Was a vessel exempt when it was used only for commercial fishing but its primary catch was abalone taken inside California waters?

Plain-English summary

A commercial fisher bought a 34-foot wooden diesel vessel for $7,100 and sought a $498.42 use-tax refund. The vessel was licensed and used exclusively for commercial fishing; about 95 percent of the fisher's gross income came from the catch, including $22,970 in 1975.

The primary catch during the first six months was abalone. Although the activity was commercial fishing, abalone was taken in relatively shallow water close to the California mainland and offshore islands.

Section 6368 required commercial deep-sea fishing operations outside California territorial waters. Because this vessel's fishing stayed within the state's three-mile territorial limits, the hearing officer recommended denying the refund.

What this means for you

Commercial fishers and vessel-acquisition advisers

Exclusive business use and strong fishing receipts do not establish this exemption by themselves. Preserve location records showing where the vessel actually fishes, including its distance from mainland and island shores.

Common questions

Q: Was the vessel used exclusively for commercial fishing?

A: Yes.

Q: Did the fisher earn most income from the catch?

A: Yes, about 95 percent under the stated facts.

Q: Why was the refund denied?

A: The abalone fishing occurred within California territorial waters.

Citations and references

• California Revenue and Taxation Code § 6368
• Santa Fe Transportation Co. v. State Board of Equalization (1959), 51 Cal. 2d 531
• Good Humor Co. v. State Board of Equalization (1957), 152 Cal. App. 2d 879
• Luer Packing Co. v. State Board of Equalization (1950), 101 Cal. App. 2d 99

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 600.0125
• Original supporting opinion: 600.0125 PDF

Original ruling text

600.0125
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STATE OF CALIFORNIA
BOARD OF EQUALIZATION

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June 10:,. 1976

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In the Matter of the Claim for)
Refund of State and Local Use ~

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DECISION AND RECOMMENDATION

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·:"- The above-entitled matter came on regularly for hearing on Thursday, Robert H. Anderson, Hearing

·;; ~ May 6, · 1976 in San Diego, California.
.. 'i ~· Officer.

·'· , · Appearing for Claimant:
·:-:·./ . Appearing for the Board:

Bob Bender
San Diego District Compliance
Claim

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claims a refund of $498.42 paid pursuant to a deterrnina­
/ .. ::tion issued on April 4, 1975.

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Contentions

· ··.·.:~-:·) The use tax paid under protest was as.sessed on a vessel that was
. . ..: .. :purchased for use as a commercial fishing vessel and was used only
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:· \·-';:~s a commercial fishing vessel.

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Sumna!:Y

·_,: ·:-0n- or about June 11, 1974,

purchased the vessel
; from a
ror $7,100. The
is a wood
~/:/~null diesel powered vessel that is 34 foot long, 11.2 feet wide
:.,·· :::_wi-;t::,h a gross tonnage of 11.2 •
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.-,. The~vessel is documented and licensed for commercial fishing. has a commercial fishing license and in between going to school he uses the vessel exclusively for commercial fishing purposes. He stated that about 95 percent of his gross income is frmn the sale of his catch which, in 1975, was $22,970.

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claims that his use of the vessel exempts him from use t~~, liability . under section 636a of the Sales and bse Tax Law.
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600.0125

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Conclusions
The record indicates that
_ primary catch was abalone
during the period in question which is the first six months of operations after acquiring the vessel. Section 6368 of the Sales and Use Tax Law provides, in part, as follows: '"There are exempted from the taxes imposed by this part the gross r eceipts from the sale of and the storage, use, or other consumption in this state of watercraft for use in interstate or foreign.commerce involving the transportaticn of property or persons for hire or for use in commercial deen sea fishing. o erations outside the territorial waters of the state.... nderlines added.

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fhe foregoing section is a tax exemption and the courts have held that statutes granting exemption from taxation must be reasonably, but nevertheless strictly, construed against the taxpar1er. Santa Fe Transp. v. State Board of Equalization (1959) 51 Cal. 2d 531; Good Humor Co. v. State Board of Equalization (1957) 152 Cal. App. 2d 879; Luer Packing Co. v. State Board of Equalization (1950) 101 Cal. App. 2d 99. The statute reouires that the vessel be used in commercial deeo s ea fishing operations outside the te:rri to rial ·waters of the State: This is an expr ess provision and could not be more clear. 'i'he territorial waters of the State extend from the shoreline of the mainland and the offshore islands to a point three miles away from the shore. Abalone fishing is done in waters that are r elatively shallow and close to the shoreline of the mainland and offshore islands. Thus, al though is a commercial fisherman and uses the vessel in commercial fishing operations, it is not used outside the territorial limits of the State, and therefore, the test for the exemption is not met. A reasonable but nevertheless strict construction of the exemption statute dictates the conclusion that use of the vessel does not qualify for the exemption.

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600.0125

Recommendation
Claim for refund be denied.

JUN 4 1976
Robert H. Anderson, Hearing Officer

Date

Reviewed for Audit:

Principal Tax Audi tor

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