Demystefying Sales and Use Tax (what fun!)

An aircraft purcahse is a significant investment. Information and planning can help you avoid surprises. Both sales and use taxes can apply to aircraft acquisitions, and navigating these taxes requires careful planning and consultation with knowledgeable professionals.

Sales Tax vs. Use Tax: What’s the Difference?

• Sales Tax: Imposed by the state where the sale occurs, sales tax applies when you purchase an aircraft within a state. The seller is typically responsible for collecting this tax and remitting it to the state’s taxing authority.
• Use Tax: If you buy an aircraft in one state and base it or use it in another, the state where the aircraft is primarily used may impose a use tax. This tax ensures that residents don’t avoid tax liabilities by purchasing in states with lower or no sales tax.

Without proper planning, you might face tax liabilities in both the state of purchase and your home state. For instance, buying an aircraft in one state and moving it to another can trigger tax obligations in both jurisdictions. Some states require buyers to complete exemption forms during purchase, which can inadvertently alert your home state to pursue use tax collection.

5 Critical Questions to Ask Before Your Aircraft Purchase

1. Where will the aircraft be primarily stored and operated?
   • The primary location of the aircraft often determines which state’s tax laws apply.
2. In which state is the aircraft being purchased?
   • The state of purchase may impose its own sales tax, and understanding its laws is crucial.
3. Are there any applicable tax exemptions?
   • Some states offer exemptions for specific uses, such as commercial operations or resale purposes.
4. What are the tax rates and regulations in both the purchase state and home state?
   • Tax rates and rules vary by state, affecting your overall tax liability.
5. Have you consulted with tax professionals familiar with aviation?
   • Specialized advice can help identify potential tax-saving strategies and ensure compliance.

Meet Your Tax Dream Team: The Professionals You Need

Given the complexities of aircraft taxation, it’s advisable to consult with:

• Aviation Tax Attorneys: They specialize in the nuances of aviation-related tax laws and can provide guidance tailored to your situation.
• Certified Public Accountants (CPAs) with Aviation Experience: These professionals can assist with financial planning and ensure that all tax filings are accurate and timely.
• Aviation Consultants: They offer insights into operational considerations that might impact tax obligations.

Collaborating with these experts can help you navigate state-specific regulations and identify opportunities for tax exemptions or reductions.

Proven Strategies to Slash Your Tax Burden

1. Utilize Exemptions: Research and qualify for exemptions that can significantly reduce tax liabilities. Common exemptions include:
   • Fly-Away Exemption: If the aircraft is purchased in a state and then promptly removed from that state within a specified timeframe, the transaction may not be subject to that state’s sales tax.
   • Purchase for Resale: Establishing a leasing company to purchase the aircraft and then leasing it to the end user can, in some jurisdictions, allow for tax benefits. This approach requires meticulous adherence to state laws and should be structured with professional guidance.
2. Leasing Structures: Implementing a leasing arrangement can defer tax liabilities. However, it’s essential to ensure that the lease complies with state regulations, including charging appropriate sales tax on lease payments and maintaining proper documentation.
3. Strategic Purchase Planning: Some buyers consider purchasing and basing their aircraft in states with more favorable tax laws. However, it’s essential to ensure that the aircraft’s operational base aligns with the claimed tax domicile to prevent disputes.

Avoid These Common Pitfalls

• Proactive Planning: Address tax considerations before completing the purchase. Postponing this can lead to missed opportunities for exemptions and potential penalties.
• Accurate Record-Keeping: Maintain detailed records of the aircraft’s storage locations, flight logs, and usage to substantiate tax positions during audits.
• Timely Tax Payments: Delaying tax payments can result in interest and penalties. It’s crucial to understand payment deadlines in both the state of purchase and your home state.

In summary, purchasing an aircraft involves navigating complex sales and use tax landscapes. By asking the right questions, engaging experienced professionals, and implementing strategic planning, you can minimize tax liabilities and ensure compliance with all applicable laws.