Was a product used to clean and gas-free vessel fuel tanks before welding exempt as property used in watercraft repair?

Plain-English summary

Steamship companies objected to sales-tax reimbursement on a product used to clean and gas-free double-bottom fuel tanks before burning and welding during structural repairs.

California said the question was not whether the product supported repair rather than ordinary cleaning. Section 6368 exempted tangible personal property that became a component part of the watercraft during construction, repair, cleaning, alteration, or improvement.

Because the product was consumed while cleaning and gas-freeing the tanks and did not remain physically in the vessel, its sale was taxable.

What this means for you

Shipyards, repair contractors, and maritime suppliers

Separate materials incorporated into the repaired vessel from chemicals and supplies consumed while performing the work. A close connection to exempt repair labor does not itself make a product a component.

Common questions

Q: Did use during structural repair create an exemption?

A: No.

Q: What controlled the result?

A: Whether the product physically became part of the watercraft.

Q: Why was the cleansing product taxable?

A: It was consumed in cleaning and gas-freeing the tanks rather than incorporated into them.

Citations and references

• California Revenue and Taxation Code § 6368
• California Sales and Use Tax Ruling 51.5, as cited in the source

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 600.0340
• Original supporting opinion: 600.0340 PDF

Original ruling text

600.0340

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 25, 1955

Gentlemen:
In your letter of March 17 you state that certain steamship companies have objected to your billing them an amount for sales tax on sales of a product called S upon the basis that it is not considered a product used for general cleaning and maintenance. You state that it is used in the process of performing repairs to the structural part of the vessel, i.e., cleaning and gas-freeing double bottom fuel tanks in preparation for burning and welding. Under the express terms of the statutory exemption, Section 6368 of the Sales and Use Tax Law, there are exempted “…any sales of tangible personal property becoming a component part of such watercraft in the course of constructing, repairing, cleaning, altering, or improving the same….” (underscoring added) The determining question, therefore, is not whether the product is used for general cleaning or maintenance, but whether it becomes physically a component part of the watercraft. Since you state it is used in cleaning and gas-freeing fuel tanks, it would appear to be a consumable item and not one that becomes a component part of the watercraft. It appears, therefore, that your sale of this item does not fall within a statutory exemption. For your convenient reference, we are enclosing a copy of Sales and Use Tax Ruling 51.5, adopted as an interpretation and explanation of Section 6368, note particularly the last three paragraphs of the ruling. Very truly yours,

E. H. Stetson
Tax Counsel

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