Buying a place is exciting for sure, but what are the important tax ramifications?

“Do I have to Pay State Sales or Use Tax on the purchase or use of my plane?”

Many plane owners ask this question and go to great lengths to avoid paying sales or use tax. Unfortunately, unless there is a specific exemption for which the aircraft is eligible, the tax will be owed. To make matters worse, the liability to the taxing state could end up being 2 or 3 times the original tax liability due to penalties and interest. Sales and use tax can be very complicated due to the interstate nature of aviation subjecting the owner(s) to multiple jurisdictions. The recommendation here is to seek a knowledgeable tax advisor. The financial inconvenience of paying the tax can far outweigh the costs if contacted by the taxing authorities 2 or 3 years down the road.

The states that don’t collect sales and use tax are:

Delaware

Alaska

Montana

New Hampshire

Oregon

If  you are not based in one of these states you will potentially owe tax sales and use tax.

Here are a few suggestions to consider:

1. Understand the tax rules of the state where you fly. Specifically what the exemptions are and what they consider taxable events which will include allocations based on such concepts as amount of time or percent of aircraft usage in their turf. The states may look at who uses the aircraft and where they are based which includes key employees, officers, shareholders and business entities as members of controlled groups.
2. If a collection notice is received it doesn’t necessarily mean the tax is owed. Taxing authorities sometimes obtain tail numbers of aircraft in their states. A visit doesn’t mean you are based there.
3. You can register an aircraft with the FAA in any state. Many believe they find sanctuary registering in states like Delaware. Be careful here. If you do this and hangar the aircraft in your home state, you will probably be subject to the use tax provisions of the home state.
4. Here is where the BARR program can be useful. With today’s flight following systems, states have a tool to determine the aircraft’s usage. This is information that they can use to support their claim.

Links

AOPA Article

Advocate Consulting Article “State Tax DepartmentsChase Transient Aircraft…” –

Tax issues related to aviation are specific and unique. Aviation has always been my passion, and tax issues have been my vocation. I am a commercially rated pilot in both land and sea planes and  hold a certification from the FAA as an airframe and power plant mechanic. Combined with my over twenty-five years of experience in tax-related issues, I can help you navigate the system.