Avoiding Sales/Use taxes

You'll really need to consult with a lawyer and accountant for this. Every state is different, so pick a state and find a lawyer there.

If you're going to be the only owner and operator, there is no asset protection by putting it in an LLC or similar. Why go through the hassle and expense of doing so?
 
The plane that I'm a part owner in is keep in a LLC. One of the reasons is that when a share is sold the plane does not get registered again and there is no tax liability for the transfer as your buying the shares not the plane.
 
KSMooniac said:
You'll really need to consult with a lawyer and accountant for this. Every state is different, so pick a state and find a lawyer there.

If you're going to be the only owner and operator, there is no asset protection by putting it in an LLC or similar. Why go through the hassle and expense of doing so?
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Hey Scott- I think you weighed in on my post on mooneyspace.com. I think you're right about asset protection from what I've read. Maybe I'll drop the idea. But I am interested a little bit in privacy. Might be a wash though.
 
jtheune said:
The plane that I'm a part owner in is keep in a LLC. One of the reasons is that when a share is sold the plane does not get registered again and there is no tax liability for the transfer as your buying the shares not the plane.
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An LLC is excellent liability protection for a situation where someone else is flying the plane.

If you crash into a bus full of investment bankers (used because of their high incomes), then their estates will sue:
a) The pilot (you...I've yet to see a corporation issued an airman's certificate)
b) The owner of the plane (LLC)

As you can see from (a), if you're flying, your personal assets are at risk no matter if the plane is in an LLC or not.

Change that to your partner is flying the plane, now it becomes:
a) Pilot (partner) is sued personally
b) LLC is sued

You will lose your stake in the plane, and the insurance proceeds from the crash (as they will go to the LLC and end up in the hands of the trophy wives), but your house, car, boat, etc. are not at stake (unless you put them up as collateral to buy the shares in the LLC...but that's another story).
 
JeffDG said:
An LLC is excellent liability protection for a situation where someone else is flying the plane.
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Very good point, thank you. I did think of potentially renting/leasing the plane to other pilots or a flight school so that might be a good idea.
 
That will work, the downside or potential downside is you are buying an entity that may or may not owe taxes, may or may not be subject to lawsuits and the asset may be depreciated already.:dunno: It can work, just be aware of some of the pitfalls.
As for the LLC's being anonymous or even remotely private, I bought my Conquest in the name of one of my LLC's, I was getting calls and emails within 5 days from brokers wanting to know if it was for sale!:dunno: One nice woman even sent me the list showing all the C425's registered in the US with owners names and if a corp or LLC, contact information for the principals. :eek: It had my name home address, cell phone number etc, don't think the state doesn't have access to this information. :rolleyes:
If you have no permanant residence, I would register and base it in a tax friendly state. You can try to do this just on paper, but odds are you'll get caught, especially if you are actually basing it in a high tax, high enforcement state. The casual sales tax exemption works with some states and not others, Georgia is fine with it, so is Texas, but many others don't care who you buy it from, they just want money. :mad2:
jmn444 said:
I'm not 100% sure on this, but in theory, if the airplane's current owner holds it within a corporation, you can simply buy the stock of the corp.

I would think you could (as an owner) negotiate a higher selling price knowing sales tax is no longer an issue if you hold ownership this way and sell the stock rather than the plane.

Correct me if i'm wrong!
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And worth noting that the state regulatory employees detest the existence of the exemptions and think they are grossly unfair to the God-fearing hard-working upstanding cizzens who just send in the check for the tax rather than the exemption form that the regulators consider as a "get out of jail free card" that should be summarily abolished by the legislature.

So if you intend to use the exemption, be dang sure your ducks are aligned and that all i's and t's are properly marked.

N747JB said:
The casual sales tax exemption works with some states and not others, Georgia is fine with it, so is Texas, but many others don't care who you buy it from, they just want money. :mad2:
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I just spoke to a professional about this. We're going to speak again but it sounds like it makes sense to just do this in MA since I maintain a presence there as it is and MA has no sales or use tax. Then I'll just have to worry about whether I'm keeping the plane for long periods in other states that do have a use tax (e.g. NY).

