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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Law
Revenue and Taxation Code
Division 2. Other Taxes
Part 1. Sales and Use Taxes
Chapter 4. Exemptions
Article 2. Exemptions from Sales Tax
Section 6385
Text of Section Operative September 11, 2012 Through January 1, 2029
6385. Common carriers. (a) There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property, other than fuel and petroleum products, to a common carrier, shipped by the seller via the purchasing carrier's facilities under a bill of lading whether the freight is paid in advance, or the shipment is made freight charges collect, to a point outside this state and the property is actually transported to the out-of-state destination for use by the carrier in the conduct of its business as a common carrier.
(b) There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property, other than aircraft fuel and petroleum products, purchased by a foreign air carrier and transported by the foreign air carrier's facilities to a foreign destination for use by the air carrier in the conduct of its business as a common carrier by air of persons or property. To qualify for this exemption, the foreign air carrier shall furnish to the seller a certificate in writing that the property shall be transported and used in the manner required in this subdivision. The certificate shall be substantially in the form prescribed by the department. A seller is not liable for the sales tax if the seller accepts the certificate in good faith. If the seller does not have the certificate at the time the department requests the seller to submit the certificate to the department, the seller shall be given a reasonable time to request the foreign air carrier to provide the seller with the certificate. The foreign air carrier shall maintain records in this state, such as a copy of a bill of lading, an air waybill, or cargo manifest, documenting its transportation of the tangible personal property to a foreign destination.
(c) There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of fuel and petroleum products to a water common carrier, for immediate shipment outside this state for consumption in the conduct of its business as a common carrier after the first out-of-state destination. To qualify for the exemption the common carrier shall furnish to the seller an exemption certificate in writing stating the quantity of fuel and petroleum products claimed as exempt which is to be consumed after reaching the first out-of-state destination. That certificate shall bear the purchaser's valid seller's permit number or valid fuel exemption registration number and shall be substantially in the form prescribed by the department. Acceptance in good faith of that certificate shall relieve the seller from liability for the sales tax.
(d) "First out-of-state destination," as used in this section, means the first point reached outside this state by a common carrier in the conduct of its business as a common carrier at which cargo or passengers are loaded or discharged, cargo containers are added or removed, fuel is transferred, or docking fees are charged.
"First out-of-state destination," as used in this section, also includes the entry point of the Panama Canal when the carrier is only transiting the canal in the conduct of its business as a common carrier.
(e) "Common carrier," as used in this section, with respect to water transportation, shall be deemed to include any vessel engaged, for compensation, in transporting persons or property in interstate or foreign commerce.
(f) "Foreign air carrier," as used in this section, means a foreign air carrier as defined in Section 40102 of Title 49 of the United States Code.
(g) "Immediate shipment," as used in this section, means that the delivery of the fuel and petroleum products by the seller is directly into a ship for transportation outside this state and not for storage by the purchaser or any third party.
(h) A common carrier claiming exemption under subdivision (c) who is not required to hold a valid seller's permit shall be required to register with the department and obtain a fuel exemption registration number and shall be required to file returns as the department may prescribe if either the department notifies the carrier that returns must be filed or the carrier is liable for taxes based upon consumption of fuel erroneously claimed as exempt under this section. A common carrier required to hold a fuel exemption registration number shall be subject to all applicable provisions of this part, Part 1.5 (commencing with Section 7200), and Part 1.6 (commencing with Section 7251).
(i) A common carrier claiming an exemption under subdivision (c), upon request, shall make available to the department records, including, but not limited to, a copy of a log abstract or a cargo manifest, documenting its transportation of the fuel or petroleum product to an out-of-state destination and the amount claimed as exempt. If the carrier fails to provide these records upon request, the department may revoke the carrier's fuel exemption registration number.
(j) The department may require any carrier claiming an exemption under this section and required to obtain a fuel exemption registration number to place with it that security as the department may determine pursuant to Section 6701.
(k) Pursuant to subdivisions (a), (b), and (c), any use of the property by the purchasing carrier, other than that incident to the delivery of the property to the carrier and the transportation of the property by the carrier to the first out-of-state destination and subsequent use in the conduct of its business as a common carrier, or a failure of the carrier to document its transporting the property to the first out-of-state destination, shall subject the carrier to liability for payment of sales tax as if it were a retailer making a retail sale of the property at the time of that use or failure, and the sales price of the property to it shall be deemed to be the gross receipts from the retail sale.
(l) For the purpose of complying with Section 41, the Legislature finds and declares all of the following with respect to the exemption extended by the act adding this subdivision:
(1) The specific goal that the exemption will continue to achieve is to ensure fueling will continue to be a robust economic activity in the state and adhere to tax policy and rationale of first substantial use occurring out of state.
