Did a derrick barge qualify for the interstate-commerce watercraft exemption by lifting ocean-going ships and building port facilities?

Plain-English summary

A derrick barge bought outside California would be renovated and used in Southern California to quarry rock, build breakwaters, and lift interstate or foreign-commerce ships short distances into and out of dry dock.

Regulation 1594(a)(1) required the exempt watercraft itself to transport persons or property for hire in interstate or foreign commerce. Affecting ocean shipping was not enough. The barge would remain locally and did not perform the qualifying transportation.

The limited tugboat rule could not be expanded to a derrick barge performing none of a tug's arrival or departure functions. No exemption applied to the barge or its renovation and maintenance materials.

What this means for you

Port contractors, barge operators, and maritime tax advisers

Test the watercraft's own movement and compensated transportation, not the interstate character of the ships or port it supports. Local marine construction and ship handling may not qualify.

Common questions

Q: Did lifting interstate ships qualify?

A: No.

Q: Did port construction qualify?

A: No.

Q: Were renovation materials exempt?

A: No.

Citations and references

• California Revenue and Taxation Code § 6596
• California Sales and Use Tax Regulation 1594(a)(1)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 600.0105
• Original supporting opinion: 600.0105 PDF

Original ruling text

600.0105

STA TE OF CALIFORNIA

MEMBER
First District

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO. CALIFORNIA
(P.O. BOX 942879, SACRAMENTO. CALIFORNIA 94279-00011

BRAD SHERMAN
Second District. Los Angeles

(9161 445-6496

ERNEST J. DRONENBURG, JR.
Third District. San Diego
MATTHEW IC FONG
Fourth District. Los Angeles

GRAY DAVIS
Controller. Sacramento

February 17, 1993

,
Long Beach, CA
Re:
Dear Mr.

BURTON W . OLIVER

Executive Director

,
90831-1600

Tax Applicability of Derrick Barge
:

Gary Jugum has requested that I respond to your letter to him dated December 28, 1992 concerning the above subject. In your letter, you request an informal (non-binding) ruling of the interpretation of certain statutes and regulations. Since you have not identified the taxpayers by name, the written opinion requested is not subject to the provisions of California Revenue and Taxation Code section 6596. You state that a derrick barge has been purchased outside the state of California. The derrick barge will be renovated and repainted, and then placed in service quarrying rock and building breakwaters in Southern California. You state that all use of the derrick barge will be either for ships engaged exclusively in interstate and foreign commerce or in the maintenance and construction of port facilities used exclusively for ships engaged in interstate and foreign commerce. You ask: 1) if a use tax exemption is available in connection with the use of the derrick barge based upon its use in interstate and foreign commerce, and 2) if such an exemption is available, does the exemption extend to the purchase of materials and supplies used in the renovation, repair and maintenance of the derrick barge? California Sales Tax Regulation 1594{a) {l) states, in part: "Tax does not apply if the watercraft for which the exemption is claimed is used either exclusively in interstate or foreign commerce involving the transportation of persons or property for hire or both

-2-

February 17, 1993

in interstate or foreign commerce and in intrastate commerce provided the principal use of the watercraft is transportation for hire in interstate or foreign commerce." (Emphasis added.) In your letter, you stated that the derrick will also be used for "ship lift". By this term, it is assumed that the derrick will transport ships (used exclusively in interstate and foreign commerce) for short distances, e.g. in and out of dry dock. Although the anticipated use of the barge may have an effect on shipping used exclusively in interstate and foreign commerce, the barge itself will be permanently located in Southern California and will not involve the transportation of persons or property for hire in interstate or foreign commerce. It is our opinion that there is no interstate or foreign commerce exemption applicable either to the -use of the barge or to the purchase of materials to renovate or maintain it. We believe that the limited exemption contained in Regulation 1594 for tugs which assist the departure or arrival of vessels to or from points outside the state cannot be expanded to provide an exemption for derrick barges that perform none of the functions associated with tug boats. If the regulation had intended to include other vessels in the limited exemption that it provided to tug boats, it is our opinion that the regulation would have so stated. Very truly yours,

Thomas J. Cooke
Tax Counsel
TJC:sr