With Planning, Aircraft Acquisition Is Less Taxing

 - September 26, 2006, 2:15 PM

Conklin & de Decker part owner Nel Sanders-Stubbs, for years the NBAA’s prime source of tax knowledge and expertise, gave Conklin & de Decker aircraft acquisition planning seminar attendees some insights on what to expect in the way of federal passenger excise taxes as well as state sales, use and registration levies.

She observed that operators and companies contemplating putting their aircraft out for charter to gain revenue should be aware of the federal excise tax (FET) implications of doing so. The FET, commonly thought of as the airline passenger tax, also applies to Part 135 operations in various ways. Sanders-Stubbs also offered the caveat that collateral use of a corporate aircraft for charter will not make a profit, but at best offset some fixed ownership costs while increasing others, such as insurance, and putting some tax deductions at risk.

As for state taxes and fees, “There is a lack of uniformity among the states, and there could be exposure to taxes in multiple states,” she warned. The tax expert listed some sales-tax exemptions regarding aircraft purchases and leases, emphasizing that conditions and requirements vary widely from state to state. “One can usually avoid a sales tax by picking the location of the sale, preferably  Alaska, Montana, New Hampshire or Oregon, which have no state sales tax, or at least a state with an exemption you can use,” she suggested. But, she added, most states–even those without state sales taxes–have local taxes.

Use taxes depend on where the aircraft is based and maintained and where the owner does business or lives. Sanders-Stubbs cited the possibility of multiple use tax claims based on the owner living in one state, doing business in another, and keeping his airplane in yet another.

Regarding sales and use taxes on maintenance, her advice was to “get the aircraft out of there when the work is completed” if the airplane is based outside the state where the maintenance was done. Still, she added, the domicile state might claim tax on maintenance performed in another state.

She also touched upon other levies on aircraft, including registration fees, personal property and fuel taxes, and other state excise and license taxes as well as uniform and operating fees. Regarding non-resident state taxes, Sanders-Stubbs said, “I call these ‘Gotcha’ taxes” that states claim if an aircraft is found to have been within its borders for more than a specified number of days a year. She then described several situations in specific states and how one might deal with them before concluding with a summary of state tax-planning strategies.

“Advance planning before a purchase may lead you to create an entity to effect the purchase. You want to look at what your exposure will be. Remember, it’s hard to hide an aircraft. What’s the risk? It depends on the state. Some high-enforcement states are California, Texas, New York, Ohio, Florida, Illinois, Michigan, Arizona and Virginia.” She noted that Conklin & de Decker offers state tax guide software and notification of changes in each state’s tax laws as they occur.