In an earlier e-mail some of you had a discussion about setting up an airplane for a corporation and subsequently expense deduction. Meticulous paperwork is a must. In most cases when you get audited, it will become an issue.
There is a quick, easy and legal way to save some money NOW! I do not know if it will work in other states also, but in California there are some loopholes evidently.
I think most states have a sales and use tax.(?) I really don't know this for a fact, but I think so. (Oregon does not have one)
Every aircraft (and yacht) purchased for use or storage in California will be audited by the State Board of Equalization - 100%.
In California a fully loaded SR22 would mean approx. $25,000 sales tax LA 8.25%). Contrary to popular belief forming a Delaware corp, or FAR 135 exemption, or keeping it out of the state for 91 days, or registering it out of the state does not make it exempt.
There is a law firm www.astc.com (they were at AOPA in Long Beach), that guarantees, that, when handled correctly, the plane will be exempt from the California sales and use tax. I talked with them, they charge $5,000. Saving 20 grand, legally makes a lot of sense.
Any comments?
Michael
In California a fully loaded SR22 would mean approx. $25,000 sales tax LA 8.25%). Contrary to popular belief forming a Delaware corp, or FAR 135 exemption, or keeping it out of the state for 91 days, or registering it out of the state does not make it exempt.
There is a law firm www.astc.com (they were at AOPA in Long Beach), that guarantees, that, when handled correctly, the plane will be exempt from the California sales and use tax. I talked with them, they charge $5,000. Saving 20 grand, legally makes a lot of sense.
I also had a very useful discussion with them–I recommend contacting this firm (Associated Sales Tax Consultants), the farther in advance of your purchase, the better.
As a former CPA I suggest great caution with this approach. I recommend spending time and money to research the professional credentials of this group and also checking with another COMPETENT tax advisor such as an attorney specializing in tax law or a GOOD CPA. CA has many ways of obtaining tail numbers such as tie down receipts or ccontracts. And will go after everyone they can for sales/use and property taxes.
I talked briefly to this firm after it was mentioned several months ago in the forum and decided it was to good to be true. Actually I don’t want to give up the use of my plane for 3 months.
If you decide this is the way to go find out what is behind the guarantee.
The states without sales tax are Oregon, Delaware, and New Hampshire.
Although I deal primarily with multi state corporate income tax, sales tax has its own set of rules that vary from state to state.
The Delaware corps that I have seen hawked in various magazines/papers only tell part of the story. It is true that a Delaware corporation will not be assessed sales tax on any purchase (by Delaware). Additionally if the corporation is not doing business in Delaware (meaning among other things that the plane is not based there) the minimum annual corporate tax is only about $50 plus corp agent fees that run another $100-200 per year. That is far less than California’s $800 dollar minimum. Minimum taxes will vary with some states having no corporate minimum.
The problem comes into play when the plane is deemed based/used in another State. Again these rules vary from State to State, however a common point is that each State does not want to loose any revenue and will try (some desperately) to assess a use tax. When that plane that paid no tax in Delaware is now based at its “real” home a State will assess a use tax. Generally the burden of proof that the tax should not be assessed lies with the owner. Many States will also try to get the incremental increase in tax rates if a plane is moved from one jurisdiction to another…for example if the plane is based in New Jersey and tax is paid at 6% an additonal amount would be assessed by New York for the difference between the actual local rate (as high as 8.5%) and the tax previously paid.
I was once involved in setting up a stratagy for a California corporation that was acquiring a G IV. What we ended up doing was setting up a Nevada (I think it was Nevada but might have been Oregon) corporation and based the Gulfstream in that State. When the plane was needed it was flown into San Francisco loaded up and departed. I don’t think it was allowed to be in California more than 24 hours at a time.
A point I would like to make though is that if a corporation is formed to buy the plane there is a potential sales tax planning opportunity. When the plane is eventually sold if shares of the corporation rather then the plane itself is sold then there would be no tax due from the purchaser (assuming that we are talking about the same State). This should add value to the plane in as much as the purchaser could save 25k or so. Additionally if the corporation had been depreciating the plane if the shares are sold there would be no ordinary income recapture of the prior depreciation taken (or allowable).
I would be very wary of promises that essentially are tax evasion schemes. They will come back to bite you sooner or later.
Eric
I too talked with the tax expert at AOPA meet
.there california program besides the accurate paperwork includes bringing it in to calif.for 10 days then taking it to Oregon for 91 days.This program only addresses Cal.sales tax.It does note help with the rip of property tax on your plane that reocours EVERY year.If you have a real high property tax rate in your county (1 to 2%).look for a long lost relitive in say Bakersfield there tax rate I hear is much lower and its simi legal. Happy California Flying! In California a fully loaded SR22 would mean approx. $25,000 sales tax LA 8.25%). Contrary to popular belief forming a Delaware corp, or FAR 135 exemption, or keeping it out of the state for 91 days, or registering it out of the state does not make it exempt.
