Was a surplus boat subject to California use tax when its only in-state activity was overhaul before qualifying out-of-state operations?

Plain-English summary

A purchaser acquired a 38-foot picket boat from Navy Surplus Sales, planned to overhaul it in California, and claimed it was a documented vessel.

California said federal registration, enrollment, or licensing only showed that the vessel could engage in foreign or domestic traffic. Documentation by itself did not establish a sales-and-use-tax exemption.

Two possible exemptions depended on actual purpose. Section 6368 could apply if the boat was bought for commercial deep-sea fishing outside California territorial waters or interstate or foreign transportation for hire. Separately, section 6009.1 excluded California storage or use undertaken only to prepare property for transportation and use solely outside the state. Pleasure or other nonqualifying California use would trigger tax.

What this means for you

Vessel purchasers, shipyards, and maritime tax advisers

Preserve purchase plans, overhaul records, departure evidence, and operating logs. Federal vessel documentation is evidence of possible trade use, not proof of a California tax exemption.

Common questions

Q: Did documented-vessel status itself create an exemption?

A: No.

Q: Could California overhaul work occur without taxable use?

A: Yes, if that was the only in-state use before transportation and use solely outside California.

Q: What if the boat was used for pleasure in California?

A: The memorandum said use tax would apply.

Citations and references

• California Revenue and Taxation Code §§ 6009.1 and 6368
• 46 U.S.C.A. §§ 18 and 801, as cited in the source
• Gibbons v. Ogden, 22 U.S. 1 (1824), as cited in the source

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 600.0140
• Original supporting opinion: 600.0140 PDF

Original ruling text

600.0140

November 15, 1957

Marysville - Compliance
Hdqrs. - Tax Counsel (GAT)

This is in reply to your memo dated October 22, to Unit 3, re­ garding application of use tax to a 38-foot picket boat purchased by from Navy Surplus Sales. Mr. intends to overhaul the boat and use it in Alaska or in the It is questioned whether use tax is applicable, in that Mr. claims that the boat is a "documented vessel".

~

It is our understanding that every vessel of the United States engaged in foreign trade must be "registered" with the U.S. and vessels engaged in domestic commerce must be "enrolled". The pur:.. pose of a register is to declare the nationality of a vessel en­ gaged in trade with foreign nations and to enable her to assert that nationality wherever found. The purpose of an enrollment is to evidence the national character of a vessel engaged in the coasting trade or home traffic. Gibbons v. Ogden, 22 U.S. 1, 6

L.Ed. 23.

The term "documented" under the laws of the U.S. means "regis­ tered, enrolled, or licensed under the laws of the U.S., 46 U.S.C.A. Sec. 801. The register, enrollment and license, or li­ cense of a vessel of the U.S. are referred to, respectively, as the vessel's document. 46 u.s.c.A. Sec. 18. On the basis of the foregoing, it is our opinion that the fact that a vessel is documented is merely evidence that it may be used for either foreign or domestic traffic. Storage or use of this vessel is not subject to use tax if such storage or use comes within the terms of the watercraft exemp­ tion, provided in Revenue and Taxation Code Section 6368 and Ruling 51.5. If our understanding of the facts is correct, that the vessel was purchased for use in commercial deep sea fishing operations outside the territorial waters of this state, or for use in interstate or foreign commerce for hire, then it seems that its use would be exempt from tax. However, if the boat is to be used for pleasure or some other purpose in this state not within the terms of the watercraft exemption, it will be subject to use tax.

600.0140
Marysville - Comp.

-2-

November 15, 1957

An additional basis for exemption from use tax, which may apply

to the facts of the instant case, is that provided in Section 6009.1, Revenue and Taxation Code. Under Section 6009.1, tax­ able "storage" and "use" do not include the keeping, retaining or exercising any right or power over tangible personal property for the purpose of subsequently transporting it outside the state for use solely outside the state . If Mr.
; only
storage and use of the vessel in this state is for the purpose of overhauling it, such storage or use is not subject to tax.

GAT:ch