Publication 40, Watercraft Industry
Sales to Water Common Carriers

Water common carriers are vessels for hire that transport people or property in interstate or foreign commerce. Special rules may apply to the sales of merchandise and fuel to common carriers, as described below.

Sales to common carriers

Sales of items to be used outside of California

Sales of items (other than fuel and petroleum products) to a water common carrier are exempt from sales tax when the merchandise sold is:

• Shipped by the seller via the purchasing carrier’s own transportation equipment, including trucks, ships, or planes,
• Shipped under a bill of lading, whether or not shipping charges are made,
• Shipped to a point outside this state,
• Transported to the out-of-state destination for use by the common carrier in the conduct of its regular business, and
• Used only after arrival at the out-of-state destination.

The carrier must be authorized to transport cargo over the California portion of the route under common carrier rights.

In addition, the seller must obtain a certificate from the purchaser stating that all of the requirements listed above apply to the transaction. A sample certificate can be found in Regulation 1621, Sales to Common Carriers, or by calling our Customer Service Center at 1-800-400-7115 (TTY:711).

Fuel and petroleum products

From April 1, 2004, until January 1, 2029, sales of fuel and petroleum products to water common carriers may also be exempt from sales tax. The product sold must be immediately shipped outside the state and cannot be used until the carrier reaches its first out-of-state destination. The common carrier who makes the purchase must hold a valid seller’s permit or a fuel exemption registration number.

The first out-of-state destination includes the entry point of the Panama Canal, even when the carrier will only pass through the Canal on the way to another destination.

Exemption certificate

The common carrier must provide a written exemption certificate to the vendor stating the quantity of fuel or petroleum products that will be used after it reaches its first out-of-state destination. The certificate must include the common carrier’s valid seller’s permit number or valid fuel exemption registration number. Sellers accepting the certificate in good faith are not liable for the sales tax. A sample fuel exemption certificate, along with more detailed information on this type of transaction, can be found in Regulation 1621. For information on obtaining a fuel registration number, please see below.

Registration

If you claim an exemption from sales tax on fuel or petroleum products as described above, and you are not required to hold a valid seller’s permit, you still must register for a fuel exemption certification number (FEN). After you register with us, you may be required to place a security deposit and to file tax returns.

A FEN or seller’s permit must be provided to retail fuel vendors with proof of the exemption as outlined in Regulation 1621.

If you are a water common carrier and have never held a FEN permit, you must obtain the permit before claiming the exemption. To apply for a new FEN permit, use our Online Services, and under Registration select Apply for a Fuel Tax Exemption.

If your FEN permit has expired, you must renew and reinstate your FEN permit with us before claiming the exemption. To renew your FEN permit, use our Online Services, and under Registration select Apply for a Fuel Tax Exemption.

For assistance with any of these requirements, please contact our Customer Service Center at 1-800-400-7115 (TTY:711).

Recordkeeping

To document that you have transported the amount of fuel or petroleum product claimed as exempt to an out-of-state destination, we may require you to provide records, including a copy of a log abstract or a cargo manifest. If you do not provide the records on request, we may revoke your fuel exemption number.

In addition, if you use property, fuel, or petroleum products in any way that violates the restrictions of the exemption claimed, you will be liable for payment of sales tax. The tax will be based on the amount you paid for the claimed exempt items, including any applicable penalties and interest.

Revision July 2026