The place to find business sales tax information

— as well as solutions, services and jobs!

Aircraft Purchases: Why Many CPAs Get It Wrong

author photo of Thomas A. Alston

Nope. It’s not me sitting in an ivory tower passing judgement on the tax experts you are hoping will keep you out of tax trouble with your aircraft purchase. The problem (as I see it) is that CPA training has an income tax point of view. There are accepted rules (state-by-state) for determining (from each state’s perspective) if you are subject to their income tax.

What most CPAs don’t know is that from a sales/use tax perspective, California has a unique way of determining if you are a resident of California. The first thing your CPA should know is that you don’t have to be a resident of California to be subject to either of the transaction taxes (sales or use tax).

The second thing you need to know is that for the purpose of aircraft use tax, California uses language out of the Department of Motor Vehicles code. See below:

"Resident" means any person who manifests intent to live or be located in this state on more than a temporary or transient basis.

The following are evidence of residency for purposes of vehicle registration:

(a) Address where registered to vote;

(b) Location of employment or place of business;

(c) Payment of resident tuition at a public institution of higher education;

(d) Attendance of dependents at a primary or secondary school;

(e) Filing a homeowner's property tax exemption;

(f) Renting or leasing a home for use as a residence;

(g) Declaration of residency to obtain a license or any other privilege or benefit not ordinarily extended to a nonresident;

(h) Possession of a California driver's license;

(i) Other acts, occurrences, or events that indicate presence in the state is more than temporary or transient.

When you read the above items you must look at them from the viewpoint of the tax agency that could attempt to use any of these items to make your purchase taxable. Think of each item from the viewpoint of how it could be used against you - the taxpayer.

I tell all my prospective clients;

“It does NOT matter that you are a resident of Ohio, take possession of your aircraft in Florida and register it in a Delaware Corporation...

If the aircraft enters the State of California any time within the first 12 months, the state has the right to assess the tax on your purchase and you have the burden of proof to support a claim for an exemption

and

if the state contacts you and you ignore them because you think you are an out-of-state resident, the state will ultimately lien your aircraft or worse - raid your bank account.”

The twelve-month period is important because if the aircraft was taken possession of (for the purpose of the current purchase) outside of California and remains outside of California and those facts can be supported by documents, it meets the test for a resident of California (the more restrictive of the tests) supporting a claim for an exemption from tax.

Do you have tax questions regarding CALIFORNIA "Mobile Transportation Equipment" - including AIRCRAFT, VESSELS and VEHICLES? If so, feel free to call Tom - or ideally (if time allows), use the "Request a Consultation" link on the Aero&Marine FIRM PROFILE page to submit your question and/or consultation request.

Other recent “Aviation Tax” posts by Thomas A. Alston:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

6 Responses to Aircraft Purchases: Why Many CPAs Get It Wrong

  • Posted by Malee on January 3, 2018 3:53pm:

    Start-up Aviation charter service where brokers handle the charter transaction on behalf of the client (passenger). How do we handle sales tax on our services (mainly commission)?

    There isn't any sales tax on commissions in California. YET!

    • Posted by Author photo of Thomas A. Alstonthomasaalston on January 4, 2018 2:43pm:

      Sorry I added my response to your info request. There is no sales tax due on commissions. YET!
      You can call me direct to make sure I understood your questions 916-691-9192 ext 108

  • Posted by Thomas on November 15, 2017 10:30am:

    I am a sales tax expert. Try calling Cary Gaidano at 415-491-2211 he should be able to steer you.

    • Posted by Author photo of Thomas A. Alstonthomasaalston on January 4, 2018 2:44pm:

      Did Cary assist you?

      • Posted by Ray on January 5, 2018 11:12am:

        Spoke with him today and gave some confirmation that clubs do not pay income tax on dues from members. Similar to homeowners associations. Indicated that sending additional balance sheet info with 1120 form beneficial to explain entering "0" in the income section of the 1120 form since we don't have interest or sales income from bake sales, etc. to report. IRS needs a modified 1120 form for flying clubs and maybe other "social" clubs that use the 1120 form now to remove the confusion.

  • Posted by Ray on November 15, 2017 10:26am:

    Lost 501c7 flying club status. IRS says we are C corp now, must pay 1120 tax. We have no income other than membership dues and flying time to be paid to club for exceeding one hour per month. 1120 has no class for us. Told to use Service business but we offer no services. Pd $1400 of $4100 left after dues/expenses calculations. Got any experience with revocation appeals?

Submit a comment or question - only your first name will appear

Disclaimer:

Access to any portion of SalesTaxSupport.com is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by SalesTaxSupport.com of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.