| Anyone who buys or flies an aircraft in | | | | qualify for an exemption from sales and use |
| California is subject to taxation, but | | | | tax is not very cost effective. We've done it |
| specialists can help purchasers save | | | | before, but it can cost up to $20-30,000." |
| thousands of dollars. | | | | |
| | | | "Some lawyers like to do that work themselves |
| Imagine getting slapped with a $100,000 | | | | because it's a great source of revenue," |
| past-due tax bill from the State of | | | | continues Austin. "However, a lot of it is |
| California several years after you purchased | | | | not typically lawyer-type work: looking |
| an aircraft, and you don't even live in that | | | | through log books, keeping track of various |
| state. Think it can't happen? Better think | | | | flight requirements, where the airplane's |
| again, as this type of scenario plays out | | | | gone, where' the airplane's been, and who was |
| with increasing frequency as the State of | | | | on it. It doesn't take a legal background to |
| California grapples with perennial budget | | | | do that kind of work." |
| shortages. | | | | |
| | | | Clients Save Money by Turning to Specialists |
| As a money professional, your clients look to | | | | |
| you for protection from such catastrophic | | | | Firms such as Aero Marine Tax Professionals |
| events. At first glance, seeking an exemption | | | | routinely obtain referrals from attorneys and |
| seems simple enough. For several reasons, | | | | accountants for the specific purpose of |
| though, ensuring that your client is | | | | walking a client through the maze of |
| completely absolved of any sales or use tax | | | | obtaining an exemption from sales and use |
| involves several complicated steps, | | | | taxes. |
| tremendous documentation, and often several | | | | |
| trips to the state capital in Sacramento. One | | | | "Before companies like us came along, most |
| mis-step can completely undermine your | | | | money professionals only had the time to |
| efforts, leaving your client with a stiff tax | | | | print copies of the regulations, send them to |
| levy. | | | | their client with some instructions, and then |
| | | | wish them good luck," acknowledges Alston. |
| Given the expensive consequences of failure | | | | "Rightfully so, their time is too valuable to |
| many attorneys, CPAs, and other business | | | | do any follow up. On the other hand, |
| professionals are now turning to specialists | | | | specializing in avoiding sales tax on |
| that focus solely on defending aircraft | | | | aircraft and vessels is all we do." |
| purchasers against the California State Board | | | | |
| of Equalization (BOE). These individuals and | | | | "Part of our success stems from researching |
| their staffs possess the knowledge and | | | | years of decisions and recommendations by the |
| expertise to ensure that your client meets | | | | BOE," explains Alston. "These are like a |
| the exemption requirements and is legally | | | | legal brief of every case that went before |
| absolved of paying sales or use tax. The best | | | | one of the hearing officers. What you get is |
| of them guarantee their results, resulting in | | | | the board's entire case laid out with |
| satisfied clients who save money. | | | | evidence, and their decision, along with the |
| | | | 'why' of it. We just made a checklist of all |
| An Issue of National Importance | | | | the failure points, and we apply 100% of the |
| | | | points to every one of our customers. As a |
| Of the 360,000 general aviation aircraft | | | | result, there isn't any way for them to fail |
| currently registered in the United States, | | | | to win their exemption." |
| 11% are based in California. Additionally, | | | | |
| approximately 10% (250-400) of all new and | | | | As an example, Alston explained how, in some |
| used aircraft sales occur in California each | | | | cases, the BOE requires that a purchaser |
| month. These numbers alone justify further | | | | leave a plane outside of the state for more |
| understanding of California's tax laws. | | | | than 90 days before it enters the first time. |
| California regulations dictate that aircraft | | | | But Alston raised the bar to 120 days on that |
| purchased out of state, but brought into | | | | test for strategic reasons. It strengthens |
| California within 90 days, will be presumed | | | | the owner's case because merely accepting |
| to have been purchased for use in the state. | | | | delivery in another state and parking it in a |
| In other words, a "use" tax could be levied | | | | hanger for a few months seldom insures a |
| on anyone, in any state, if they land in | | | | situation where the transaction will be held |
| California. | | | | as non-taxable. |
| | | | |
| The use tax is set at the same rate as the | | | | Alston's company also immerses itself in the |
| sales tax as much as 8.5% with a new ½ % | | | | follow-up process, constantly maintaining |
| increase in the works. The obligation to pay | | | | two-way communication with the client to |
| use tax is on the purchaser, and the return | | | | ensure compliance on all counts. |
| is due within twelve months from the date of | | | | |
| the transaction. However, by following the | | | | "We gather information on an interactive |
| exact letter of the law, or employing someone | | | | basis and perform all of the documentation in |
| to do so, an exemption to taxation can be | | | | real time," explains Alston. "In this manner, |
| obtained, saving the purchaser tens of | | | | we make sure the client is complying with all |
| thousands of dollars or more. | | | | the steps, and it also avoids any |
| | | | misunderstandings. We prepare a tax return, |
| A Problem That Will Not Go Away | | | | run it through a couple sets of internal |
| | | | reviews, and the submission to the BOE." |
| The most insidious aspect of this tax is that | | | | |
| the BOE has as much as nine years after an | | | | The same methodical practices are also |
