| 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 tax | | | | Austin. "However, a lot of it is not typically lawyer-type |
| bill from the State of California several years after you | | | | work: looking through log books, keeping track of |
| purchased an aircraft, and you don't even live in that | | | | various flight requirements, where the airplane's gone, |
| state. Think it can't happen? Better think again, as this | | | | where' the airplane's been, and who was on it. It |
| type of scenario plays out with increasing frequency | | | | doesn't take a legal background to do that kind of |
| as the State of California grapples with perennial | | | | work." |
| budget shortages. | | | | Clients Save Money by Turning to Specialists |
| As a money professional, your clients look to you for | | | | Firms such as Aero Marine Tax Professionals routinely |
| protection from such catastrophic events. At first | | | | obtain 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 is | | | | maze of obtaining an exemption from sales and use |
| completely absolved of any sales or use tax involves | | | | taxes. |
| several complicated steps, tremendous documentation, | | | | "Before companies like us came along, most money |
| and often several trips to the state capital in | | | | professionals only had the time to print copies of the |
| Sacramento. One mis-step can completely undermine | | | | regulations, 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 many | | | | acknowledges Alston. "Rightfully so, their time is too |
| attorneys, CPAs, and other business professionals are | | | | valuable to do any follow up. On the other hand, |
| now turning to specialists that focus solely on | | | | specializing in avoiding sales tax on aircraft and |
| defending aircraft purchasers against the California | | | | vessels 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 expertise | | | | decisions and recommendations by the BOE," explains |
| to ensure that your client meets the exemption | | | | Alston. "These are like a legal brief of every case that |
| requirements and is legally absolved of paying sales or | | | | went 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 Importance | | | | a checklist of all the failure points, and we apply 100% |
| Of the 360,000 general aviation aircraft currently | | | | of the points to every one of our customers. As a |
| registered in the United States, 11% are based in | | | | result, there isn't any way for them to fail to win their |
| California. Additionally, approximately 10% (250-400) of | | | | exemption." |
| all new and used aircraft sales occur in California each | | | | As an example, Alston explained how, in some cases, |
| month. These numbers alone justify further | | | | the BOE requires that a purchaser leave a plane |
| understanding of California's tax laws. California | | | | outside 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 be | | | | days on that test for strategic reasons. It strengthens |
| presumed to have been purchased for use in the | | | | the owner's case because merely accepting delivery |
| state. In other words, a "use" tax could be levied on | | | | in 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 tax | | | | transaction will be held as non-taxable. |
| as much as 8.5% with a new ½ % increase in | | | | Alston's company also immerses itself in the follow-up |
| the works. The obligation to pay use tax is on the | | | | process, constantly maintaining two-way |
| purchaser, and the return is due within twelve months | | | | communication with the client to ensure compliance on |
| from the date of the transaction. However, by | | | | all 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 be | | | | perform all of the documentation in real time," explains |
| obtained, saving the purchaser tens of thousands of | | | | Alston. "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 Away | | | | misunderstandings. We prepare a tax return, run it |
| The most insidious aspect of this tax is that the BOE | | | | through a couple sets of internal reviews, and the |
| has as much as nine years after an aircraft purchase | | | | submission to the BOE." |
| transaction to legally notify you that you have been | | | | The 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 been | | | | who run charter operations, an especially important |
| forestalled. | | | | service since most air carrier executives and flight |
| Until the BOE issues a document that affirms support | | | | department managers initially rely upon the false belief |
| of your exemption, you remain liable. Ignoring the | | | | that "Part 135" will obviate the need to deal with the |
| process invites economic disaster as the state | | | | California 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 amount | | | | federal regulations, it is not mentioned in the California |
| originally owed by 50% or more. Escape is futile, as | | | | code. Instead, California Regulations 6366 and 6366.1 |
| the BOE uncovers tax dodgers by combing through | | | | pertain to aircraft sold or leased to common carriers. |
| property tax assessments, performing routine audits of | | | | These sections do offer legal exemptions. However, |
| California retailers who sell aviation fuel or maintenance | | | | the law requires the longest test period (12 months), |
| work, and through random inspections at airports | | | | during which time extremely detailed documentation |
| where the local property tax assessors run a check | | | | must 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 tax | | | | copy of engine maintenance logs showing total hours |
| bill incurred $8,000 in penalties and $65,000 in interest | | | | since date of purchase, and more. Every single flight is |
| because the out-of-state owner of the aircraft ignored | | | | examined, and one mistake can trigger the entire tax. It |
| the notice of tax assessment for eight years. The | | | | takes precise guidance from an expert to guarantee |
| state finally issued a Notice of Determination--at which | | | | compliance. |
| point, the only way a taxpayer can obtain a hearing to | | | | Of all the services that specialists such as Aero & |
| prove exemption is to pay the entire tax and file a | | | | Marine Tax Professionals provide, the most |
| claim for refund. However the aircraft owner could not | | | | appreciated by clients, and those that refer them, is the |
| recover the documentation to support the rightful | | | | fact 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 and | | | | Alston. "Once we get a letter of authorization, then the |
| even on accounts held in California-chartered banks as | | | | Board has to talk to us. When you understand how |
| well as national banks, thrifts, and brokerage houses | | | | the 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 Tax | | | | The whole process culminates with receipt by the |
| Without the Right Help | | | | client, of a letter from the BOE stating that the |
| Understandably, any individual or corporation operating | | | | exemption has been supported--a common result for |
| a plane that expects to touch down in California will | | | | the 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 avoiding | | | | service," says Alston. "As long as the client engages |
| sales tax can prove quite daunting, even if it is only the | | | | us before possession of the aircraft, and then explicitly |
| time-consuming "detail" work that deters most | | | | follows 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 is | | | | or our entire service is gratis. We've never had to pay |
| and can advise our clients accordingly, but it's not very | | | | anyone 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 preparation | | | | Summary |
| of materials that need to be distributed to the state | | | | A recent report written by the Board of Equalization |
| board," affirms Kevin Austin, the principal, at Aero Law | | | | estimates that in a one year period, over $54 million in |
| Group, PLLC of Bellevue, Washington--an aviation | | | | tax was being lost through the granting of exemptions. |
| practice that includes the representation of commercial | | | | Considering 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 business | | | | accounts. |
| 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 us | | | | their sales and use tax planning," says Aero Law's |
| to carry out the day to day tasks to qualify for an | | | | Kevin Austin. "I would definitely recommend him to |
| exemption from sales and use tax is not very cost | | | | others. |
| effective. We've done it before, but it can cost up to | | | | |