As support, taxpayer relied on Annotation 325.0002 (4/29/94) which provides as follows:

"Aircraft — In-State Pilot Training. Use tax does not apply to the use of an aircraft purchased out of state and brought into this state within 90 days of purchase and used solely in interstate commerce for the six month [sic] period following its first entry into California. In-state training flights in aircraft will not affect the availability of the exemption if the flights are for the purpose of training personnel who will fly that specific aircraft, as contrasted to that type of aircraft."

Taxpayer argued that the annotation should be applied here because when it was published in 1994, Regulation 1620 only addressed property used continuously in interstate commerce. The regulation was then amended in 2000 to allow an exemption for aircraft used principally in interstate commerce. As such, taxpayer believes that the same rule should be applied whether an aircraft is used exclusively or principally in interstate commerce. Taxpayer argues that the basis for determining intent and the availability of the exemption should not differ simply because the regulation allows for different types of interstate commerce exemptions.

The BOE argued that the annotation does not apply because it makes reference to an aircraft that is used solely in interstate commerce. In this case, the aircraft was not used solely or principally in interstate commerce.

The BOE document stated:

"As a preliminary matter, we note that the test at issue here is a different test than the test for continuous use in interstate commerce, which is based on a constitutionally required exemption (Rev. & Tax. Code, § 6352), to which the annotation applies. We have reviewed the language in subdivision (b)(4)(B)3. of Regulation 1620 which addresses the six month test at issue here. It states that use tax will not apply to the use of an aircraft if "one-half or more of the flight time traveled by the aircraft during the six-month period immediately following its entry into the state is commercial flight time traveled in interstate or foreign commerce." (Italics added.)

In other words, for purposes of applying the six-month test under subdivision (b)(4)(B)3., total flight time traveled by the aircraft (which includes flight time for training) must be included in the flight time calculations. Therefore, the test requires a comparison of all flight time against commercial flight time in interstate commerce and if one-half or more of the flight time was commercial flight time in interstate commerce, the requirements for the exemption are met. Thus, since the test at issue requires that time for flight training must be included and annotation applies to a different exemption and test entirely, it is not applicable here.

Moreover, we have reviewed the back-up letter to the annotation at issue (exhibit 1). The letter and annotation are based subdivision (b)(2)(B)1. of Regulation 1620, which provides as follows: "In General. Use tax does not apply to the use of property purchased for use and used in interstate or foreign commerce prior to its entry into this state, and thereafter used continuously in interstate or foreign commerce both within and without California and not exclusively in California."

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