FAQ - Exemptions & Exclusions: Vehicles, Vessels, Aircraft

  1. Do I use the 90-day test or the 12-month test when determining the application of use tax to out-of-state purchases of vehicles, vessels, and aircraft?
  2. How do I apply for a BOE-111, Certificate of Use Tax Clearance?
  3. What are the exemptions or exclusions from the use tax?
    1. Commercial Deep Sea Fishing
    2. Interstate and Foreign Commerce
    3. Family Transfers
    4. Not Purchased for Use in California
    5. Received as a Gift
    6. Transfers Into and Out of Corporations
    7. Transfers Into Revocable Trusts
    8. Involuntary Transfers
    9. Purchases from the United States Government
    10. Purchases by American Indians
    11. Purchases for Resale
    12. Purchases for Use Outside California
    13. Common Carrier
    14. Transfer of a Vehicle to Lessee by Lessor, when Vehicle resold to a Third Party (10-day Rule)

  1. Do I use the 90-day test or the 12-month test when determining the application of use tax to out-of-state purchases of vehicles, vessels, and aircraft?

    California Revenue and Taxation Code section 6248 has been amended several times over the past several years resulting in two different applicable test periods. The test periods are used to determine if the out-of-state purchase of a vehicle, vessel, or aircraft was a purchase for the purpose of storage, use, or other consumption in California and subject to California use tax. The applicable test period is generally dependent upon the purchase date of the vehicle, vessel, or aircraft. The following table illustrates the application of each of the two test periods based on the purchase date:

    Purchase Date Test Period
    Prior to October 2, 2004 90-Day Test
    October 2, 2004 – June 30, 2007 12-Month Test
    July 1, 2007 – September 30, 2008 90-Day Test
    On or after October 1, 2008 12-Month Test

    For additional information regarding the specific requirements under either of the test periods, please see the page outlining the 90-day test provisions or the page outlining the 12-month test provisions.

  2. How do I apply for a BOE-111, Certificate of Use Tax Clearance?

    The Department of Motor Vehicles (DMV) and the Department of Housing and Community Development (DHCD) are required to collect use tax upon registration by new owners of vehicles, undocumented vessels, and mobilehomes. In order for these agencies to complete registration without collection of use tax, they require a clearance certificate issued by the BOE.

    To apply for the clearance certificate (BOE-111), an application form BOE-106, Vehicle/Vessel Use Tax Clearance Request should be completed. The application must include all the identifying information, the reason for exemption, and must be signed by the purchaser. Copies of any documentation verifying the exempt nature of the transaction should be included, as well as a copy of the current title. Family transfers require documentation showing the relationship between buyer and seller. Trust transfers require copies of the trust title page, signature page, and property description pages, etc.

    You may mail, fax, or personally submit the application to your local district office or the Consumer Use Tax Section located in Sacramento. (Some district offices are not equipped to provide this service. Please call in advance to confirm service is available.) If your clearance request is approved, you will receive a BOE-111, Certificate of Use Tax Clearance. Upon presentation of the BOE-111 at DMV or DHCD, you will be allowed to complete registration without payment of use tax. However, this will not relieve you of your use tax liability if use tax is later determined to be due.

    Additional information for requesting a use tax clearance can be found in publication 52, Vehicles & Vessels: How to Request a Use Tax Clearance for DMV Registration.

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  3. What are the exemptions or exclusions from the use tax?

    As described in publication 52, Vehicles and Vessels - How to Request a Use Tax Clearance for DMV Registration, the following is a list of exemptions and exclusions from the use tax that may apply:

    1. Commercial Deep Sea Fishing

      Not all fishing vessels qualify for this exemption. The vessel must be used by persons engaged principally in commercial deep sea fishing activities outside the three mile territorial waters of California, or used in interstate commerce or transport to offshore drilling. If your annual income from fishing activities is less than $20,000, you may not qualify for this exemption.

      Documentation required includes:

      • Twelve months of “fish tickets” identifying the species and location caught,
      • Loran and/or GPS readings,
      • Complete tax returns,
      • Profit and loss statements,
      • California Department of Fish and Game fishing licenses and boat registration,
      • Photographs of the vessel showing rigging, and
      • Other types of documentation as described on the commercial deep sea fishing questionnaire sent to you upon filing for exemption with the Board.

      For more information, see publication 40, Tax Tips for the Watercraft Industry and Regulation 1594, Watercraft.

    2. Interstate and Foreign Commerce

      Purchases of property that are both first functionally used outside the state of California and are used continuously in interstate or foreign commerce (both within and outside California), and not exclusively in California, are exempt from the use tax. For example, a purchase of a ferry boat to transport passengers between Los Angeles and Catalina Island (two California ports) does not qualify for the exemption, even though the vessel may travel through international waters to arrive at its destination. However, the purchase of an aircraft regularly used in transporting passengers from Mexico to Canada may be exempt, even if it stops at various airports in California to pick up additional passengers. Regulation 1620, Interstate and Foreign Commerce.

