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Purchasing tax implications


Ken4741

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6 minutes ago, MooneyMitch said:

For California, I suggest reading CA State Board of Equalization, Use Tax for vessels (which is what board considers an aircraft).

Thanks for the reply and I’ll check it out. Is there a Cliff Note version of what it says? I’d gather it’s gonna be expensive tax wise to buy in CA?

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1 minute ago, Ken4741 said:

Thanks for the reply and I’ll check it out. Is there a Cliff Note version of what it says? I’d gather it’s gonna be expensive tax wise to buy in CA?

If you don't live in Kali, have them meet you somewhere outside the state, and it will simplify the Kali Board of Equalization tax fight for you.

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27 minutes ago, Ken4741 said:

What are the tax implications of buying a used airplane in, let’s say, California vs. Texas even though you don’t live in either state?

You should of course consult an Aviation Tax attorney, but basically 

*Don't do it!! in CA*.   CA will require you to pay the entire use tax if any part of the transaction  is done within their taxing authority.   They have levied the tax if you even met with the owner in CA flew out of state to sign the actual paperwork.  

TX has a fly away provision in their use tax as well as a incidental sales clause.   I had no use tax liability when I bought my plane from TX.   So you need either no use tax or a fly away provision... I believe that Oregon qualifies.   You would still need to consult to make sure that any actions you direct about the plane (optional squawks?).. for example I paid for the IFR cert before picking up my plane.. would that have been enough for CA to claim I was exerting authority over it in their jurisdiction?   Arguments can hinge on who pays the cost of taking the plane out of CA.. if you, then they can argue you are already exerting authority.  They also just tax you and require you to argue against their claim, this often happens with the property tax that is levied if they find your plane at a CA airport when they do their tax survey. 

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44 minutes ago, Ken4741 said:

Thanks for the reply and I’ll check it out. Is there a Cliff Note version of what it says? I’d gather it’s gonna be expensive tax wise to buy in CA?

IIRC, in both Texas and California, there are "flyaway" clauses with vehicle purchases.  If you purchase a plane in California, you do not have to pay sales tax if you remove the vehicle from the state and do not bring it back for any "meaningful activity" (or some other such legal phrase) for 6 months 12 months.  Texas is similar, but some details are slightly different.  This is, in fact, typical for most states, but I'm sure there are exceptions.

Fear mongering aside, I'm sure there are plenty of cases where the state tax board has still attempted to collect sales tax since the transaction requires no up-front paperwork or attestations, but most anecdotes about this don't include the end result, and the flyaway clauses are usually spelled out in the statutory tax laws.  I purchased my used Mooney from the AAA guys in Texas without any problems.

Use tax will apply to your home state once you return, and is typically the same as sales tax.  I live in Oregon, so no sales tax (yippee)

Property tax varies from state to state.  I recall people in California saying in previous threads aircraft value is used for property tax, but I don't recall the details.

From the Texas state comptroller's website regarding fly-away exemptions:

Sales tax is not due on the sale or lease of an aircraft you use and register in another state or country before using it in Texas. An aircraft purchased under the fly-away exemption can be used in Texas within the first year, as long as it is predominantly used outside of Texas for that first year.

Activities not considered “use” include:

  • completing, repairing, remodeling, maintaining or restoring the aircraft;
  • flights necessary for troubleshooting and testing the aircraft;
  • flights between service locations under an FAA-issued ferry permit; and
  • flight training to get used to the aircraft.

The “fly-away” exemption does not apply to the short-term rental of an aircraft in Texas and flown in another state.

To claim the fly-away exemption, you must give the seller a Form 01-907, Texas Aircraft Exemption Certificate Out-of-State Registration and Use (PDF). Both you and the seller must sign the certificate. The seller must send a copy of the certificate to the Comptroller’s office within 30 days of the sale.

And from the California Franchise Tax Board:

Not Purchased for Use in California

If you purchase your aircraft for use outside of California, your purchase may not be subject to use tax.

However, when an aircraft purchased outside of California, is first functionally used outside of California, and is brought into California within 12 months from the date of its purchase, it is presumed that the aircraft was purchased for use in California and is subject to use tax if any of the following occur:

  • The aircraft is purchased by a California resident.
  • The aircraft is subject to property tax in California during the first 12 months of ownership.
  • If purchased by a nonresident of California, the aircraft is used or stored in California more than one-half of the time during the first 12 months of ownership.