There is a law firm www.astc.com (they were at AOPA in Long Beach), that guarantees, that, when handled correctly, the plane will be exempt from the California sales and use tax. I talked with them, they charge $5,000. Saving 20 grand, legally makes a lot of sense.
I also had a very useful discussion with them–I recommend contacting this firm (Associated Sales Tax Consultants), the farther in advance of your purchase, the better.
The states without sales tax are Oregon, Delaware, and New Hampshire.
Although I deal primarily with multi state corporate income tax, sales tax has its own set of rules that vary from state to state.
The Delaware corps that I have seen hawked in various magazines/papers only tell part of the story. It is true that a Delaware corporation will not be assessed sales tax on any purchase (by Delaware). Additionally if the corporation is not doing business in Delaware (meaning among other things that the plane is not based there) the minimum annual corporate tax is only about $50 plus corp agent fees that run another $100-200 per year. That is far less than California’s $800 dollar minimum. Minimum taxes will vary with some states having no corporate minimum.
The problem comes into play when the plane is deemed based/used in another State. Again these rules vary from State to State, however a common point is that each State does not want to loose any revenue and will try (some desperately) to assess a use tax. When that plane that paid no tax in Delaware is now based at its “real” home a State will assess a use tax. Generally the burden of proof that the tax should not be assessed lies with the owner. Many States will also try to get the incremental increase in tax rates if a plane is moved from one jurisdiction to another…for example if the plane is based in New Jersey and tax is paid at 6% an additonal amount would be assessed by New York for the difference between the actual local rate (as high as 8.5%) and the tax previously paid.
I was once involved in setting up a stratagy for a California corporation that was acquiring a G IV. What we ended up doing was setting up a Nevada (I think it was Nevada but might have been Oregon) corporation and based the Gulfstream in that State. When the plane was needed it was flown into San Francisco loaded up and departed. I don’t think it was allowed to be in California more than 24 hours at a time.
A point I would like to make though is that if a corporation is formed to buy the plane there is a potential sales tax planning opportunity. When the plane is eventually sold if shares of the corporation rather then the plane itself is sold then there would be no tax due from the purchaser (assuming that we are talking about the same State). This should add value to the plane in as much as the purchaser could save 25k or so. Additionally if the corporation had been depreciating the plane if the shares are sold there would be no ordinary income recapture of the prior depreciation taken (or allowable).
I would be very wary of promises that essentially are tax evasion schemes. They will come back to bite you sooner or later.
Eric
Eric,
Re your penultimate paragraph: Assuming the aircraft is owned by a corporation, and the buyer buys the stock in order to effectively own the aircraft, what is the exposure (to the corporate owner of the aircraft) to the use tax if the buyer bases the aircraft in a state with a combined sales/use tax law?
Pete
California will consider it a sham to avoid tax if you attempt to sell aircraft by selling shares of a corporation.
The states without sales tax are Oregon, Delaware, and New Hampshire.
Although I deal primarily with multi state corporate income tax, sales tax has its own set of rules that vary from state to state.
The Delaware corps that I have seen hawked in various magazines/papers only tell part of the story. It is true that a Delaware corporation will not be assessed sales tax on any purchase (by Delaware). Additionally if the corporation is not doing business in Delaware (meaning among other things that the plane is not based there) the minimum annual corporate tax is only about $50 plus corp agent fees that run another $100-200 per year. That is far less than California’s $800 dollar minimum. Minimum taxes will vary with some states having no corporate minimum.
The problem comes into play when the plane is deemed based/used in another State. Again these rules vary from State to State, however a common point is that each State does not want to loose any revenue and will try (some desperately) to assess a use tax. When that plane that paid no tax in Delaware is now based at its “real” home a State will assess a use tax. Generally the burden of proof that the tax should not be assessed lies with the owner. Many States will also try to get the incremental increase in tax rates if a plane is moved from one jurisdiction to another…for example if the plane is based in New Jersey and tax is paid at 6% an additonal amount would be assessed by New York for the difference between the actual local rate (as high as 8.5%) and the tax previously paid.
I was once involved in setting up a stratagy for a California corporation that was acquiring a G IV. What we ended up doing was setting up a Nevada (I think it was Nevada but might have been Oregon) corporation and based the Gulfstream in that State. When the plane was needed it was flown into San Francisco loaded up and departed. I don’t think it was allowed to be in California more than 24 hours at a time.
A point I would like to make though is that if a corporation is formed to buy the plane there is a potential sales tax planning opportunity. When the plane is eventually sold if shares of the corporation rather then the plane itself is sold then there would be no tax due from the purchaser (assuming that we are talking about the same State). This should add value to the plane in as much as the purchaser could save 25k or so. Additionally if the corporation had been depreciating the plane if the shares are sold there would be no ordinary income recapture of the prior depreciation taken (or allowable).
