Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
325.0000 INTERSTATE AND FOREIGN COMMERCE—Regulation 1620
(a) IN GENERAL—SHIPMENTS INTO CALIFORNIA FROM POINTS OUTSIDE STATE
325.0013 First Functional Use Out of State but Returned to the State. Two race engines were purchased out of state and delivered to the purchaser in California via common carrier in early 1971. The purchaser installed one of the engines in his race car and held the other one on standby as a backup engine. Although it was the purchaser's intent that the car and engine be raced in California, these engines were never tested or raced in the state.
Several months after purchase, both engines were removed from California via a trailer. Shortly thereafter, the car was raced in Arizona on March 26, 1971. After this race the engines were returned to California where they were stored. On April 27, 1971, they were transported outside the state to the East where they were used in the racing circuit. Unfortunately, the engines blew up. The purchaser, in turn, sold them back to the vendor instead of returning them to California.
Under the above circumstances, both engines are subject to the use tax. This conclusion is based on the following:
When tangible personal property is purchased and first stored or used in California, the item is subject to the California use tax notwithstanding the lack of some functional use in the state unless it comes within the exclusion provided in section 6009.1. Section 6009.1 provides, in part, that 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 thereafter solely outside the state. Since it was not the purchaser's purpose upon the initial storage or use in California to merely transport it outside the state for use thereafter solely outside the state ( i.e., it was to be returned to California after the Arizona race and after the East Coast race), we do not believe that it can be said that such storage or use in California was only for the purpose for transporting it outside the state for use thereafter solely outside the state. Therefore, it is concluded use tax is due on both engines. Standby service is a use within the definition of "use" under section 6009. 9/27/71.