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PUBLICATION 146 | APRIL 2014 - page 14 / 38

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PURCHASES BY INDIANS

This section provides information for Indian purchasers regarding the proper application of use tax on purchases of tangible personal property and also the type of documentation the purchaser must retain to support an exemption from use tax.

Reporting and paying use tax

An Indian purchaser may owe use tax when the transaction is exempt from sales tax (see Use tax). Use tax is due when the Indian buyer who lives in Indian country does both of the following:

  • Takes ownership and delivery of an item in Indian country; and

  • Uses the item outside Indian country more than one-half of the time in the first 12 months after the sale. (An item is used outside Indian country when the item is stored or used outside Indian country.) Example: An Indian purchaser who resides in Indian country operates an event business, and negotiates the purchase of a sound system for $3,500 from a dealer in Los Angeles. The dealer, using its own trucks, delivers the system in Indian country and ownership transfers to the purchaser there. The sale is exempt from sales tax. The purchaser will use the sound system at concerts and events all over California. Some of the events are in Indian country while others are not. The purchaser owes use tax based on the system’s $3,500 purchase price if in the first 12 months after purchase, the purchaser uses or stores the sound system outside Indian country more than half the time.

Paying use tax

Individuals who owe use tax can pay it when filing their California income tax return or by using the BOE-401-DS, State, Local, and District Consumer Use Tax Return. If the tax liability involves an aircraft, publication 79A, Aircraft and California Tax, should be used to report the applicable use tax.

Businesses that hold seller’s permits should pay any use tax they owe when filing their sales and use tax return. Other businesses that are required to collect use tax from customers and pay it to the BOE must obtain a Certificate of Registration—Use Tax.

For information on how to apply district use tax to this and other specific situations, please refer to publication 44, District Taxes.

Documenting exempt purchases of vehicles, vessels, and aircraft

When a dealer’s sale of a vehicle is exempt from the sales tax due to delivery to an Indian in Indian country, and the registration address for DMV purposes is also in Indian country, it is rebuttably presumed the vehicle is purchased for use in Indian country and is not subject to the use tax. Maintaining a log of miles driven within and outside Indian country is not required since it is rebuttably presumed the vehicle is stored at the registration address when not being operated. Since storage qualifies as use, it is presumed that the time stored in Indian country will gener- ally exceed the time of use outside Indian country.

The registration address is typically a mailing address. If the physical storage address of the vehicle is a different location than the mailing address, the physical storage address of the vehicle determines whether the purchaser must document the use within and outside Indian country. For example, if the purchaser has a Post Office Box for receiving mail that is not located in Indian country, but the vehicle is actually garaged at the purchaser’s residence in Indian country, the purchaser is not required to document use of the vehicle within and outside Indian country. The purchaser, however, must be able to document that the vehicle is stored in Indian country.

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SALES TO AMERICAN INDIANS AND SALES IN INDIAN COUNTRY

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APRIL 2014

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