Transferring airplane out of corporation

[ilovecornfields]

Anyone have experience transferring an airplane out of a corporation into private ownership? I have my plane in an S corp which I’m planning on closing this year and I’m hoping not to pay the use tax again when I give the airplane to myself. I talked to one of the “free” AOPA attorneys with my “Premier” legal services plan and it sound like if I make up a bill of sale giving me ownership of the plane for no consideration and file an exemption with the state I won’t have to pay the use tax. He offered to do this for me for a $2500 retainer (in addition to my three free AOPA hours).

If it’s really that simple I’d rather avoid paying $2500 and just do it myself. Has anyone done this in California and is willing to share their experience?

[A64Pilot]

It is that simple in Ga and I believe Fl so far as transferring ownership, but I think if there is tax it just means you pay it as opposed to the Corp paying.

 

[midlifeflyer]

From an FAA standpoint, it's simple (so long as the paperwork is prepared correctly -I mention that because improper preparation is easily most of the reasons for FAA rejection). From a tax standpoint, what are the sales and income tax ramifications, I'd get professional advice.

[Hank]

On 11/22/2022 at 2:31 PM, ilovecornfields said:

I talked to one of the “free” AOPA attorneys with my “Premier” legal services plan and it sound like if I make up a bill of sale giving me ownership of the plane for no consideration and file an exemption with the state I won’t have to pay the use tax. He offered to do this for me for a $2500 retainer (in addition to my three free AOPA hours).

If it’s really that simple I’d rather avoid paying $2500 and just do it myself. Has anyone done this in California and is willing to share their experience?

Make sure he knows the value of the plane so he can calculate the taxes that would be due. It's still surprising to me how many people hear "private plane" and think multi-million dollars. He probably thinks his "low" fee looks like peanuts to a rich airplane owner.

You wouldn't believe the looks I get when I tell people that they can buy a new SUV or an airplane like mine . . . . .

[bcg]

I don't have a specific answer for you because I'm unfamiliar with Ca law. In general though, tax is collected based on the price on the FAA BOS, which should always list "$10 and OVC" for the price. OVC = Other Valuable Consideration. If they charge you sales tax on $10, pay it.

Just in case someone finds this useful later, Texas allows us to complete an occasional transaction affidavit when doing a personal sale but any transaction involving a business entity requires sales tax be collected.

Sent from my Pixel 6a using Tapatalk

[elimansour]

While a liquidating distribution from a corporation to its shareholders generally qualifies for an exemption from the CA sales tax, there could be "sale" assessed based on the value of any assumption of debt associated with the aircraft and there are strict documentation and timing requirements for the distribution to qualify for the exemption.  CA CDTFA will come calling and ask for a sales tax and you will need to be able to show the documentation associated with the liquidating distribution to qualify for the exemption.  You really should consult with the attorney and have him assist with the documentation unless the plane costs less than $31K in which case it may be easier to just pay the sales tax (>$2500) and not worry about it! 

[ilovecornfields]

Thank you for all the responses. I am working with a different attorney with respect to dissolving the corporation.

I was told the corporation is responsible for collecting sales tax but in this case since there is no consideration there would be no sales tax. The use tax was my concern and I did discuss this with three “professionals” but I was also wondering if anyone else had gone through this and what their experiences were.

[A64Pilot]

In GA and Fl I’m pretty sure it’s just dissolve the Corp., but your in California. I dissolved a Corp that had my house and 100 Acres in it without issue in Ga.

By hiring a Lawyer you’re doing the right thing, much less likely to get that letter in the mail that ruins your day.

[midlifeflyer]

On 11/23/2022 at 9:40 PM, bcg said:

I don't have a specific answer for you because I'm unfamiliar with Ca law. In general though, tax is collected based on the price on the FAA BOS, which should always list "$10 and OVC" for the price. OVC = Other Valuable Consideration. If they charge you sales tax on $10, pay it.

Just in case someone finds this useful later, Texas allows us to complete an occasional transaction affidavit when doing a personal sale but any transaction involving a business entity requires sales tax be collected.

Sent from my Pixel 6a using Tapatalk
 

I don't know of any taxing authority who treats "$10 and OVC" (I use $1) as anything other than a centuries-old technical recitation of contract consideration in a transfer document where the parties don't want to state a price.

