During a recent conversation with an aircraft broker in the Great Lakes area, he told me that he has no problems with the California tax people. He indicated he is confident that California’s attempts to tax out of state domiciled aircraft would be overruled in Federal court. Therefore, he feels like his clients are not in danger.
I reiterated California’s position is that all aircraft are subject to assessment if they ever enter California anytime during the first twelve months, and are discovered here by the tax people. I could sense that resistance building in him as he became a bit emotional and restated that California State Law can’t overcome the federal court system. I brought up that if an aircraft enters California only once during the test period it is a bit like a needle in the haystack, but it is a technical possibility.
This only served to reignite his passion for his position. So, I backed off trying to convince him of what is my reality that California can and will do whatever it wants, hence the title of this article. First, I will define the phrase “reality break”. My definition here of “reality” is “agreement”. This is where two people agree that something is true, therefore they have something that they agree on. My definition here of “break” is where something is broken or out of alignment. Therefore, when I use the term “reality break” in this case, I mean that the broker and I have different viewpoints of what is true. We are both equally convinced that our opinions are correct.
I finished the conversation with an offer to be of assistance to him any time he has any aviation tax questions. I told him, “Even if I am not an expert in what you need answered, I have been in this business long enough that I probably know the person you need to talk to that can help you.” He thanked me and seemed like he was a bit more relaxed so I added my comment, “You can also call me any time you want to argue with me about California Sales Tax.” He began laughing uncontrollably, mission accomplished. I had diminished the level of emotion that had begun to build a wall between us.
Let’s say I am wrong, and he is right that an out-of-state resident will always win in Federal Court regarding this issue. I am very concerned about my clients’ “money”. The business that I created is based on eliminating a tax which adds to the cost of an aircraft or vessel. Therefore, it is my mission that people don’t waste money on taxes that they can legally avoid. I also talk people out of hiring me when the tax savings doesn’t overcome the cost of the avoidance program.
If an out-of-state aircraft owner is assessed tax by California, he is normally advised of this by mail from the California Department of Tax and Fee Administration (CDTFA). Let us say the owner asks his tax advisor and is told to ignore the letter because California has no legal right to assess the tax. The CDTFA, sometime later, then files a lien on the aircraft. The FAA always accepts and records the CDTFA liens on aircraft.
Now, the aircraft owner can be in violation of his finance agreement or his insurance policy. This creates some expense to justify the lien to his bank or the insurance company. This effort costs something, whether it is handled by a representative or the owner himself, even if it is just the annoyance factor for the taxpayer. If the aircraft is mid-sale the whole sales process can be held up at the time there is a willing buyer at an agreed price. This costs something.
Secondarily, by law this case cannot go to any civil court without giving the CDTFA an opportunity to go through all the evidence to make their interpretation. So this causes the taxpayer to circle back and have to go through the entire audit process anyway. This costs money and AGGRAVATION!
Let’s suppose that the CDTFA denies this claim for an exemption all the way through the process and the taxpayer goes to a public hearing before the elected Board members and they rule against him. According to the rules he can only pay the tax and take the CDTFA to court to claim a refund for the taxes paid. Be advised that even if the taxpayer wins at this point point he will not be reimbursed for his legal costs. This costs a lot of money, AND IMMENSE AGGRAVATION!
If he loses at the state level and takes this case to federal court he starts the legal billing all over again. THIS IS BEGINNING TO COST AS MUCH AS THE AIRCRAFT.
That is why I know that my approach is saner. I will guide you through the process of not creating tax revenue for California and assist you to gather the correct paperwork right from the beginning. I am the lowest cost option when you compare it to the other route that is taken by people who want to fight with the CDTFA. Even if they are right!