Could a business still use the nondealer vessel-sale exemption after evolving from boat repair into building and selling racing boats?

Plain-English summary

A taxpayer originally registered as a boat welder and repairer. At that stage, section 6283 could exempt its retail vessel sales because it was not required to hold a seller's permit based on the number, scope, and character of those sales.

Board counsel later found that the business appeared to have changed. It was now primarily building and selling racing boats, yet its returns did not remit sales tax on those retail sales.

Counsel concluded that the section 6283 exemption no longer applied. The taxpayer should remit sales tax and could not shift that obligation to purchasers by relying on their payment of use tax to DMV when registering the boats.

What this means for you

Repair businesses adding product sales

An original registration description did not control forever. A business that grew into regular vessel manufacturing and sales could become a seller required to collect sales tax.

Accountants and tax professionals

Review actual current operations, returns, and the number, scope, and character of sales. Purchaser payments to DMV did not automatically relieve the retailer's sales-tax duty.

Common questions

Q: What was the taxpayer's original business?

A: Welding and repairing boats.

Q: What had the business become?

A: Primarily a builder and seller of racing boats.

Q: Why did the exemption stop applying?

A: The business was now required to hold a seller's permit because of its vessel sales.

Q: Could the seller rely on buyers paying DMV?

A: No. Counsel said the seller should remit sales tax on its retail vessel sales.

Citations and references

• California Revenue and Taxation Code § 6283

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0197
• Original supporting opinion: 585.0197 PDF

Original ruling text

State of California

Board of Equalization

Memorandum
To:

Mr. B. H. Watson, Supervisor
Return Analysis Section (MIC:35)

From:

Charlotte Chyr
Tax Counsel

Subject:

[X]

585.0197
Date:

January 29, 1997

We received an inquiry from a purchaser purchasing a vessel from [X] (“taxpayer”). In reviewing the central file for taxpayer, we noticed that the taxpayer initially registered with the Board as a welder and repairer of boats. At such time, under Revenue and Taxation Code § 6283, the taxpayer’s gross receipts from retail sales of vessels would have been exempt from sales tax, because the taxpayer was a welder and repairer, and therefore was other than a person required to hold a seller’s permit by reason of the number, scope, and character of his sales of the vessels. Since the taxpayer’s initial registration with the Board, it appears that the taxpayer is now primarily engaged in the business of building and selling racing boats. In reviewing some of the taxpayer’s more recent returns, we noticed that taxpayer is not remitting sales tax on its retail sales of the racing boats. Since taxpayer’s business apparently is now selling racing boats and not merely welding and repairing the boats, the sales tax exemption set forth in Revenue and Taxation Code § 6283 no longer applies. The taxpayer improperly relies on the purchaser’s payment of use tax to the Department of Motor Vehicles (“DMV”) at the time the purchaser registers the vessel, as relief from taxpayer’s obligation to remit sales tax on its retail sales. It now appears taxpayer should be remitting sales tax on its retail sales of vessels.

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District Administrator