[ilovecornfields]

3 hours ago, midlifeflyer said:

I don't know of any taxing authority who treats "$10 and OVC" (I use $1) as anything other than a centuries-old technical recitation of contract consideration in a transfer document where the parties don't want to state a price.

I agree. CA will ask you for the sale price for the use tax (which I’ve already paid once). I was told if there was ANY consideration then I would have to pay the use tax again for the transfer based on the fair market value of the airplane. This is exactly the scenario I am trying to avoid.

[A64Pilot]

3 hours ago, midlifeflyer said:

I don't know of any taxing authority who treats "$10 and OVC" (I use $1) as anything other than a centuries-old technical recitation of contract consideration in a transfer document where the parties don't want to state a price.

All the aircraft we sold were for $1. What’s the point of that anyway?

[EricJ]

3 hours ago, midlifeflyer said:

I don't know of any taxing authority who treats "$10 and OVC" (I use $1) as anything other than a centuries-old technical recitation of contract consideration in a transfer document where the parties don't want to state a price.

I always liked "a peppercorn" for the consideration, where an actual peppercorn is delivered for the consideration.    I always wanted to do this but have never had the opportunity. 

[A64Pilot]

I always thought the other considerations were meant to be anything from working for it or transfer to a family member etc. But obviously it doesn’t mean squat anymore because when you sell an airplane to a stranger there are no other considerations.

Wife inherited a Model -T when her Father passed, will basically said my Daughter gets the antique cars with no other description.

Tried to register the thing in Fl, first they wanted a Title, cars weren’t Titled 100 years ago, they wanted the VIN number, in 1923 there was no such thing. Hit a road block

So I got her Fathers wife to sign a bill of sale for $1 and other consideration with a description of the car with its motor serial number in the bill of sale (motor is the only selialized part on a Model - T.

Will try again during Wife’s Christmas Break.

[midlifeflyer]

1 hour ago, A64Pilot said:

All the aircraft we sold were for $1. What’s the point of that anyway?

It's not just aviation.  It's been around since at least the 18th century. Maybe mid 1600s. Like many old legalisms, it hangs on, even in situations where it's not really necessary.  Heres' the 2¢ lesson:

A binding contract requires something called "consideration." It's not about being nice or "considerate." It refers to something being promised (and ultimately given)  in exchange for something else. That's important to differentiate a contract from a gift, which have different legal consequences, mostly from an enforceability standpoint. It ultimately became one of those common contract phrases, sometimes in the longhand "and other good and valuable consideration," no matter the amount.

The [nominal amount] coupled with "and other valuable consideration," in publicly-recorded property transfers (you see them in some real estate transfers, is mostly about filling in a blank  in a way which indicates that there is a contract (even if it was really a gift), but that the parties have decided not to put in the purchase price because, "frankly, it's none of your damn business." Been used with the FAA Bill of Sale for a long time. I came across this example in my files. It's not that old (1967) but it's interesting because it's the first sale of the airplane - from manufacturer to first purchaser.

 

Edited November 27, 2022 by midlifeflyer

[A64Pilot]

So what’s the “other considerations” about, why not just $1?

It’s the seeming requirement of other considerations that had me wondering, I assumed like for example way back when a person could work for you for x years for say 5 acres of land. As you say money has to change hands to keep it from being a gift, and in this case other considerations were meant to show that there other things of value that were given and it wasn’t a gift.

Spin way forward in time, the other considerations is now BS as there are none, so why is it even there? is it required?

[midlifeflyer]

1 hour ago, EricJ said:

I always liked "a peppercorn" for the consideration, where an actual peppercorn is delivered for the consideration.    I always wanted to do this but have never had the opportunity. 

For those who have been there, the 1st year contracts case in many law schools was Hamer vs Sidway,"which I think was one of the cases mentioned by Prof Kingsfield in The Paper Chase movie. In that 1891 case. an uncle promised to give his nephew $5,000 if the nephew refrained from drinking liquor, using tobacco, swearing and gambling until he was twenty-one. The nephew did his job, sued for the money, and won. Refraining from something he was allowed to do was sufficient consideration for uncle's promise

[midlifeflyer]

20 minutes ago, A64Pilot said:

So what’s the “other considerations” about, why not just $1?

It’s the seeming requirement of other considerations that had me wondering, I assumed like for example way back when a person could work for you for x years for say 5 acres of land. As you say money has to change hands to keep it from being a gift, and in this case other considerations were meant to show that there other things of value that were given and it wasn’t a gift.

