Beat the sales tax

[NJMac]

Pretty sure I'm off the hook for sales tax on my bird. Still waiting for their official agreement via correspondence but in my mind, its a done deal.

 

A couple month's back, Ohio department of taxation sent me a letter requesting info on my Mooney purchase last fall so they could correctly bill me. I misplaced the letter so fast forward to last week and they send me a bill for sales tax based on the average selling price of 1964 Mooney M20E's.

 

They sent me online to look for a form to object to their valuation and correlating bill since my purchase was a few AMUs less than their average. As I was following the links on their site, I found an FAQ section, https://www.tax.ohio.gov/sales_and_use/Vehicle_Taxability_Compliance/Aircraft.aspx which I scanned thru. Number 6 piqued my interest not knowing what a casual sale was. Low and behold, my transaction fit the description.

 

Person to person, not a dealer or broker

From out of state

Non commercial in nature.

 

Wanted to share this thinking other states may have similar rules. It could certainly save many people a fair amount of doll hairs.

 

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[jaylw314]

Careful.  If you bought it in another outside state and bring it back to your home state, I think generally only the outside state can claim you owe sales tax.  Your home state cannot.  So it seems unlikely that OH would be able to claim you owed sales tax anyway if you bought it outside of OH.  However, many states supplant sales tax with USE tax, which amounts to the same thing under a different name.   Make sure they agree your liable for neither sales tax OR use tax.

AFAIK, if you buy something in State B and you live in and bring it back to State A

State B commonly does not make you pay a sales tax if you remove it from State B and spend less than a certain amount of time and activity in State B

State A commonly charges you use tax based on the sale price or fair-market price of the item when you bring it into the state.  If you did pay sales tax for some reason in another state B, state A will levy the difference as use tax.

Fortunately for me, I live in Oregon, which has no sales or use tax, but if I move out of state in the future, I expect that I'll get a sizable tax bill from most other states.

[elimansour]

Ohio Revised Code Section 5741.02 http://codes.ohio.gov/orc/5741.02v1 imposes a tax on “on the storage, use, or other consumption in this state of tangible personal property.”  The tax rate is 5.75%.

The use tax exempts (5741.02(C)(2))“ tangible personal property or services, the acquisition of which, if made in Ohio, would be a sale not subject to the tax imposed by sections 5739.01 to 5739.31 of the Revised Code”

Since Ohio appears to have a “Casual Sale” exemption from the sales tax, ((L) "Casual sale" being defined as “a sale of an item of tangible personal property that was obtained by the person making the sale, through purchase or otherwise, for the person's own use and was previously subject to any state's taxing jurisdiction on its sale or use, and includes such items acquired for the seller's use that are sold by an auctioneer employed directly by the person for such purpose, provided the location of such sales is not the auctioneer's permanent place of business. As used in this division, "permanent place of business" includes any location where such auctioneer has conducted more than two auctions during the year.”) then it would appear that under 5741.02(C)(2) you would be exempt as long as your seller was not in the business of selling aircraft (and thereby subject to the sales tax in his state).

[Hank]

If you buy a plane from an individual, not a plane salesman or broker, there is no sales or use tax due in Ohio. At least there wasn't when I lived there and bought my Mooney from another pilot.

You do have to pay annual Ohio registration, which was $15 per seat on the TCDS (not per seat installed; you can't remove seats and lower the fee).

Bringing a car in from out of state triggers sales tax, but not an airplane unless bought from someone who sells planes as all / part of their business / livelihood.

[gacoon]

This works in AZ also

[gsxrpilot]

Texas as well. No use tax, no property tax on airplanes and no sales tax if a "casual sale".

[NJMac]

Glad to know there are other states as well. I dont think this should be a deciding factor in purchase criteria but ill certainly be taking it into consideration should I ever go looking to get into another plane. If my next plane is a 200k Bravo, 14k sales tax is material to the decision.

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[flight2000]

Don't ever move to Virginia with your airplane if you've never paid a sales/use tax on it.  Ask me how I found that out... only thing I had to pay a tax on when the military moved me here last year (I'm still an OH resident).  It wasn't by choice, but what can you do.  No exemptions, no nothing if the airplane is based here more than 60 days in a year, no matter how long you've owned the plane. 

Brian

[nels]

What about Arizona, Colorado, New Mexico and Florida. Those are all states I’m considering buying a winter home. I didn’t pay Ohio tax as it was a casual sale. 

[Jerry 5TJ]

I bought a plane for business use when I lived in California. The sales tax, at the time 9.25% in my county, would not apply if the plane was used more than 50% for interstate commerce. (Note: That’s not just business use but interstate travel for business) 

A number of other restrictions also applied, including 

— purchase must be out of state

— Very first use of the plane must be an inter-state business flight.  

It took a whole binder of receipts and justification documentation for the test interval (I selected six months).  

It also took a lot of care to avoid casual flights in those six months —no going out on a flight just for fun in the new plane, no burger runs, as every such flight had to be covered by equivalent time in interstate business travel. 

About a year (really, a year) after submitting all the documents I got a letter of determination that the sale was tax exempt.  

I probably spent 100+ hours in compliance documentation.   

Other states may offer similar business use exemptions.   

[DAVIDWH]

You gotta love the " casual sale"  work around.  Kinda like selling a used lawn mower to a neighbor.

Was not aware of this one at all. As for me I went with a Delaware corp. and all is well.

Understand in some states the swamp water may make this avenue unpalatable, but worked for me, no sales tax paid.

Best,

[flight2000]

46 minutes ago, DAVIDWH said:

You gotta love the " casual sale"  work around.  Kinda like selling a used lawn mower to a neighbor.

