Aircraft always come with a hefty price tag. If you’re already paying that much, then you might be wondering why it’s worth your time or money to consult a tax professional. Actually, that same high cost is the reason why it’s so important to bring in an expert. And in the case of Aero & Marine Tax Professionals, our goal is not mitigating a tax bill—our service completely eliminates it.
The Earlier, the Better
So when should you bring in a tax pro? The short answer is as early as possible. There are a lot of complications involved in a purchase this complex. The sooner you bring in a pro the sooner they can help you navigate through all the jargon and convoluted paperwork.
Here are five of the biggest hurdles that an expert will help you navigate.
1 – Tax Officials Crack Down on Airplane Purchases
Sometimes that tax code complication works in your favor. Use Tax technically should be paid on anything that crosses state, city, or county borders, but it’s usually more trouble than it’s worth.
Not with airplanes. Airplanes are big purchases with big tax bills. Remember that $200,000 you could save? That’s an additional $200,000 of revenue a tax investigator can bring in from a single case. So basically, purchasing a plane makes you a big tax target that’s easy to hit if you’re not prepared.
2 – Purchasing from the Wrong Person in the Wrong Place Can Cost Big
Dealers will charge the local sales tax, and their license depends on paying it. Private-party purchases should have a Use Tax that’s paid by the buyer. Since buyers and sellers are usually less experienced about tax matters than dealers, you’ll often end up with the blind leading the blind.
3 – There Are a Lot of Exemptions Out There
When you start talking with other owners or pilots about use or sales tax, you’ll undoubtedly hear about exemptions. Tax exemptions are built into the code for specific situations, like when a plane is purchased as a charter or if you’re going to immediately leave the state (known as a flyaway exemption).
There are plenty of other exemptions, and the specific requirements of them will change depending on the state. If that weren’t complicated enough, the details of the exemptions can change with every new tax year. The only way to make sure you’re complying with the exemptions is by working with a tax expert.
4 – The Definitions Can Be a Little Murky
The taxes that are levied against your plane depend on very specific definitions. Take Use Tax. The jurisdiction that gets to levy the tax depends on where the plane is used. Some states define this as having a “substantial nexus,” while others have a specific time limit before tax is levied, such as 30-60 days.
That same variation of definition carries over into other tax regulations and exemptions. Buying a plane that you mean to use as a charter aircraft might be an exemption, but only if it meets very specific qualifications that vary from state to state. When you make your tax case, you not only need to know about any exemptions, but you also need to be confident in your ability to fit the definitions required for those exemptions.
5 – Many Different Agencies Want a Piece of the Pie
With so much revenue available from airplanes, you’ve got plenty of government agencies who want to get their share. Let’s look at that $20 million airplane again. If you buy that plane and headquarter it around Los Angeles, you could be looking at sales tax up to 9.5%, or $1.9 million.
As you can imagine, very few revenue officers will want to lose that money. That huge tax bill is only for the sales or Use Tax. You’ve also got federal transportation taxes, fuel taxes, income taxes, property taxes, and registration taxes. Every single one of these taxes has their own regulations and tax codes. With the amount of potential tax liability involved in an airplane, it’s vital that these are navigated correctly.
Remember: This is What We Do
As you can see, there are a lot of details involved in keeping your airplane tax bills as low as possible, and these details keep evolving on a regular basis. This is why it’s so important to go to a consultant who specializes in airplanes. It’s our job to keep on top of all the changing tax regulations to make sure that we can save our clients as much money as possible. We always recommend bringing all the tax professionals involved in a transaction on board as soon as possible to make sure we are covering as many bases as possible.
By the way, we hold one-day free seminars where a lot more information is shared on how this all works. I bring in some of the most informed tax, insurance, and legal professionals in the industry to provide all the knowledge one needs if they are looking to purchase an aircraft. Take a look at my page here if you’re interested.