Spin way forward in time, the other considerations is now BS as there are none, so why is it even there? is it required?

"$1 for the record but there was more..."

Sometimes BS sometimes not. Sometimes a requirement, sometimes not. Sometimes someone thinks it's a requirement when it isn't. Harmless except for the $0.000000000 in ink used to write or type "and OVC."  It's a way to fill in the blank in a way that everyone will recognize and find acceptable. Just like the FAA Bill of Sale itself. We do have to submit a bill of sale but it doesn't have to be Form 8050-2. Your lender has to file a security agreement but it doesn't have to be Form 8050-98 but most lenders use it.

It's mostly about going with the flow - allowing the bureaucracy to see what it expects to see. 

As you say money has to change hands to keep it from being a gift,

Actually, I didn't.

Edited November 27, 2022 by midlifeflyer

[midlifeflyer]

31 minutes ago, bluehighwayflyer said:

Correct.  @A64Pilot, “consideration” is always expressed in the singular in this context.  Never plural. As @midlifeflyerstated above, the sole purpose of this type of language in a contact or bill of sale is usually to document that the requirement for consideration has been met while obfuscating what exactly the consideration was.  That’s all.  

I like the way you put that.

[Hank]

23 hours ago, A64Pilot said:

So what’s the “other considerations” about, why not just $1?

It’s the seeming requirement of other considerations that had me wondering, I assumed like for example way back when a person could work for you for x years for say 5 acres of land. As you say money has to change hands to keep it from being a gift, and in this case other considerations were meant to show that there other things of value that were given and it wasn’t a gift.

Spin way forward in time, the other considerations is now BS as there are none, so why is it even there? is it required?

Often the "other considerations" are simply additional dollars, but this keeps the sale price private. I bought a house once, and research at the courthouse showed that it had changed hands three times for "$10 and other valuable considerations", each time being tens of thousands of dollars . . . . This was pre-internet, so it's usefulness has exploded now that your new neighbors have so many avenues to search and find how much you paid for your house. And your airplane.

[donkaye]

On 11/27/2022 at 8:14 AM, ilovecornfields said:

I agree. CA will ask you for the sale price for the use tax (which I’ve already paid once). I was told if there was ANY consideration then I would have to pay the use tax again for the transfer based on the fair market value of the airplane. This is exactly the scenario I am trying to avoid.

Without giving your name and aircraft number, l’d contact the Board of Equalization, ask for the aircraft department, and describe your issue.  They’ve dealt with it before. At one time, I considered moving my plane out of my corporation, and they were rather helpful. I decided not to do it.

[MooneyMitch]

I believe the current agency controlling use tax of CA aircraft is CA Department of Tax & Fee Administration. 

[ilovecornfields]

3 hours ago, donkaye said:

Without giving your name and aircraft number, l’d contact the Board of Equalization, ask for the aircraft department, and describe your issue.  They’ve dealt with it before. At one time, I considered moving my plane out of my corporation, and they were rather helpful. I decided not to do it.

Don, this is an excellent idea. I just called them but they said that those types of questions are referred to a specialist and they needed my name and callback number. So, taking your advice about not giving my name and aircraft number out I gave them yours. Do you mind letting me know what they say?

Just kidding! They did say they would call me back later today, though. I know they’ll find out anyway when I turn in the bill of sale so I’m not worried about being anonymous. They were also able to see my “blocked” caller ID so I get the feeling that if they want to find me they will.

Thanks again for the suggestion.

[carusoam]

Let’s invite @Danb to the party…

Not from CA, but may have some insight on the topic…

Best regards,

-a-

[ilovecornfields]

Well, Don never called me to tell me how the conversation went but I did get a call from the California Department of Tax and Fee Administration and they talked me through what I need to do to get the exemption:

1. File for an exemption online - https://onlineservices.cdtfa.ca.gov/

2. Enclose supporting documentation which includes: Aircraft bill of sale for no consideration, meeting minutes from the BOD approving transfer of the aircraft and a letter on company letterhead indicating transfer of the airplane for no consideration. 

Then I get to file for a new registration and change the name on my insurance policy.

 

[carusoam]

Great follow-up ILC!

Thanks for sharing the details…

Best regards,

-a-