(2) Detailed performance indicators measuring whether the exemption meets the goal described in paragraph (1) are the following:
(A) The average monthly maritime fuel price at all domestic and international Pacific seaports.
(B) The average monthly maritime fuel price at California seaports.
(C) Maritime fuel deliveries at California seaports.
(3) On or before January 1, 2026, the Legislative Analyst’s Office shall analyze the performance indicators described in paragraph (2) and shall report its findings, pursuant to Section 9795 of the Government Code, to the Legislature.
(m) This section shall remain in effect only until January 1, 2029, and as of that date is repealed.
History—Added by Stats. 1943, p. 2457, operative July 1, 1943. Stats. 1963, p. 2272, in effect September 20, 1963, added the last sentence of the first paragraph. Stats. 1979, Ch. 400, effective January 1, 1980, added (b), (c), and (d). Stats. 1985, Ch. 1028, effective September 27, 1985, substituted "the sale" for "sales" after "receipts from", added "other … products" after "personal property", added "facilities" after "carrier's", and deleted last sentence in subdivision (a), added "facilities" after "carriers", and substituted "The" for "Such" before "certificates shall" in subdivision (b), deleted subdivision (c) and added new subdivision (c), added (d) and (e), renumbered former subdivision (d) to become subdivision (f); added subdivision (g), (h), (i), (j), and (k). Stats. 1989, Chapter 230, in effect January 1, 1990, deleted "timely" before "furnish" in second sentence of subdivision (b), substituted third sentence for "Acceptance in good faith of such a certificate shall relieve the seller from liability for the sales tax" in subdivision (b). Stats. 1991, Ch. 85, in effect June 30, 1991, operative July 1, 1991, substituted "required" for "described" after "manner" in the second sentence of subdivision (b); added the fourth sentence in subdivision (b); deleted former subdivision (c) which provided an exemption from sales tax the gross receipts from the sale of fuel and petroleum products to a water, air or rail common carrier; deleted former subdivision (d) which provided a definition of "first out-of-state destination"; relettered former subdivisions (e) and (f) as (c) and (d) respectively; deleted former subdivisions (g), (h), (i) and (j) which provided a definition for "immediate shipment" and specified the requirements for common carriers claiming an exemption for exempt sales of fuel and petroleum products; relettered former subdivision (k) as (e); substituted "and" for a comma after "subdivisions (a)", deleted "and (c)" after "b", substituted "an" for "the first" after "carrier to", and substituted "an" for "the first" after "property to" in subdivision (e). Stats. 1992, Ch. 905 (AB 2396), in effect September 25, 1992, operative January 1, 1993, added subdivisions (c), (d), (g), (h), (i), and (j); relettered former subdivisions (c), (d), and (e) as subdivisions (e), (f), and (k), respectively; substituted "(a), (b), and (c)," for "(a) and (b)," after "Pursuant to subdivisions", and "the first" for "an" after "by the carrier to" and "transporting the property to", in subdivision (k) and added subdivision (l ). Stats. 1997, Ch. 615 (AB 366), in effect October 3, 1997, substituted "2003" for "1998" in subdivision (l ). Stats. 2003, Ch. 712 (SB 808), in effect October 8, 2003, but operative April 1, 2004, substituted "40102" for "1301" after "defined in Section" in subdivision (f); added new subdivision "l " and relettered former subdivision (l ) as (m), and substituted "2014" for "2003" after "until January 1," therein. Stats. 2012, Ch. 293 (SB 1243), in effect September 11, 2012, substituted "transferred" for "bunkered" after "fuel is" in the first paragraph of subdivision (d), deleted former paragraph (l) that required the Legislative Analyst's Office to prepare a report that evaluates the economic impact of the partial sales tax exemption regarding bunker fuel, relettered former paragraph (m) as (l), and substituted "2024" for "2014" after "January 1," therein. Stats. 2023. Ch. 442 (AB 543), in effect October 8, 2023, replaced "board" with "department" throughout; substituted "and air waybill" for "an air waybill," after "a bill of lading" in the last sentence of subdivision (b); substituted "A" for "Any" at the beginning of the first sentence of subdivision (h); inserted subdivision (l); redesignated former subdivision (l) as subdivision (m); substituted "2029" for "2024" after " January 1," in subdivision (m).
Note.—Section 3 of Ch. 615 (AB 366), of Stats. 1997, requires the Legislative Analyst's Office to report to the Legislature on or before January 1, 2001, on the effect on bunker fuel sales of the sales tax exemption for the sale of fuel and petroleum products to a water common carrier provided by Section 6385 of the Revenue and Taxation Code for the period beginning on and after January 1, 1993, as compared to the period beginning on July 1, 1991, and ending January 1, 1993, when no exemption was allowed for those sales.
