DirtDoc I think you got some bad advice, or your interpretation needs some polishing up. I am neither CPA nor Tax Attorney, but I was an owner of a California C Corp, with a resale license, for 32 years. As a young businessperson I ran afoul of the State Board of Equalization (that's the sales tax authority in Cali, y'all), had a judgement against us, protested, lost, paid the tax owed. Thereafter I had ~25 clean years of audits, due to understanding quite well how sales tax worked in my business (which was not boats).
First, the Board does not distinguish between individuals or partnerships or any form or corporation. All are known as "taxpayers."
Second, ALL sales/use tax consideration is based on the "
exchange of tangible personal property." It's absolutely vital to understand this, it's the key to why
some exchanges are not subject to sales/use tax.
When a taxpayer acquires a piece of tangible personal property for its own use (as opposed to resale), sales or use tax is owed. Examples:
- You as an individual purchase a camera from B&H photo in NYC. They are not permatized in Cali, thus they do not collect sales tax. However YOU owe the use tax to the Board. But no one does this as Cali has no way to collect this info.
Your corporation has a resale license and purchases a camera from B&H photo in NYC for use in it's business. Again, B&H collects no sales tax. The corporation owes use tax, and if it fails to pay it, this will be picked up on audit and you will eventually pay, plus a fine. (Every entity with a resale license is audited, the SBOE had 3,600 employees at the time of my first audit in the early 90's.)
Your LLC, which does not hold a resale license, purchases an asset like a boat or car for its own use. Sales tax is owed if a new boat/car, use tax if it is used OR brought in from another state.
However:
You own an LLC, which owns a boat. You list the LLC for sale, and someone else buys the shares from you. No exchange of tangible personal property as taken place as the LLC is not such. Thus (theoretically), no use tax is owed by the buyer of your LLC, and he now additionally has your boat.
Thus, as far as sales/use tax goes, the benefit of owning a boat in an LLC is not enjoyed by you, the original purchaser. It is a benefit to the person you are selling the LLC (and boat it owns) to. And thus perhaps you command a higher price than Seller B, because Buyer knows he will have to pay use tax on Seller B's boat.
I believe all the above to be true, at least for Cali. I have "heard" of language in other states along the lines of "if the sole purpose of the LLC is to avoid sales/use tax....."
BUT!
It does appear to be true in Cali that if you keep that boat out of the Cali for one year you do not have to pay sales/use tax. I personally know of people that have done this, and googling around it still seems viable. As Cali is very voracious about tax revenues, I can only assume that back in the day there were powerful lawmakers, or friends of lawmakers, that put this loophole in place for their own benefit, and it hasn't been remedied.
It really makes no sense at all. I guarantee you that if say you move from Oregon to Cali, along with your five year old car, you are going to pay use tax on that car! Or say you came from a state with 5% sales tax, you are going to pay the difference (if any is left considering depreciation).
As has been covered extensively in several threads, we certainly don't have that loophole in WA state where I now live. If you are a WA resident, with a boat in WA, you are going to pay sales/use tax
period.
So enjoy that "one year" loophole. But forget this idea that as far as acquiring a boat, being some type of corp or corp like entity means sales/use tax isn't owed (assuming one is not using the one year loophole). I'm amazed that it exists. And also know that the SBOE has an armada of lawyers on staff. It's no skin off their nose to attempt to obtain sales/use tax revenues from taxpayers no matter how sketchy their argument. You simply would not believe what I saw during my education process. In my experience, the SBOE will never provide you with written clearance that if you do x,y,z you will not owe tax.
BTW, here is their web page with advice on this subject:
http://www.boe.ca.gov/pdf/pub52.pdf
Postscript. I have found over the years that most CPA's do not have comprehensive knowledge about sales tax/SBOE. If I was looking for the best advice I could pay for, I would look to a Tax Attorney practice with a specialization in sales tax/SBOE. I.e. an attorney that defends people being sued by the SBOE.