I would be very wary of promises that essentially are tax evasion schemes. They will come back to bite you sooner or later.
Eric
Eric,
Re your penultimate paragraph: Assuming the aircraft is owned by a corporation, and the buyer buys the stock in order to effectively own the aircraft, what is the exposure (to the corporate owner of the aircraft) to the use tax if the buyer bases the aircraft in a state with a combined sales/use tax law?
Pete
Pete:
Problems often arise when an accountant or lawyer gives an answer to a different question then what was asked to begin with. Let me make sure I understand the question before I answer it.
I think you are asking what is the exposure to the corporation for sales/use tax after the shares are transfered pursuant to a sale of the corporation.
In this situation there is no change in ownership of the plane. The same corporation owns the plane both before and after the shares are sold. Therefore, providing there is no change in States (for example plane based in NY where sales/use tax was paid on purchase and subsequent corporate owner keeps it in NY) there would be no additional sales/use tax due. This transaction completely avoids (as opposed to evades) the sales/use tax on the effective transfer. If the new corporate owners move the plane to a different State there should only be sales/use tax due in the amount of the increase in rates.
Please remember that this is generic advice and could change substantially depending on the specific laws of the jurisdictions that are involved. You should discuss your specific situation with your advisors (how is that I almost sound like a lawyer).
Years ago I thought of setting up a company to take advantage of various techniques/stratagies to mimimize sales tax on the purchase/trade/sale of high end cars. Do you think there would be any interest in doing this for planes?
Eric
Eric,
Re your penultimate paragraph: Assuming the aircraft is owned by a corporation, and the buyer buys the stock in order to effectively own the aircraft, what is the exposure (to the corporate owner of the aircraft) to the use tax if the buyer bases the aircraft in a state with a combined sales/use tax law?
Pete
Pete:
Problems often arise when an accountant or lawyer gives an answer to a different question then what was asked to begin with. Let me make sure I understand the question before I answer it.
I think you are asking what is the exposure to the corporation for sales/use tax after the shares are transfered pursuant to a sale of the corporation.
In this situation there is no change in ownership of the plane. The same corporation owns the plane both before and after the shares are sold. Therefore, providing there is no change in States (for example plane based in NY where sales/use tax was paid on purchase and subsequent corporate owner keeps it in NY) there would be no additional sales/use tax due. This transaction completely avoids (as opposed to evades) the sales/use tax on the effective transfer. If the new corporate owners move the plane to a different State there should only be sales/use tax due in the amount of the increase in rates.
Please remember that this is generic advice and could change substantially depending on the specific laws of the jurisdictions that are involved. You should discuss your specific situation with your advisors (how is that I almost sound like a lawyer).
Years ago I thought of setting up a company to take advantage of various techniques/stratagies to mimimize sales tax on the purchase/trade/sale of high end cars. Do you think there would be any interest in doing this for planes?
Eric
Eric,
The situation I had in mind was the latter - would use tax be levied if the new owner lived in, say, Ohio and he relocated the plane from NY to his home airport in Ohio? My understanding is that the Ohio use tax would then apply, although perhaps there would be an offset for NY tax paid as you suggest, although I doubt it. Obviously I would check with a local professional - good advice.
Re sounding like a lawyer, be careful; that’s not a very popular thing these days. :~)
Perhaps there’s a market for a way to minimize sales/use taxes, although I would personally have no interest in the idea.
Thanks for your thoughts.
Pete
Eric,
The situation I had in mind was the latter - would use tax be levied if the new owner lived in, say, Ohio and he relocated the plane from NY to his home airport in Ohio? My understanding is that the Ohio use tax would then apply, although perhaps there would be an offset for NY tax paid as you suggest, although I doubt it. Obviously I would check with a local professional - good advice.
Re sounding like a lawyer, be careful; that’s not a very popular thing these days. :~)
Perhaps there’s a market for a way to minimize sales/use taxes, although I would personally have no interest in the idea.
Thanks for your thoughts.
Pete
I have dealt with a similar situation.
In my particular case a sailboat (value in excess of SR20) was based in Florida, where sales tax was paid. Several years later the boat was moved (sailed) up to New York where it became based.
As in other States, New York, sends auditors-inspectors around marinas and airports (NY City even goes into public garages) to check registrations. The boat was discovered moored off the waters of the north shore of Long Island and NY assessed sales tax based on the current value of the boat.
When I was brought into the picture I was able to get a credit for the taxes that were paid to the State of Florida. In fact I got the credit for the entire amount paid as opposed to a pro rata apportionment based on the used (lesser) value.
Hope this helps.
Eric
PS The lawyer comment was supposed to show how paranoid they are.