Recently I had a client that changed the LLC name that owned his aircraft because the Secretary of State said it was too close to another LLC name. This created nearly $60,000 in tax assessment from California.
Similarly, another person I know purchased an aircraft and because he was in a hurry he titled it in his partners’ names because he could not get the LLC formed in time. Even though the original partners exempted the aircraft from the transaction tax, the State of California assessed him
$97,000 in taxes on the transfer into the LLC. This situation was exacerbated when some of the partners were advised by their attorneys to form LLCs between the original purchase and the subsequent transfer to the ultimate LLC.
There are a few major problems with both of the above cases.
1. Neither party took into account the potential aircraft sales tax ramifications of the transfer of title. Most sales/use tax organizations routinely get updated registration from the FAA. They treat any change in title as a sale, and even if merely adding a partner, they want to know the price of that purchase.
2. Many attorneys and CPAs see aircraft ownership as a liability and are in a rush for their clients to separate their aircraft from their other assets. A transaction where a California aircraft sales and use tax expert should always be consulted.
3. You may think because you have already been granted an exemption from the transaction tax that it is not an issue. You only exempted the previous transaction, not the new one. The state views this name change as a sale.
Aircraft sales tax in California is a giant whack-a-mole game. Every time you think you have solved one problem you have opened up yourself to new inquiries from several other tax organizations. There are tax exemption strategies to handle the above situations but proper pre-planning is vital.