Note.—Section 14 of Ch. 88, Stats. 1991, amended Section 20 of Ch. 85, Stats. 1991, to change the effective date for the amendments made to Section 6385 by Chapter 85 from July 1, 1991 to July 15, 1991.
Freight charges collect.—The statement "freight charges collect" on the bill of lading was sufficient to comply with the exemption even though there were no actual freight charges except as a matter of form. H-R Truck and Equipment Co. v. State Board of Equalization (1958) 166 Cal.App.2d 378.
Technical compliance insufficient.—The purchasing carrier, in unloading freight car wheels at its shops in California, mounting the wheels onto axles owned by it and reloading the wheel-axle units for shipment to the out-of-state destinations named in the bills of lading, had exercised sufficient dominion over the wheels in California so as to transform its capacity from common carrier to that of buyer. Southern Pacific Equipment Co. v. State Board of Equalization (1971) 16 Cal.App.3d 302.
Place of delivery determines exemption.—Bill of lading must show seller as consignor and show consignment to interstate common carrier at out-of-state destination; exemption does not apply when interstate common carrier takes possession of goods in state as purchaser, not as carrier. Satco, Inc. v. State Board of Equalization (1983) 144 Cal.App.3d 12.
Offset of fuel tax overpayment.—Validity of Regulation 1621 upheld against challenge by taxpayer, a common carrier whose claim for refund of a sales tax overpayment on aircraft fuel was denied because the offset against other underpayments was not claimed in a timely manner, as required by the regulation. Taxpayer, as real party in interest, had standing to bring the action for refund, even though the tax was paid by the vendors of the fuel. Delta Air Lines, Inc. v. State Board of Equalization (1989) 214 Cal.App.3d 518.
Tax liability based on actual usage, not estimated.—Although estimated bills of lading may be issued initially, corrected bills must be issued. Since taxpayer failed to do so, it was proper for the Board to assess tax for underpayments of tax based on actual fuel used without offsetting overpayments of tax. Lykes Bros. Steamship Co., Inc. v. State Board of Equalization (1994) 23 Cal.App.4th 1421.
Text of Section Operative January 1, 2024
6385. Common carriers. (a) There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property, other than fuel and petroleum products, to a common carrier, shipped by the seller via the purchasing carrier's facilities under a bill of lading whether the freight is paid in advance, or the shipment is made freight charges collect, to a point outside this state and the property is actually transported to the out-of-state destination for use by the carrier in the conduct of its business as a common carrier.
(b) There are exempted from the computation of the amount of the sales tax the gross receipts from the sale of tangible personal property, other than aircraft fuel and petroleum products, purchased by a foreign air carrier and transported by the foreign air carrier's facilities to a foreign destination for use by the air carrier in the conduct of its business as a common carrier by air of persons or property. To qualify for this exemption, the foreign air carrier shall furnish to the seller a certificate in writing that the property shall be transported and used in the manner required in this subdivision. The certificate shall be substantially in the form prescribed by the department. A seller is not liable for the sales tax if the seller accepts the certificate in good faith. If the seller does not have the certificate at the time the department requests the seller to submit the certificate to the department, the seller shall be given a reasonable time to request the foreign air carrier to provide the seller with the certificate. The foreign air carrier shall maintain records in this state, such as a copy of a bill of lading, an air waybill, or cargo manifest, documenting its transportation of the tangible personal property to a foreign destination.
(c) "Common carrier," as used in this section, with respect to water transportation, shall be deemed to include any vessel engaged, for compensation, in transporting persons or property in interstate or foreign commerce.
(d) "Foreign air carrier," as used in this section, means a foreign air carrier as defined in Section 40102 of Title 49 of the United States Code.
(e) Pursuant to subdivisions (a) and (b), any use of the property by the purchasing carrier, other than that incident to the delivery of the property to the carrier and the transportation of the property by the carrier to an out-of-state destination and subsequent use in the conduct of its business as a common carrier, or a failure of the carrier to document its transporting the property to an out-of-state destination, shall subject the carrier to liability for payment of sales tax as if it were a retailer making a retail sale of the property at the time of that use or failure, and the sales price of the property to it shall be deemed to be the gross receipts from the retail sale.
(f) This section shall become operative on January 1, 2029.
History—Added by Stats. 2003, Ch. 712 (SB 808), in effect October 9, 2003, but operative January 1, 2014. Stats. 2012, Ch. 293 (SB 1243), in effect September 11, 2012, substituted "2024" for "2014" after "January 1," in subdivision (f). Stats. 2023, Ch. 442 (AB 543), in effect October 8, 2023, replaced "board" with "department" throughout, substituted "2029" for "2024" after "January 1," in subdivision (f).
Note.—SEC. 3. Stats. 2023, Ch. 442 (AB 543), states, Notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any sales and use tax revenues lost by it under this act.
SEC. 4. This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.