Laws, Regulations and Annotations


Business Taxes Law Guide—Revision 2024

Sales and Use Tax Annotations

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325.0000 Interstate and Foreign Commerce—Regulation 1620

Annotation 325.0170

(a) In General—Shipments Into California from Points Outside State

325.0170 Turbine Engine Repair. Company A's repair facility, located outside of California, is primarily engaged in the repair and overhaul of turbine engines for commercial airlines. Company B's repair facilities located both inside and outside California, is engaged in the same business primarily for charter and private business aircraft. An engine to be repaired is removed from the aircraft at its regular maintenance location and shipped to Company A's or B's repair facilities. When the repairs are completed, the engine is shipped FOB the shipping point to Company A's customer or to Company B's customer in California or another state. The application of sales and use tax to the following various repairs was requested:

(1) Does California law provide a sales and use tax exemption for repairs of general aviation and business aircraft or for commercial aircraft.

The Revenue and Taxation Code provides an exemption for certain sales of aircraft. However, these exemptions are for aircraft and not aircraft parts. Parts used in the repair of the aircraft engines that are sent to California do not qualify for any exemption and are subject to tax.

(2) Special Process—A flat rate charge for labor, materials, an overhead used in the performance of special functions such as x-rays for internal engine cracks or plasma spray. The billings for special process activities are lump sum.

Assuming that the materials used in the performance of the special process are actually consumed by the repairer during the special process and are not furnished and installed on the engine, no tax applies to the charge for the labor, and the repairer is regarded as consuming the property used in performing this special process.

(3) A handling fee charged to the customer when the customer provides parts for either Company A or B to use in a repair service.

Assuming that neither Company A or B performs any fabrication labor, but merely installs the parts, the handling fee is not subject to tax.

(4) A fee, calculated as a percentage of the part's list price, to expedite the customer's work, is paid by customers who use parts from Company A or B's rotable inventory, which is an inventory of reconditioned parts.

When property is sold, or purchased for use, in California, tax applies to this fee.

(5) A fee for the use of Company A or B's test cell which is a special facility used to test engines against the original manufacturer's standards for power, vibration, and heat. The test cell is located and used outside California for Company A and inside California for Company B.

When either company repairs an engine and then charges a separate fee for testing that repaired engine, no sales or use tax applies to the charge for testing regardless of whether the testing is conducted inside or outside California.

(6) A charge passed through to the customer for fuel and oil used in testing customer engines. All fuel is consumed at the repair facility or removed from the engine prior to shipment to the customer. The charge is for costs plus a mark-up by product line of approximately 5–25%.

The repairer is the consumer of this fuel and oil. With respect to fuel an oil consumed at the California facilities, sales tax applies to the sale of the fuel and oil to the repairer or use tax applies to the repairers use of the fuel in California measured by the purchase price. The fact that the overhead expense of the fuel and oil is passed on as an itemized charge does not change the repairer's status as a consumer unless the contract specifically provides that title passes to the property prior to use by the repairer. 12/20/91; 8/20/92.