If the aircraft enters California within 12 months of purchase, you may overcome the presumption that the aircraft was purchased for use in California by providing the following documentation to support your claim:

  • A copy of your purchase agreement.
  • A statement signed by the seller verifying the date and location of the aircraft's delivery out of state.
  • Flight logs from the date of purchase until the date of delivery and for the next 12 months.
  • Aircraft or engine maintenance logs showing the total engine hours recorded since the date of purchase.
  • Evidence of registration with the proper out-of-state authority.
  • Evidence of tax paid to another state.
  • A copy of the insurance policy for the aircraft.
  • Tie-down, hangar rental, fuel, repair invoices, and maintenance receipts from the date of delivery and for the next 12 months. These documents should identify the aircraft by tail or serial number.
  • Credit card/bank statements supporting the location and use of the aircraft from the date of out-of-state delivery and for the next 12 months.

Additionally, use tax does not apply to the purchase of an aircraft brought into this state within the first 12 months of ownership exclusively for the purposes of repair, retrofit, or modification. Any repair, retrofit, or modification to an aircraft must be done by a repair station certified by the Federal Aviation Administration or a manufacturer's maintenance facility. Therefore, the exclusion is inapplicable when an aircraft that enters California during the first 12 months of ownership for the purposes of repair, retrofit, or modification performed by any person other than a repair station certified by the Federal Aviation Administration or a manufacturer's maintenance facility.

Notes

*For purposes of this exclusion, a licensed repair facility must hold an appropriate permit issued by the CDTFA and must be licensed to do business by the city, county, or city and county in which it is located if the city, county, or city and county so requires.

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26 minutes ago, jaylw314 said:

IIRC, in both Texas and California, there are "flyaway" clauses with vehicle purchases. 

Not Purchased for Use in California

If you purchase your aircraft for use outside of California, your purchase may not be subject to use tax.=

This is misleading because I believe California will charge you sales tax (instead of use tax) if the sale is in California. The rate is the same, up to 10%. Use tax is normally charged to California residence who purchase vehicles out of state.

My understanding is that this is saying if a California residence purchases a plane in Nevada he doesn't have to pay California use tax if he keeps it out of the state for 12 months. This rule used to be 3 months and we used to use this all the time as california residence

-Robert

Edited by RobertGary1
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How vehement is CA with actually collecting what they claim is owed? Do they just file a lien?
I wonder if the plane could be held under an LLC which all the shares are owned by a C Corp. Have a lien filed on the plane by yet another separate entity; I’m assuming the first lien holder would have first rights to the asset?

Just a thought...


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For airplanes purchased in TX or CA (I have done both) you pay sales or use tax to the state where you reside and base the plane, not the state where it was purchased (unless they happen to be the same). I was a resident of CA and bought a used airplane in CA for use in CA and paid use tax in CA. I am now a resident of WA, I purchased a used airplane in TX for use in WA and was thus exempt from TX tax (nonresident exemption) but did pay use tax in WA. It would have been the same deal had I purchased the airplane in CA - i.e., no CA tax, but tax due in WA. For CA, from https://www.cdtfa.ca.gov/formspubs/pub61.pdf

 AIRCRAFT AND COMPONENT PARTS SALES: COMMON CARRIERS, FOREIGN GOVERNMENTS, NONRESIDENTS—Sales of aircraft to common carriers, to foreign governments for use outside California, and to nonresidents of this state who make no use of the aircraft in this state except to remove it, are exempt from tax. Only usage during the first twelve months is considered to determine if the transaction qualifies for exemption as a sale to a common carrier. In addition, the sale and use of property becoming a component part of such aircraft as a result of the maintenance, repair, over- haul, or improvement of that aircraft in compliance with Federal Aviation Administration requirements, and any charges made for the labor and services rendered with respect to that maintenance, repair, overhaul, or improvement are exempt from tax. (SECTION 6366)

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Edited by PT20J
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Plus 1 on JayLW. I just went through this after buying a plane in California and FLYING it AWAY to my home state. The state of California may attempt to tax you, and then they will ask for “flight records” or or other documentation proving plane is out of California. I showed my hangar lease agreement in my home state and flightaware activity proving my plane was no longer in California. It was a pain in the *** and they asked not once but TWICE for money and I had to go through it again, but I’ve not paid any tax. Just to reiterate, I’m not based in California and day after purchasing plane I flew it out of California and didn’t return. Although it was a pain I wouldn’t let it deter me from buying another plane from California.

 

Be aware that your own state may tax you and also read up on differences between purchasing from a broker vs an individual. It can make a difference in some cases.

