The Sales Tax Advisor

In the everyday world of aircraft ownership the following story is played out from coast to coast without stopping to admire the sunrise or the globe fading into the Pacific. The whispers in the crowds of prospective aircraft owners often are based on the age old question, “is it really possible to legally avoid sales tax, or am I risking embarrassment if I get caught trying?” The stress often crashes into the life of the financial personnel to find workable solutions after the boss takes the survey of his friends on the golf course.

The CFO cringes while he is instructed by his boss to make the new deal work by tomorrow morning, and “oh. by the way, I don’t want to waste a nickel on tax.” He inherently knows that no matter how careful he is to explain every minute detail of the strategy to Mr. Big, it is ultimately the owner who will demand that he be able to use his new multi-million dollar toy wherever and however he wants. He will end the meeting by commanding the CFO, “make it work out, I’m sure you can find a way.”

Many buyers listen to the free advice that comes once they first enter the sales cycle. The aircraft sales person who generally works with the belt and suspenders clients often take the most conservative approach and advise against “risky tax schemes.” The wheeler-dealer salesperson, blabs on about the latest trick and pats the back of his new client while he croons, “trust me, it is easy to get out of the tax.”

Neither approach will serve the new aircraft owner very well. The basic problem is that, unlike federal tax advice which is based on a code that applies every where in the United States, sales tax advise depends on the codes written in each separate state. Currently five states have no sales and use tax. However, that leaves forty-five others that will require proper research. Unless you have nothing to do but spend your entire life doing research, it is impossible to keep track of the constant changes state-by-state.

The simple answer to the question is “Yes. It is possible to legally avoid sales/use tax on the purchase of an aircraft.” The complex answer is, “it depends on how much you value the money you save in tax, versus, the work you have to do to legally avoid it.” The basic necessity for all new aircraft owners to answer their question is valid research. Sales tax research must contain a foundation of a basic understanding of the law that will apply in all cases, then must be targeted to focus in on the exact needs of the owner. Every case contains different planned use by the owner, which impacts which states must be assessed. Once the foundation is poured, and the specific states are identified the owner can then do a risk analysis of the available options.

In order to support a claim for an exemption two basic things are required. It is essential that both the form and the substance of the transaction is met. It is not sufficient enough to actually do all the things that the local law requires to exempt your new aircraft because tax law places the burden of proof on the taxpayer. It is paramount that the taxpayer can adequately document the actual possession, storage and use of the aircraft.

Even though each state may have sections that relate to each of the above, you can not presume that the details of the exemption are the same from state to state. For example, the language in certain sections of sales tax law in Nevada may be the exact words used in California, however, each state may interpret the same language differently.

Armed with an understanding of the sales and use tax laws it is possible to create a strategy that legally avoids the sales and use tax. Acquiring sales tax advice from anyone, other than a sales tax expert is in most cases a waste of time and money. This area of tax law is too complex, the targets are constantly changing, and the potential tax assessment is very costly. Especially when you add the additional interest and penalties that can range from as little as ten percent for failure to file, up to a fifty percent penalty for registering an aircraft out of state in an attempt to evade tax.

If you have any questions regarding this article, other sales and use tax issues, or want to know if you qualify for an exemption contact Joseph Micallef at (916) 369-1200 or visit us on the web at www.ASTC.com.