      In addition, vehicles, vessels, and aircraft first functionally used outside California may not be regarded as purchased for use in this state where the vehicle, vessel, or aircraft is brought into California within 12 months after its purchase and one-half or more of the miles traveled by the vehicle, or nautical miles traveled by the vessel, or flight time traveled by the aircraft during the six-month period immediately following its entry into this state are miles/nautical miles/flight time in interstate commerce.

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    3. Family Transfers

      The Sales and Use Tax Law provides an exemption from the use tax when the person selling a vehicle, vessel, or aircraft is related to the purchaser as either:

      • Parent
      • Grandparent
      • Grandchild
      • Child
      • Spouse
      • Brother or sister, if both are under age of 18 and related by blood or adoption.

      This exemption does not apply if the seller is engaged in the business of selling similar property. (For example, a car or boat dealer.) Additionally, the exemption does not extend to sales to stepparents or stepchildren if a natural parent or child is not involved in the sale nor does it apply to transactions between ex-spouses after a decree of divorce.

      To qualify for the exemption, the relationship between buyer and seller must be verified by marriage license, birth or adoption certificate, or any other documentation that is official or verifiable and confirms the qualifying relationship. (Revenue and Taxation Code section 6285.)

      For information on transfers as part of a divorce settlement, please see part h. Involuntary Transfers

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    4. Not Purchased for Use in California (The information below does not apply to a vehicle, vessel, or aircraft purchased out of state on or after October 2, 2004, until and including June 30, 2007. Please see question Frequently Asked Question 2)

      The purchase of a vehicle, vessel, or aircraft from a dealer outside California, (including property purchased from a California dealer and subsequently delivered or picked up at a location outside of California where title is transferred to the purchaser), or from a non-dealer either in or outside of California, for use in this state is generally subject to the use tax. The question is whether the property is deemed to be purchased for use in this state or not. The law provides for a test period to be used in determining whether property is purchased for use in this state. If the provisions of the test period are met, the property is deemed to not be purchased for use in this state and therefore, not subject to California use tax. If the provisions of the test period are not met, the property is deemed to be purchased for use in California and the use tax applies.

      Due to changes in the law, two different test periods exist for determining whether a vehicle, vessel, or aircraft is purchased for use in this state. The applicable test period is generally dependent upon the purchase date of the vehicle, vessel, or aircraft. The following table illustrates the effective dates of each of the two test periods based on the purchase date:

      Purchase Date Test Period
      Prior to October 2, 2004 90-Day Test
      October 2, 2004 – June 30, 2007 12-Month Test
      July 1, 2007 – September 30, 2008 90-Day Test
      On or after October 1, 2008 12-Month Test

      For additional information regarding the specific requirements under either of the test periods, please see the page outlining the 90-day test provisions or the page outlining the 12-month test provisions. You may also see Regulation 1620, Interstate and Foreign Commerce, and publication 110, Purchases from Out-of-State Vendors.

    5. Received as a Gift

      Changing the ownership of a vehicle, vessel, or aircraft does not cause a taxable sale or purchase if there is no consideration given to obtain the property. Consideration can take many forms such as cash, a loan, a trade, or assumption or cancellation of a debt. In order to qualify under this provision, it must be established that the property was transferred from the donor to the recipient with no requirement on the recipient's part to compensate the donor in any way. A signed, notarized statement from the donor is usually required. Please note: The donor must have the legal authority to transfer the vehicle, vessel, or aircraft.

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    6. Transfers Into and Out of Corporations

      A transfer of property transferred into a commencing corporation solely in exchange for first issue stock is not subject to tax. The corporation must acknowledge receipt of the property and verify that the only consideration given is stock in the company. If the corporation assumes any liabilities as consideration for the transfer, tax will apply to the transfer. If a corporation gives property, such as a depreciated vehicle, to an employee as payment of wages or compensatory bonus and a W-2 form, Statement of Wages Earned, is required to be issued, tax would apply on the monetary value given to the property in lieu of cash. If the transfer is a gift, no use tax would apply.

      To qualify, a copy of the Articles of Incorporation and Minutes of the Meeting of the Corporation detailing the transfer is required. When a corporation is dissolved and distributes assets to stockholders, no tax applies, provided the assets are distributed in accordance with the stockholders' ownership in the corporation and the assets were not inventory being held for resale. A copy of the Certificate of Election to Wind Up and Dissolve describing the disbursement of the corporate assets is required to support an exemption.

      For more information, see Regulation 1595, Occasional Sales—Sale of a Business—Business Reorganization.

    7. Transfers Into Revocable Trusts

      A transfer of property into a revocable trust is exempt from tax provided the only consideration given, if any, is the assumption of the loan and sole collateral is property being transferred in exchange for the property and

      • The seller has unrestricted power to revoke the trust;
      • The transfer does not result in any change in the beneficial ownership of the property;
      • Upon revocation of the trust the property reverts back to the beneficial seller.