I can do an LLC in MA, though it's expensive relative to one in DE or NV, but it's sounding like it's not going to give me any privacy, and it's really only good for liability protection if someone else is flying it. So an LLC might not be urgent for now and I can always move it to one later.
 
There ya go. I went down the same road before my purchase and pretty much every scenario I presented to the savvy attorney resulted in "buy lots of insurance." I had to pay sales tax unfortunately b/c I bought from an FBO and that was quite painful, but I got a great plane at a great price and it was still worth it.
 
wabower said:
Texas comptroller formed a special division in 2007 to chase airplane transactions. They have been very thorough and even more successful.
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In Texas a private buyer doesn't have to pay sales tax if you pay from an individual who is not a broker or dealer. This is called an 'occasional sale'.

The purchase of an aircraft may also be exempt if it is
purchased from a non-permitted seller who makes an
occasional sale.An “occasional sale”
is one made by a person who does
not habitually engage in the business
of selling taxable items and who
sells no more than two taxable items
during a twelve-month period. To
document the exemption, a purchaser should ask the seller to provide
a signed statement that the transaction qualifies for the occasional
sale exemption as defined in Texas
Administrative Code Rule 3.316(b).
The statement must be specific as
to why the exemption applies (e.g.,
operating asset, transfer without
change in ownership, etc.) The purchaser must retain the statement in
their records for four years following
the date of the purchase.
...
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If you are Texan be sure and get this done when you buy your airplane from another private person. If you forgot about in about a year or two the Comptroller will come asking you to pay sales tax.
 
There's quite a bit more to the statute than meets the eye. In general terms, the occasional sale exemption appears to be simple. In practice, it's a bit more complex than the language suggests, especially insofar as the qualifications of both buyer and seller to participate, and is not the free pass that some purport.



JimNtexas said:
In Texas a private buyer doesn't have to pay sales tax if you pay from an individual who is not a broker or dealer. This is called an 'occasional sale'.



If you are Texan be sure and get this done when you buy your airplane from another private person. If you forgot about in about a year or two the Comptroller will come asking you to pay sales tax.
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wabower said:
And worth noting that the state regulatory employees detest the existence of the exemptions and think they are grossly unfair to the God-fearing hard-working upstanding cizzens who just send in the check for the tax rather than the exemption form that the regulators consider as a "get out of jail free card" that should be summarily abolished by the legislature.

So if you intend to use the exemption, be dang sure your ducks are aligned and that all i's and t's are properly marked.
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Georgia recently closed the casual sales tax exemption on used car sales between private individuals. To, you know, level the playing field for those Conquest-flyin' bigwig car dealers. :mad:

There's also an annual property tax assessed on aircraft.
 
You mean those guys that have one plane for themselves and another one for the kids?:rofl:

rpadula said:
Georgia recently closed the casual sales tax exemption on used car sales between private individuals. To, you know, level the playing field for those Conquest-flyin' bigwig car dealers. :mad:

There's also an annual property tax assessed on aircraft.
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rpadula said:
Georgia recently closed the casual sales tax exemption on used car sales between private individuals. To, you know, level the playing field for those Conquest-flyin' bigwig car dealers. :mad:

There's also an annual property tax assessed on aircraft.
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But, but, but they eliminated the "birthday tax" :rolleyes:
Actually, the new title "fee" has been a cluster f$$$ for us, it took us 2 months to get the amounts straight. :D
 
One thing that hasn't been mentioned (and may not apply to the OP) is that in many states the sales tax is on the net sale price, not gross. So if you are selling an airplane and buying another, do the work to make it a "trade" and pay sales tax on the "net" amount. May need to pass through a broker to make it work.
 
