Auxiliarists may fly the Auxiliary Ensign on any currently inspected facility that displays a current facility decal, including vessel, aircraft, or radio facilities, in accordance with Chapter 3 of the Auxiliary Operations Policy Manual, COMDTINST M16798.3 (series).
They may also fly the Auxiliary Ensign on their own vessels that are not offered/accepted for use as long as the vessel has successfully completed a Vessel Safety Check (VSC) and displays a current VSC decal. While underway, at least one Auxiliarist must be on board when flying the Auxiliary Ensign. Auxiliarists may also fly the Auxiliary Ensign on or near buildings or homes in which such facilities are located or in which the Auxiliarist resides. Those Auxiliarists may fly the Auxiliary Ensign day and night. If an Auxiliarist is present, the Auxiliary Ensign may be displayed in appropriate public places in order to promote the purposes of the Auxiliary. The Auxiliary Ensign must be maintained in good condition at all times (true color, no tattered corners, strings, etc.) to bring credit to the organization.
Auxiliarists must fly the Auxiliary Ensign from the main truck, if the boat has a mast. If there is no mast, Auxiliarists may fly the Auxiliary Ensign from the bow staff, or, if equipped with a radio antenna, from the antenna at a point approximately two-thirds the height of the antenna. Auxiliarists must never fly the Auxiliary Ensign at the stern, so as not to confuse it as a flag of nationality.
Auxiliary Ensigns are available from the Auxiliary Center (AUXCEN) or District Material Centers in five standard sizes. Dimensions of the Auxiliary Ensign flying on a boat may not exceed those of the National Ensign flown at the same time." (COMDTINST M16798.3E, 3.A.1)
14 USC 892 provides the legal authority for this, "Whoever, without proper authority, flies from any building, aircraft, motorboat, yacht, or other vessel, any flag or pennant or displays any identifying insignia or wears any uniform or insignia of the Auxiliary shall be fined not more than $500."