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

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