 

The idea of meeting seller outside state lines doesn’t work because in my instance, it was the COUNTY not the state which attempted to tax me. They did this from their old hangar records from the planes last known position. They simply went to the faa registry and saw me as the new owner and wrongly assumed that not only was I still basing the plane in California but also in their county. They of course were wrong on both counts, but the burden of proving this fell on me.

 

Not an attorney, just been through process.

 

 

Sent from my iPhone using Tapatalk

 

 

 

 

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every state has their tax rules...


NJ is looking more like paradise.... :)

speaking with a local tax accountant is a great idea...

Having the conversation before the sale is even better...

buying a plane and selling a plane may have some offset in the value...

Casual sale vs. purchasing from used plane lot... may have some value...

I bought my plane in TX, from AAA, a real company... it came from an owner in Arizona... I had sold my M20C months before... brought it to NJ where 6% was the usual sales tax...

My accountant went to the formula book to determine what the actual amount was going to be...

 

Arizona must be nuts... they didn’t follow the owner with the bill... they followed the plane... and sent me a bill in NJ. :)

Arizona must be nuts... they probably followed the owner with a bill.... for a plane he no longer owned. :)

Working as a tax guy at the state level must be a ghostly job...

 

Why NJ is more like paradise...  no annual use tax on planes and cars...

PP thoughts only, not a tax accountant...

Best regards,

-a-

 

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9 hours ago, Jetrn said:

I highly recommend consulting aero marine tax professionals.  I am currently using their services.  They have a 100% success rate in getting an exemption for use tax in California.  The fee is based upon the purchase price of the plane.  I expect to save 15-20 thousand by using their service.  I recently purchased a 252 and have 4 months left in the 6 month test period. https://www.aeromarinetaxpros.com/aero/

If you were not a CA resident, there would be no CA tax liability buying in CA and immediately relocating to your home state. As a CA resident you have a limited number of very narrowly defined exemptions. Which one are you using?

 

Edited by PT20J
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On 10/25/2019 at 5:00 PM, RobertGary1 said:

This is misleading because I believe California will charge you sales tax (instead of use tax) if the sale is in California. The rate is the same, up to 10%. Use tax is normally charged to California residence who purchase vehicles out of state.

My understanding is that this is saying if a California residence purchases a plane in Nevada he doesn't have to pay California use tax if he keeps it out of the state for 12 months. This rule used to be 3 months and we used to use this all the time as california residence

-Robert

I don't think your understanding is correct. 

AFAIK, "sales tax" only applies to sales from a dealer, and if sales tax applies, the dealer owes that tax to the state, so of course they will typically tack that onto the cost of the sale.  Unless you're buying from Mooney in Texas, I think we're all technically talking about "use tax" for any other seller. 

Private sellers are not required to collect use tax at the time of purchase, and the buyer does not owe payment immediately even if he owes something later (although you have to submit info to the Tax and Fee people).  As you can see above, use tax can apply to either residents or non-residents.

The CA FTB seems to suggest on its website that if you are a non-resident, remove the aircraft from California and the aircraft spends less than half the first 12 months back in California, you do not need to file any paperwork.  However, if you are a resident and the aircraft comes into California any time within the first 12 months, they seem to require you file for an exemption through their Tax and Fees department.

Interestingly, the requirement for exemption from use tax is the intention to use it out of state, not necessarily actually having it out of state.  They cite an example that if the buyer brings the aircraft back to California within the first 12 months, but can provide proof the move back to California was "involuntary", they would still not need to pay use tax:

" If a purchaser brings a vehicle or vessel to California during the first 12 months of ownership and provides evidence that at the time of the purchase the purchaser had no intention that the vehicle or vessel would be used in California, this alone is sufficient to establish that it was purchased for use outside California " https://www.cdtfa.ca.gov/formspubs/pub52.pdf

Unlike a couple cases we have heard about where states have randomly decided to hit people with use tax for any use in their states (Florida and Michigan?), the California FTB seems to identify use tax to only be relevant within the first 12 months after purchase.

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11 hours ago, Jetrn said:

I highly recommend consulting aero marine tax professionals.  I am currently using their services.  They have a 100% success rate in getting an exemption for use tax in California.  The fee is based upon the purchase price of the plane.  I expect to save 15-20 thousand by using their service.  I recently purchased a 252 and have 4 months left in the 6 month test period. https://www.aeromarinetaxpros.com/aero/

That's interesting, since the FTB uses a 12 month test period for California residents.  The "6 month" only applies to non-residents, since the aircraft only needs to be out of California for 6 of the first 12 months.  Residents don't get that allowance.

