Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2017

Sales and Use Tax Annotations

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Annotation 325.0013.200


325.0013.200 First Functional Use Test. An opinion was requested regarding the legal department's position on the first functional use test as it applies to vehicles, vessels, and aircraft.

After a review of the Revenue and Taxation Code, Sales and Use Tax Regulations, and various court cases, including American Airlines Inc. v. State Board of Equalization (1963) 216 Cal.App.2d 180, it was concluded that if a vehicle or vessel is designed for commercial carriage, e.g., a bus, a tractor-trailer, or a sightseeing boat, the first functional use will be outside California if passengers are boarded or cargo is loaded onto the vehicle or vessel outside of California. If such vehicle or vessel is deadheaded into California, the first functional use will be in California unless the vehicle or vessel is brought to

California to fulfill an existing lease or charter, or to pick up a specific load of cargo or group of passengers. The same applies to aircraft, though in some instances the purchase of such aircraft will be exempt under section 6366 or 6366.1.

Vehicles, vessels and aircraft which are purchased for commercial purposes and used for commercial purposes are not "functionally used" until used for the commercial purpose for which they were designed.

With respect to vehicles, vessels, and aircraft designed for personal use, such as a passenger vehicle as defined in Vehicle Code section 465, a small motor boat, or a small plane, the first trip or flight into California is a functional use outside of California without regard to who drives or pilots the vehicle, vessel, or aircraft or to whether it is carrying passengers or cargo.

Finally, regardless of what purpose the vehicle, vessel, or aircraft was designed for, the first functional use of such items will be in California if they are not brought into California under their own power and they have not otherwise been functionally used outside of California. 8/10/92.