Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2015

Sales and Use Tax Annotations

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Annotation 325.1727

(8) Use Tax

325.1727 First Functional Use Test. The first functional use of vehicles, vessels, and aircraft are as follows:

(1) The first functional use of a vehicle, vessel, or aircraft which is designed for commercial carriage, e.g., a bus, a tractor trailer, or a sightseeing boat, will be outside of California if passengers are boarded or cargo is loaded onto the vehicle, vessel, or aircraft outside of California. If such a vehicle, vessel, or aircraft is deadheaded into California, the first functional use will be in California unless the vehicle, vessel, or aircraft is brought into California to fulfill an existing lease or charter or to pick up a specific load of cargo or group of passengers.

(2) As to vehicles, vessels, and aircraft designed for personal use, such as a passenger vehicle as defined in Vehicle Code section 465, a small 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. Thus, if the first trip is outside of California, the first functional use does not occur in this state.

(3) Vehicles, vessels, and aircraft which are designed for commercial purposes are not functionally used until used for the commercial purposes for which they were designed. For example, a commercial fishing boat is not functionally used until it is used on waters for fishing.

(4) Regardless of what purposes the vehicles, vessels, or aircraft were designed for, the first functional use of such items will be in California if they were not brought into California under their own power and they have not otherwise been functionally used outside of California. 8/10/92.