| aircraft purchase transaction to legally | | | | required when obtaining exemptions for common |
| notify you that you have been assessed. Just | | | | carrier clients who run charter operations, |
| because a tax notice hasn't been sent, | | | | an especially important service since most |
| doesn't mean that that the obligation has | | | | air carrier executives and flight department |
| been forestalled. | | | | managers initially rely upon the false belief |
| | | | that "Part 135" will obviate the need to deal |
| Until the BOE issues a document that affirms | | | | with the California BOE. |
| support of your exemption, you remain liable. | | | | |
| Ignoring the process invites economic | | | | According to Alston, while Part 135 is |
| disaster as the state maintains the right to | | | | referenced in federal regulations, it is not |
| assess penalties and interest, which has been | | | | mentioned in the California code. Instead, |
| known to increase the amount originally owed | | | | California Regulations 6366 and 6366.1 |
| by 50% or more. Escape is futile, as the BOE | | | | pertain to aircraft sold or leased to common |
| uncovers tax dodgers by combing through | | | | carriers. These sections do offer legal |
| property tax assessments, performing routine | | | | exemptions. However, the law requires the |
| audits of California retailers who sell | | | | longest test period (12 months), during which |
| aviation fuel or maintenance work, and | | | | time extremely detailed documentation must be |
| through random inspections at airports where | | | | maintained: log books, flight plans, weight |
| the local property tax assessors run a check | | | | and balance sheets, customer revenue |
| on the tail number of every plane on the | | | | billings, a complete copy of engine |
| tarmac. | | | | maintenance logs showing total hours since |
| | | | date of purchase, and more. Every single |
| In one documented case an original $80,000 | | | | flight is examined, and one mistake can |
| sales tax bill incurred $8,000 in penalties | | | | trigger the entire tax. It takes precise |
| and $65,000 in interest because the | | | | guidance from an expert to guarantee |
| out-of-state owner of the aircraft ignored | | | | compliance. |
| the notice of tax assessment for eight years. | | | | |
| The state finally issued a Notice of | | | | Of all the services that specialists such as |
| Determination--at which point, the only way a | | | | Aero & Marine Tax Professionals provide, |
| taxpayer can obtain a hearing to prove | | | | the most appreciated by clients, and those |
| exemption is to pay the entire tax and file a | | | | that refer them, is the fact that these |
| claim for refund. However the aircraft owner | | | | specialists insert themselves between the |
| could not recover the documentation to | | | | client and the BOE staff. |
| support the rightful exemption, and had to | | | | |
| forfeit the entire amount. | | | | "They don't ever have to talk to the |
| | | | auditors," assures Alston. "Once we get a |
| The teeth for this ultimate enforcement stems | | | | letter of authorization, then the Board has |
| from the BOE's ability to place a lien on the | | | | to talk to us. When you understand how the |
| aircraft and even on accounts held in | | | | word 'tax audit' affects the spine of most |
| California-chartered banks as well as | | | | human beings, this helps a lot." |
| national banks, thrifts, and brokerage houses | | | | |
| operating within the state. | | | | The whole process culminates with receipt by |
| | | | the client, of a letter from the BOE stating |
| The Challenge of Avoiding Sales and Use Tax | | | | that the exemption has been supported--a |
| Without the Right Help | | | | common result for the group at Aero & |
| | | | Marine Tax Professionals. |
| Understandably, any individual or corporation | | | | |
| operating a plane that expects to touch down | | | | "What makes us unique is that we guarantee |
| in California will likely turn to their | | | | the service," says Alston. "As long as the |
| financial advisor, accountant, or attorney | | | | client engages us before possession of the |
| for help. Yet the process of legally avoiding | | | | aircraft, and then explicitly follows our |
| sales tax can prove quite daunting, even if | | | | instructions, they get a written guarantee |
| it is only the time-consuming "detail" work | | | | that they will legally avoid California sales |
| that deters most professionals. | | | | and use tax, or our entire service is gratis. |
| | | | We've never had to pay anyone back, though, |
| "We're lawyers, and we understand what the | | | | because we've won every case." |
| law is and can advise our clients | | | | |
| accordingly, but it's not very efficient to | | | | Summary |
| hire people like us to do the detailed work, | | | | |
| the day-to-day accumulation of data, the | | | | A recent report written by the Board of |
| preparation of materials that need to be | | | | Equalization estimates that in a one year |
| distributed to the state board," affirms | | | | period, over $54 million in tax was being |
| Kevin Austin, the principal, at Aero Law | | | | lost through the granting of exemptions. |
| Group, PLLC of Bellevue, Washington--an | | | | Considering the services of a sales tax |
| aviation practice that includes the | | | | specialist can enable clients to become one |
| representation of commercial airlines, | | | | of the fortunate individuals to keep a |
| emerging aviation companies, and businesses, | | | | portion of this money in their bank accounts. |
| institutions and individuals involved in the | | | | |
| sale, lease, exchange and financing of | | | | "Tom has successfully assisted some of my |
| commercial and business aircraft. "We charge | | | | clients in their sales and use tax planning," |
| such a high hourly rate for our legal | | | | says Aero Law's Kevin Austin. "I would |
| services that the idea of somebody coming to | | | | definitely recommend him to others. |
| us to carry out the day to day tasks to | | | | |