Cambell Industries v. State Board of Equalization

However, it has consistently been Campbell’s position that the regulations interpreting section 6368 set out its entitlement to the sales tax exemption regardless of whether transportation of interstate passengers was the “principal use.” Campbell argues that so long as even one passenger on any particular scheduled ferry boat run was an interstate passenger, the ferry was being used in interstate commerce within the meaning of section 6368.

Both sides moved for summary judgment. Upon a stipulation of facts submitted by the parties, the superior court applied the “principal use” standard to this transaction and held that since the ferries were not principally used in the transportation of interstate passengers, the sale did not fall within the statutory definition of a tax-exempt sale of watercraft as defined by the regulations interpreting section 6368.

Campbell’s principal argument is that the superior court committed an error of law by interpreting section 6368 to require it to demonstrate that the ferry boats were principally used for transportation of interstate passengers in order to qualify for the sales tax exemption.

Section 6368 measures transactions involving watercraft such as ferry boats carrying passengers for hire and exempts these transactions from sales tax by a single criteria—the watercraft must be used in “interstate or foreign commerce.” This statute is amplified by section 1594, subdivisions (a)(1)

Our role is to determine whether the Board properly interpreted its own regulations harmoniously with section 6368. We recognize that “[i]n determining the proper interpretation of a statute and the validity of an administrative regulation, the administrative agency’s construction is entitled to great weight, and if there appears to be a reasonable basis for it, a court will not substitute its judgment for that of the administrative body.” (Ontario Community Foundations, Inc. v. State Bd. of Equalization (1984) 35 Cal.3d 811 , 816 [ 201 Cal.Rptr. 165 , 678 P.2d 378 ]; Coca-Cola Co. v. State Bd. of Equalization (1945) 25 Cal.2d 918 , 921 [ 156 P.2d 1 ]; Southern Pacific Equip. Co. v. State Bd. of Equalization (1971) 16 Cal.App.3d 302 , 306 [ 94 Cal.Rptr. 107 ].) In addition, an administrative ruling “ ‘comes before the court with a presumption of correctness and regularity, which places the burden of demonstrating invalidity upon the assailant [fn. omitted].”’ (Action Trailer Sales, Inc. v. State Bd. of Equalization (1975) 54 Cal.App.3d 125 , 133 [ 126 Cal.Rptr. 339 ], quoting California Assn, of Nursing Homes etc., Inc. v. Williams (1970) 4 Cal.App.3d 800 , 810 [ 84 Cal.Rptr. 590 ].) The ultimate resolution, however, of whether the Board has correctly interpreted its own regulations rests with the courts. (Ontario Community Foundations, Inc. v. State Bd. of Equalization, supra, 35 Cal.App.3d at p. 816; International Business Machines v. State Bd. of Equal. (1980) 26 Cal.3d 923 , 930-931, fn. 7 [ 163 Cal.Rptr. 782 , 609 P.2d 1 ].)

In resolving the issue, we preliminarily note that the Board’s interpretation of its own regulations finds support in Union Oil Co. v. State Bd. of Equal. (1963) 60 Cal.2d 441 [ 34 Cal.Rptr. 872 , 386 P.2d 496 ]. That case examined the purchase of two ships from a California company by a foreign tanker corporation. After the purchase, the ships were leased back to the California oil company which in turn operated the ships within California. The ships were engaged in intrastate activities approximately 70 percent of each year. (Id., at p. 455.) The court denied the sales and use tax exemption claimed under section 6368 because “the lessor did not employ the vessels, themselves, primarily in interstate or foreign commerce.” The court went on to explain that “this exemption [section 6368] does not apply to the principal use of the vessels in intrastate operations.” (Id., at p. 456.)

Moreover, California Administrative Code, title 18, section 1594 has been the subject of an administrative interpretation for a number of years allowing an exemption under section 6368 for “tugboats engaged in towing or assisting vessels principally used for the transportation of passengers or cargoes in interstate or foreign commerce.” (Sales Tax Counsel Ruling 600.120.2, (1955), italics added.) This interpretation has particular significance to the question of whether the principal use standard should be applied to ferry boats operating entirely with the state and engaged primarily in local activity. The description of “tugs that operate entirely within the state” is set out along with “ferry boats operating entirely within the state” in the critical language of subdivision (a)(1). The Board’s long-standing interpretation extending the principal use standard to the activities of a watercraft expressly described in subdivision (a)(1) refutes Campbell’s argument that some type of special exemption is carved out for certain types of watercraft specifically mentioned in subdivision (a)(1). Moreover, we note that an administrative interpretation which has been in existence for a number of years is entitled to particular consideration since it “suggests legislative acquiescence.” (Great Western Financial Corp. v. Franchise Tax Bd. (1971) 4 Cal.3d 1 , 7 [ 92 Cal.Rptr. 489 , 479 P.2d 993 ].)

Campbell’s suggestion that some type of broad exemption was carved out by subdivision (a)(1) expressly for “ferry boats operating entirely within the state” is unconvincing. It is difficult to conceive of, and Campbell does not assert, any persuasive reason why the Board in promulgating these regulations would subject the vast majority of watercraft to the principal use standard, but single out ferry boats operating within the state for a more relaxed rule. Such distinction does not comport with the design of the statutory language found in section 6368; and the regulation must, if possible, be construed consistently with the statute to which it is subordinate. (Bonn v. California State University, Chico (1979) 88 Cal.App.3d 985 , 990 [ 152 Cal.Rptr. 267 ].)

As a general rule, statutes granting exemption from taxation are strictly construed to the end that such concession will not be enlarged nor

The judgment is affirmed.

Low, P. J., and King, J., concurred.