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AeromarineTaxPros.com: Legally Avoiding Sales and Use Tax on Aircraft Purchases -- A Challenge Best Left to Professionals

Anyone who buys or flies an aircraft inqualify for an exemption from sales and use
California is subject to taxation, buttax is not very cost effective. We've done it
specialists can help purchasers savebefore,  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 $100,000because it's a great source of revenue,"
past-due tax bill from the State ofcontinues Austin. "However, a lot of it is
California several years after you purchasednot typically lawyer-type work: looking
an aircraft, and you don't even live in thatthrough log books, keeping track of various
state. Think it can't happen? Better thinkflight requirements, where the airplane's
again, as this type of scenario plays outgone, where' the airplane's been, and who was
with increasing frequency as the State ofon it. It doesn't take a legal background to
California grapples with perennial budgetdo  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 catastrophicFirms such as Aero Marine Tax Professionals
events. At first glance, seeking an exemptionroutinely obtain referrals from attorneys and
seems simple enough. For several reasons,accountants for the specific purpose of
though, ensuring that your client iswalking a client through the maze of
completely absolved of any sales or use taxobtaining 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 yourmoney professionals only had the time to
efforts, leaving your client with a stiff taxprint 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 businessdo any follow up. On the other hand,
professionals are now turning to specialistsspecializing in avoiding sales tax on
that focus solely on defending aircraftaircraft  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 andyears of decisions and recommendations by the
expertise to ensure that your client meetsBOE," explains Alston. "These are like a
the exemption requirements and is legallylegal brief of every case that went before
absolved of paying sales or use tax. The bestone of the hearing officers. What you get is
of them guarantee their results, resulting inthe 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  Importancethe failure points, and we apply 100% of the
points to every one of our customers. As a
Of the 360,000 general aviation aircraftresult, 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 andAs an example, Alston explained how, in some
used aircraft sales occur in California eachcases, the BOE requires that a purchaser
month. These numbers alone justify furtherleave 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 aircraftBut Alston raised the bar to 120 days on that
purchased out of state, but brought intotest for strategic reasons. It strengthens
California within 90 days, will be presumedthe 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 leviedhanger for a few months seldom insures a
on anyone, in any state, if they land insituation where the transaction will be held
California.as  non-taxable.
The use tax is set at the same rate as theAlston'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 paytwo-way communication with the client to
use tax is on the purchaser, and the returnensure  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 someonebasis and perform all of the documentation in
to do so, an exemption to taxation can bereal time," explains Alston. "In this manner,
obtained, saving the purchaser tens ofwe 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  Awayrun 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 anThe same methodical practices are also
aircraft purchase transaction to legallyrequired when obtaining exemptions for common
notify you that you have been assessed. Justcarrier 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 hasair 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 affirmswith  the  California  BOE.
support of your exemption, you remain liable.
Ignoring the process invites economicAccording to Alston, while Part 135 is
disaster as the state maintains the right toreferenced in federal regulations, it is not
assess penalties and interest, which has beenmentioned in the California code. Instead,
known to increase the amount originally owedCalifornia Regulations 6366 and 6366.1
by 50% or more. Escape is futile, as the BOEpertain to aircraft sold or leased to common
uncovers tax dodgers by combing throughcarriers. These sections do offer legal
property tax assessments, performing routineexemptions. However, the law requires the
audits of California retailers who selllongest test period (12 months), during which
aviation fuel or maintenance work, andtime extremely detailed documentation must be
through random inspections at airports wheremaintained: log books, flight plans, weight
the local property tax assessors run a checkand balance sheets, customer revenue
on the tail number of every plane on thebillings, 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 $80,000flight is examined, and one mistake can
sales tax bill incurred $8,000 in penaltiestrigger the entire tax. It takes precise
and $65,000 in interest because theguidance from an expert to guarantee
out-of-state owner of the aircraft ignoredcompliance.
the notice of tax assessment for eight years.
The state finally issued a Notice ofOf all the services that specialists such as
Determination--at which point, the only way aAero & Marine Tax Professionals provide,
taxpayer can obtain a hearing to provethe most appreciated by clients, and those
exemption is to pay the entire tax and file athat refer them, is the fact that these
claim for refund. However the aircraft ownerspecialists insert themselves between the
could not recover the documentation toclient  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 stemsletter of authorization, then the Board has
from the BOE's ability to place a lien on theto talk to us. When you understand how the
aircraft and even on accounts held inword 'tax audit' affects the spine of most
California-chartered banks as well ashuman  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 Taxthat the exemption has been supported--a
Without  the  Right  Helpcommon 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 theirthe service," says Alston. "As long as the
financial advisor, accountant, or attorneyclient engages us before possession of the
for help. Yet the process of legally avoidingaircraft, and then explicitly follows our
sales tax can prove quite daunting, even ifinstructions, they get a written guarantee
it is only the time-consuming "detail" workthat 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 thebecause  we've  won  every  case."
law is and can advise our clients
accordingly, but it's not very efficient toSummary
hire people like us to do the detailed work,
the day-to-day accumulation of data, theA recent report written by the Board of
preparation of materials that need to beEqualization estimates that in a one year
distributed to the state board," affirmsperiod, over $54 million in tax was being
Kevin Austin, the principal, at Aero Lawlost through the granting of exemptions.
Group, PLLC of Bellevue, Washington--anConsidering the services of a sales tax
aviation practice that includes thespecialist 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 chargeclients in their sales and use tax planning,"
such a high hourly rate for our legalsays Aero Law's Kevin Austin. "I would
services that the idea of somebody coming todefinitely recommend him to others.
us to carry out the day to day tasks to



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