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14 minutes ago, chriscalandro said:

In Arizona, if you’re airplane is there more than 90 days they will send you a letter saying it needs to be registered there and you need to pay whatever taxes they decide you need to pay. 
 

they cross check the hanger/tie down databases against flight history. They don’t care what your primary address is. 

And that seems like it can happen no matter how long ago you purchased your aircraft.  On top of that, you have to pay part of the yearly registration fee which is based on the aircraft's value (0.5% yearly).  That's some serious ass-f--king.  Why are people complaining about California??

Edit:  Okay, this is from the AZ Dept of Revenue:

"Casual sales between individuals are the exception and not subject to use tax. Items purchased for use in Arizona from people who make isolated or occasional sales, and who are not engaged in the business of selling tangible personal property at retail, are not subject to use tax."

The question remains what burden of proof they would want, especially if you bought a plane 25 years ago.  Heaven forbid you bought the plane from Mooney 10 years ago.  At least in CA, many scenarios do not seem to require any paperwork.

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38 minutes ago, jaylw314 said:

That's interesting, since the FTB uses a 12 month test period for California residents. 

I purchased a turboprop in 2012 while a resident of California.  The FTB then permitted either a 6 or 12 month test period to document a business use exemption.   It was a major documentation effort but ultimately we passed the hurdle and after 18 months received the letter from the FTB accepting our exemption claim.     

To pass the threshold over 50% of the flight hours in the test period must be for business and must be interstate.  

The FTB seemed fine to deal with.  They were just administrators of the state tax collection.  

You do have to plan ahead if you wish to utilize the exemption.  The use of a tax advisor service is an option, tho I read the requirements and did all the steps myself. It probably took me 50 hours of work to complete the process.  

California Sales Tax is collected from the buyer.    

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Arizona told me I need to contact them to let them know how long I’ll be in the state next time I’m there. It’s a requirement of their tax law for anyone flying into the state. I’ll see if I can find the email. 
 

I started emailing the guy my entire day’s itinerary from waking up, brushing my teeth, to going to bed. He’s said it’s unnecessarily but I told him I wanted to make sure I didn’t miss a pedestrian tax or a solar exposure fee. 

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here’s the email thread of the AZ Garbage. At the end of the day it was decided I did not need to re-register or pay the tax. 

 
 
On Aug 27, 2019, at 2:32 PM, azdot.gov> wrote:
 
 
Good afternoon Mr. Calandro,
 
Thank you for your email regarding aircraft N111MR.  The letter we sent did not state that the aircraft needed to be registered in Arizona it stated that it maybe required to be registered.  We typically do send out this type of letter to aircraft owners that appear on our airport tie-down reports and are not registered in Arizona.  Generally we attempt to get traffic patterns on the aircraft from various sources but, when we can not we will send a informational letter similar to the one you received. If your aircraft is going to be flying in and out of Arizona in the future, pursuant to Arizona Revised Statutes 28-8322, 8327 and 8336 a notarized exemption affidavit should be filed annually stating the number of days anticipated in Arizona.  (See Attached).
 
We are merely trying to enforce the statues without causing undue hardship on aircraft owners.
Edited by chriscalandro
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6 hours ago, Jerry 5TJ said:

I purchased a turboprop in 2012 while a resident of California.  The FTB then permitted either a 6 or 12 month test period to document a business use exemption.   It was a major documentation effort but ultimately we passed the hurdle and after 18 months received the letter from the FTB accepting our exemption claim.     

To pass the threshold over 50% of the flight hours in the test period must be for business and must be interstate.  

The FTB seemed fine to deal with.  They were just administrators of the state tax collection.  

You do have to plan ahead if you wish to utilize the exemption.  The use of a tax advisor service is an option, tho I read the requirements and did all the steps myself. It probably took me 50 hours of work to complete the process.  

California Sales Tax is collected from the buyer.    

I am filing for exemption through interstate commerce.  It is a 6 month test period.  The threshold is greater than 50% of flight hours must be for business; Continuing education units and seminars also count toward the threshold.  Bad side of the equation local flights, maintenance flights, and training flights.  There is no required minimum amount of flight time during test period.  Documentation required business emails, A monthly flight log, FBO and fuel receipts, CE unit certificates, purchase offer for rental properties (can be low ball offer).  Well worth the 6 month hassle to not have to pay California a significant amount of money for Use tax.  I don't mind flying to Vegas once a month getting to know the new to me plane and building time.  

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18 hours ago, PT20J said:

If you were not a CA resident, there would be no CA tax liability buying in CA and immediately relocating to your home state. As a CA resident you have a limited number of very narrowly defined exemptions. Which one are you using?

 

Interstate commerce.

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