There are many misconceptions aircraft owners have about avoiding California sales and use tax, many of which can at best cost you much more than paying the tax outright and at worst have you in serious legal trouble with the state. Tom Alston at Aero and Marine Tax Professionals has heard all of these, and many more, tax mistakes and has compiled a list to prevent you from making the same mistakes.
1. “Just register your plane outside of the state!”
While registering your aircraft outside of the State of California might seem like an easy way to evade the sales tax on your aircraft, it actually counts as fraud if you don’t go through the proper steps to get an exemption. If you are a resident of California, the California Department of Tax and Fee Administration (CDTFA) will automatically assume that you are registering your aircraft outside of the state to evade taxes.
2. “If I fly into California, I’ll just hide my plane in a rural hangar or private airport!”
While this may get you by the first few times you try it, the State of California and its aggressive tax authorities will eventually catch you, which has serious legal and financial ramifications as this is tax evasion. Taking this risk is never worth it, and at that point just paying the tax will be more beneficial.
3. “If I don’t use any kind of flight tracking software, the state will never catch me!”
In the eyes of the State of California, every aircraft that is purchased is taxable, no matter if you intend to use it in the state or not. It is YOUR responsibility to fill out the proper paperwork to prove to the state that your aircraft is not taxable. In addition to this, simply providing flight logs is not enough to prove that your aircraft has not entered California, as flight logs have no way to be proven as anything other than fiction. Fuel receipts and anything else containing time, location, or tail number stamps are more acceptable pieces of proof.
4. “I wrote $1 in ‘Other Valuable Consideration’ in my FAA tax Return!”
Auditors are never going to believe that you bought anything expensive or “valuable” for 1$. This will never work in your favor.
5. “I registered my plane in a Delaware corporation.”
Like #1, it doesn’t matter where you register your aircraft, the State of California will assume that it is taxable. If you aren’t careful and don’t submit the proper taxes, this can have legal ramifications as well. Even if you aren’t a resident of California, and your plane isn’t registered in California either, if your plane enters California in any way it is subject to use tax.
6. “I registered my plane in Oregon, and I have an address there too!”
In the eyes of the State of California, none of that matters. They will reach for anything to assume you are a resident of California, and therefore you owe tax. Like #3 it is YOUR responsibility to provide all of the proper documentation to provide the CDTFA with your application for exemption (known as the Combined State and Local Consumer Use Tax Return).
7. “I am a broker! I buy all my aircraft with a resale license.”
If you buy any aircraft with a resale license, you are not allowed to use that aircraft for any personal use under California law. The second you use any of the planes you bought with your license for personal use, that aircraft is subject to use tax. You will get caught.
8. “I’ll negotiate the tax down with the state.”
The state will not haggle down any taxes with you. You either pay the tax in full, or you are exempt from tax. There is no in-between.
9. “Can you keep them away from me until I die?”
Sure, we can! But that doesn’t mean your estate is exempt from any taxes you didn’t pay. This is never worth it.
10. “I’ll take them to court!”
There is no way to directly take the State of California to civil court for tax disputes. You would have to have the state exhaust every part of its administrative process on you before you can even think about taking them to court. Even if you get to this point, the amount of money you spend is exponentially more than the tax itself, and there’s no guarantee you will win.