trust was not one of the family-member sellers listed in section 6285(a).

Q: Did the revocable-trust exemption apply?

A: No. The transaction was a sale by a testamentary trust to an individual, not a sale to a qualifying revocable trust.

Q: Who owed tax?

A: The buyer owed use tax because the trust was assumed not to be a vessel dealer.

Q: Where was the tax paid?

A: To the Board for a Coast Guard-documented vessel, or to DMV on registration for an undocumented vessel.

Citations and references

• California Revenue and Taxation Code §§ 6005, 6007, 6051, 6201, 6285, and 6401
• California Sales and Use Tax Regulation 1610(b)(1)(C), 1610(c)(2)(A), and 1610(c)(2)(B)
• California Vehicle Code § 9928, as cited for DMV collection

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0195
• Original supporting opinion: 585.0195 PDF

Original ruling text

585.0195

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
LEGAL DIVISION – MIC: 82
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 324-3828
FAX (916) 323-3387

JOHAN KLEHS
First District, Hayward
DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG,
JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles

February 6, 1996

KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Mr. D--- B. G--Attorney at Law
XXXX --- --- Avenue
--- ---, CA XXXXX
Re:

E--- Testamentary Trust

Dear Mr. G---:
This is in response to your letter dated January 8, 1996 regarding the application of tax to the sale of a vessel by a trust. You state: “The transaction involves the sale of an 85 foot motor vessel named ‘The S--- of N---.’ The vessel is presently owned by the T--- W. E--- Family Trust. This trust was created pursuant to the Last Will and Testament of T--- W. E---, deceased. The sole beneficiary of the T--- W. E--- Family Trust is A--- E---, the son of T--- W. E---. The trustee of the family trust is planning to sell the motor vessel to C--- B---, the natural mother of A--- E--- and the ex-wife of T--- W. E---.” DISCUSSION Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt from taxation by statute. (Rev. & Tax. Code
§ 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) When sales tax does not apply, the use tax, measured by the sales price of the property sold, applies to the use of property purchased from a retailer for storage, use or other consumption in California, unless such use is specifically exempt from taxation by statute. (Rev. & Tax. Code § 6201, 6401.)

Mr. D--- B. G---

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February 6, 1996
585.0195

You ask whether the exemption set forth in Revenue and Taxation Code section 6285 applies to the transaction at issue. Section 6285 provides that the sale or use of a vessel is exempt from tax when either of the following occurs: “(a) The person selling the property is either the parent, grandparent, child, grandchild, or spouse, or the brother or sister if the sale between that brother or sister is between two minors related by blood or adoption, of the purchaser, and the person selling is not engaged in the business of selling the type of property for which the exemption is claimed. “(b) The sale is to a revocable trust in which all of the following occur: “(1) The seller has an unrestricted power to revoke the trust. “(2) The sale does not result in any change in the beneficial ownership of the property. “(3) The trust provides that upon revocation the property will revert wholly to the seller. “(4) The only consideration for the sale is the assumption by the trust of an existing loan for which the tangible personal property being transferred is the sole collateral for the assumed loan.” Section 6005 provides that a trust is considered a person. You state that the current owner of the vessel is the T--- W. E--- Family Trust. This means that the person selling the vessel would not be A--- E---, the beneficiary of the trust; rather, the seller would be the trust itself. Since a trust is not a person of the type listed in subdivision (a) of section 6285, the transaction cannot be exempt from tax under section 6285(a). Subdivision (b) concerns a sale to a revocable trust. Since C--- B--- is a person that is not a revocable trust, a sale to Ms. B--would not be exempt from tax under section 6285(b). We assume that the trust is not a dealer of vessels. The sale of a vessel by a person other than a dealer of vessels is not subject to sales tax. (Reg. 1610(b)(1)(C).) However, the purchaser of a vessel from a person such as the E--- trust must pay use tax measured by the sales price of the vessel to the purchaser, unless the transaction is otherwise exempt from tax. (Id.) Based on the facts you have provided, there is no exemption from both the sales tax and the use tax that applies to the transaction about which you inquire. You do not indicate whether the vessel is a documented vessel, or is instead an undocumented vessel. If the vessel is a documented vessel, meaning that it is required to be documented by the United States Coast Guard, and the United States Coast Guard has issued a valid marine certificate for it, Ms. B--- must report and pay tax to the Board on her purchase of the vessel. (Reg. 1610(c)(2)(A).) Any vessel which is not required to have, and does not have, a valid marine certificate issued by the United States Coast Guard is an undocumented vessel. (Reg. 1610(c)(2)(B).) If the vessel is undocumented, Ms. B--- must pay the tax to the Department of Motor Vehicles, acting for, and on behalf of, the Board pursuant to section 9928 of the Vehicle Code, at the time of making application for registration. (Id.)

Mr. David B. Gee

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If you have further questions, please feel free to write again. Sincerely,

Kelly W. Ching
Staff Counsel
KWC:cl

cc:

--- --- District Administrator

February 6, 1996
585.0195