Was not aware of this one at all. As for me I went with a Delaware corp. and all is well.

Understand in some states the swamp water may make this avenue unpalatable, but worked for me, no sales tax paid.

Best,

Food for thought, dosen't matter where it's registered for Virginia taxes.  If it's physically in the state of VA for more than 60 days, they tax it...just saying. 

Oh and you have to register it yearly for $5 so you have the privilege of displaying the VA state sticker....there's no way around it - at least not that I've been able to find.

Brian

[Sean S]

Only exemption I could find in TN is for an owner of an aircraft that uses it for flight training.

[ArtVandelay]

In North Carolina marinas and I assume FBOs are required to file a report to the state listing all boats and planes. So you only will get away with not paying taxes till end of the year, then they send you a bill.

[David Lloyd]

15 minutes ago, teejayevans said:

In North Carolina marinas and I assume FBOs are required to file a report to the state listing all boats and planes. So you only will get away with not paying taxes till end of the year, then they send you a bill.

NC uses multiple sources, including new aircraft registrations and changes.  Once I changed an N number and triggered a bill.  

[smccray]

This is a topic where expertise matters.  Paying someone who knows what their doing is generally worth, particularly for aircraft north of $100k. 

9 hours ago, DAVIDWH said:

Was not aware of this one at all. As for me I went with a Delaware corp. and all is well.

Yet another Deleware Corp saving taxes... I’m not aware of any structure where ownership by a Delaware Corporation, by itself, avoids sales taxes. It’s all over the Internet,  but most of what I’ve seen is nothing more than smoke and mirrors.  It makes it difficult for the taxing authority to find you, but it doesn’t change the status of the taxes due.

[David Lloyd]

The sales or use tax is just a one time pain.  Twice since NC changed their law no longer excluding casual sales.   It is the yearly property tax that are expensive.  Let's see, average $700 year Mecklenburg County and City of Charlotte tax for the last 40 years...wow!

[ArtVandelay]

This is a topic where expertise matters.  Paying someone who knows what their doing is generally worth, particularly for aircraft north of $100k. 

Yet another Deleware Corp saving taxes... I’m not aware of any structure where ownership by a Delaware Corporation, by itself, avoids sales taxes. It’s all over the Internet,  but most of what I’ve seen is nothing more than smoke and mirrors.  It makes it difficult for the taxing authority to find you, but it doesn’t change the status of the taxes due.

INAL, but as it was explained to me by a lawyer:

Tax wise, LLCs are transparent with exception that if you have plane in an LLC partnership, you can add and subtract partners without showing a sale, because the LLC owns the plane. But the initial sale you would still have pay taxes. Also LLC doesn’t protect you from yourself, if you are PIC, you still can be held liable, your partner(s) risk only their share of the LLC. You also should have a separate account to pay costs, maintenance should be done by a 3rd party, otherwise the wall of protection an LLC provides may be broken.

[co2bruce]

If you base the plane in Florida ( they walk the airports and write down tail #’s)  you will end up paying use tax. Don’t ask............

[ArtVandelay]

If you base the plane in Florida ( they walk the airports and write down tail #’s)  you will end up paying use tax. Don’t ask............

Plus interest if applicable, and it’s like 10%!

[RobertGary1]

3 hours ago, teejayevans said:

INAL, but as it was explained to me by a lawyer:

Tax wise, LLCs are transparent with exception that if you have plane in an LLC partnership, you can add and subtract partners without showing a sale, because the LLC owns the plane. But the initial sale you would still have pay taxes. Also LLC doesn’t protect you from yourself, if you are PIC, you still can be held liable, your partner(s) risk only their share of the LLC. You also should have a separate account to pay costs, maintenance should be done by a 3rd party, otherwise the wall of protection an LLC provides may be broken.

Be careful too because LLC's can have their own taxes. In California if the LLC has a presence in the state (regardless of state of registration) you need to pay $800/annually for the privileged of "operating" in California with an LLC.

-Robert

Edited August 27, 2018 by RobertGary1

[jgarrison]

On 8/26/2018 at 7:44 AM, nels said:

What about Arizona, Colorado, New Mexico and Florida. Those are all states I’m considering buying a winter home. I didn’t pay Ohio tax as it was a casual sale. 

I always start here (shout out to these guys - who make their living helping people with sales tax issues):

https://www.advocatetax.com/USMap.html

Once I determine what the general rules are for the state, then I dig in and find out what the specific rules are. There are some states that are hard core (CA, FL, TN are the worst in my experience). Believe it or not, NY just stopped collecting sales tax on aircraft - go figure.

[Oldguy]

Annual property tax in Alabama collected by the county where the plane is located on October 1! So if you have it registered in one county and it happens to be at an airport in another county on October 1, you are likely to get a tax bill from both, and you will need to get one of them to drop theirs. But the next year, you will get another tax bill from your temporary location since they got you last year and are looking to get you again. So you go back through the process of getting it straightened out one more time. And count on the fact the location where it actually sat on October 1 has a picture of the plane to prove it was there. I know this as my plane happened to be at a shop when my mechanic was on vacation and I had a slight problem. And of course it was the county with one of the highest property tax rates in the state. 

And don't think being out of state on October 1 will get you out of paying the tax. Not unless you register it in another state.

[skydvrboy]

This thread gives me another reason I'm glad I live in KS.  All aircraft are exempt from sales & use tax.  Business or antique (30 yrs) aircraft are exempt from property tax.  We are a VERY aviation friendly state as we consider ourselves the "Air Capital of the World."

[spistora]

Good to know for Kansas. Adds a few more percent to my purchase budget.