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    8. Involuntary Transfers

      Use tax normally does not apply if title to the property changes due to circumstances beyond the recipient's control. Some examples are repossession by a legal owner, inheritance from a decedent's estate, recovery of stolen property after settlement from an insurance company, and court settlements such as divorce decrees. Confirming documentation is required, depending on the nature of the transaction.

    9. Purchases from the United States Government

      While purchases by the U.S. government and its agents are exempt from state taxes, not all purchases from, or sales by, the U.S. government are exempt from sales and use tax. Only under certain conditions are purchases from, or sales by, the U.S. government exempt from tax. The following types of transactions may qualify:

      • A sale by a U.S. Marshal pursuant to orders of a federal court.
      • A sale in accordance with certain United States Code sections. A letter should be provided identifying the applicable United States Code sections under which the property is sold.

      Please note: Sales made under Title 40, United States Code section 484, or Internal Revenue Code section 6335 are not exempt use tax purchases. For more information on purchases from the United States government, please see Publication 52, Vehicles and Vessels, How to Request a Use Tax Clearance for DMV Registration.

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    10. Purchases by American Indians

      Purchases of property purchased by American Indians are exempt under the following conditions:

      • The purchaser must be of American Indian descent and must be entitled to services as an Indian from the United States Department of Interior.
      • The purchaser must reside on a reservation or rancheria.
      • The property must be delivered and title transferred on a reservation or rancheria.
      • The item must be used on a reservation or rancheria more than 50 percent of the time during the first 12 months after the transfer.

      To qualify for the requested exemption, documentation such as a signed letter by the tribal council and dealer delivery statements signed by the purchaser verifying the above criteria must be submitted to the Board. For more information, see Regulation 1616, Federal Areas.

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    11. Purchases for Resale

      Purchases of property for resale are not subject to tax provided the purchaser makes no use of the property except demonstration and display in the course of offering the property for sale. You may provide a copy of your valid seller's permit, county business license, dated advertisements in newspapers and trade magazines, logs of engine hours or miles verifying the demonstration, and any other documentation which shows efforts made to sell the property to substantiate that the property was purchased for resale. If any personal use is made, the use tax is due.

    12. Purchases for Use Outside California

      A purchaser is not required to pay California use tax if the only use of the property purchased in California is to remove it from the state and it will be used solely thereafter outside this state. No other use can be made of the property. See Regulation 1620, subdivision (b)(9).

      If the property is used in California for personal use or for recreation, use tax applies. For example, you, as a resident of Oregon, purchase a boat in San Diego and immediately leave for home. Along the way, you stop at Marina Del Rey, have dinner, and have a boat decal added. The next day you fish in the Channel Islands. Later, you stop to visit friends in San Francisco and take them for a ride in your boat. The California use tax applies because you made a personal and recreational use of the boat in California, and did not simply remove it from the state.

      Delays for emergency repairs made to the vessel must be verified as functionally necessary for the vessel to continue its departure from the state. You must provide supporting documentation such as fuel, repair, mooring, or lodging receipts to verify the property's departure from California, plus documentation showing at least six months out-of-state use of the property to qualify for this provision.

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    13. Common Carrier

      Generally, tax does not apply to the sale of an aircraft to any person who will use the aircraft as a common carrier of persons or property under authority of the laws of this state, of the United States, or of any foreign government, during the first 12 consecutive months beginning with first operational use. Unless you can show otherwise, we will presume you are not engaged in business as a common carrier unless your yearly gross receipts from such operations exceed 20 percent of the purchase price of the aircraft, or $50,000, whichever is less. (Revenue and Taxation Code sections 6366 and 6366.1)

      To qualify for exemption, the following list of documents must be submitted to the Board for review:

      • Copies of the operator's Federal Aviation Administration (FAA) certification.
      • FAA registration documents.
      • A list of operator's certified pilots.
      • Evidence of insurance coverage (a complete copy of the policy).
      • A complete copy of the aircraft flight logs from the date of delivery and the next succeeding twelve months of operational use.
      • A summary that describes each flight during the first twelve months of operation.
      • A complete copy of the aircraft or engine maintenance logs.
      • A complete copy of the sales contract which verifies the purchase price, date, and delivery location of the aircraft.
      • A complete copy of the lease agreement if the aircraft is leased.
      • A copy of all lease payment invoices made to the lessor (owner) by the lessee (operator).
      • Copies of operator's customer revenue billings showing the amount charged on all charter flights.

      If the first 12 months has not yet expired by the due date of the use tax return, we recommend that you submit copies of documentation currently available. Action on your account will be suspended until the 12-month period has expired. You may submit the remaining required documentation at that time. For more information, see Regulation 1593, Aircraft and Aircraft Parts.

    14. Transfer of a Vehicle to Lessee by Lessor, when Vehicle resold to a Third Party (10-day Rule)

      Generally, when a lessee elects the option to buy out the lease, tax does not apply to a vehicle if the lessee transfers title and registration to a third party within 10 days from the date the lessee acquired title from the lessor at the expiration or termination of a lease. However, if the lessee elects this option and then gifts the vehicle, the lease pay-off amount is subject to tax. For more information, please see Regulation 1610(d)(2).

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