Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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550.0000 TAXABLE SALES OF FOOD PRODUCTS—Regulation 1603

Annotation 550.0076


550.0076 Cruise Ships. A taxpayer operates a cruise ship on Lake Tahoe. All cruises begin and end at an out-of-state point approximately four miles from the California border. The cruise routes are primarily inside this state, but the ship never lands or docks at a California location. While some cruises include meals, the ship's bar serves beverages on all cruises. The lump-sum charge for the cruise usually entitles the customer to one or two drinks plus a meal if one is offered. Additional drinks can be purchased at any time for a separate charge.

Based on the above facts, the following tax application applies to the taxpayer's operation:

(1) The taxpayer is a "carrier" under Regulation 1620.2. While the purpose of the cruise may be entertainment rather than transportation, the taxpayer does transport people by vessel for compensation and therefore comes within the definition.

(2) Beverages sold at the ship's bar and during meals are exempt from tax. "Trans-state trips" do not provide sufficient "nexus" to permit taxation. While the cruises all begin and end at one point in another state, the cruises are trans-state trips and the sales of beverages are therefore exempt.

(3) The meals are also exempt. While the regulation does not mention meals, for nexus purposes there is no reasonable distinction between sales of beverages and sales of meals. 10/29/85.