In states with hefty taxes they hang out at airports, they get fueling records, they ask for tower records to be 'shared,' they look at insurance records - they have access to all sorts of data.

Land at Santa Monica - or any airport with a landing fee - and you make a record. That record - since it is a municipal record = gets recorded someplace and shared with taxing authorities.

If you execute a contract for a tie down, you will get a request shortly from the local taxing authority about the airplane. My aircraft was registered at my home in South Carolina, which has a $300 maximum fee for 3 years before I moved to Calif - thereby exempting it from sales tax here since I already owned it for a year when I moved into the state. Same with the cars.

Remember that intentionally avoiding lawful taxes is generally held to be criminal in most states . .. keep in mind if a few $$$ is worth it. You will pay your lawyer much much more than the tax, plus, when they catch up to you, you will end up paying the tax along with interest at an exorbitant rate anyway .. .
 
nickmatic said:
Haha, good advice! It's actually pretty likely I'll move out of NY for those reasons and others.
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Doesn't much matter, most states will go after you with the same zeal. I've got an ex yacht owner down here I used to work for. In the effort to avoid a couple thousand dollars in taxes he went to prison for 2 years and forfeited a lot of assets. Penny wise and pound foolish IMO to try to avoid taxes. If Al Capone would have just paid up, he wouldn't have gone to prison lol.

The best way to avoid them is never register the plane. The likelihood of getting caught is minimal, and the penalty almost nothing.
 
So the registered owner files bankruptcy and the creditors take the airplane. Then what?

What happens when the 3-year registration comes due?

Henning said:
Doesn't much matter, most states will go after you with the same zeal. I've got an ex yacht owner down here I used to work for. In the effort to avoid a couple thousand dollars in taxes he went to prison for 2 years and forfeited a lot of assets. Penny wise and pound foolish IMO to try to avoid taxes. If Al Capone would have just paid up, he wouldn't have gone to prison lol.

The best way to avoid them is never register the plane. The likelihood of getting caught is minimal, and the penalty almost nothing.
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wabower said:
So the registered owner files bankruptcy and the creditors take the airplane. Then what?

What happens when the 3-year registration comes due?
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You still don't register, even if they take the plane, if there are creditors, you don't go to prison. Like I said penny wise pound foolish.
 
If you don't register the plane, the prior owner still appears on the registry as the owner. If you paid for the plane and his creditors take it, how does that help you?

Henning said:
You still don't register, even if they take the plane, if there are creditors, you don't go to prison. Like I said penny wise pound foolish.
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wabower said:
If you don't register the plane, the prior owner still appears on the registry as the owner. If you paid for the plane and his creditors take it, how does that help you?
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What part of "Don't go to prison" is eluding you? I'm not suggesting it is an ideal or acceptable way to avoid paying the taxes, just one that doesn't land you in prison.
 
That is the silliest thing I've ever read on this subject.

Henning said:
What part of "Don't go to prison" is eluding you? I'm not suggesting it is an ideal or acceptable way to avoid paying the taxes, just one that doesn't land you in prison.
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wabower said:
That is the silliest thing I've ever read on this subject.
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So, you would prefer to protect the investment in your name, avoid paying the taxes, then forfeiting the asset and going to prison over just losing the asset? Ok, personally I'd just pay the tax and avoid prison and/or penalties.
 
What in the world are you talking about? Is this a Twilight Zone episode?

Henning said:
So, you would prefer to protect the investment in your name, avoid paying the taxes, then forfeiting the asset and going to prison over just losing the asset? Ok, personally I'd just pay the tax and avoid prison and/or penalties.
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The last thing i need is a dispute with the state of IL. I just wrote a letter with photos to justify the valuation and wrote the check. Got the sales tax receipt and deducted it from my federal income taxes. There are more important things in life to worry about than dodging the government.
 
Avoiding taxes and Evading taxes are two different things. Avoiding taxes is legal. Evading is not. You can avoid NY taxes by moving out of that state to one more to your liking before you buy. That is legal.
 
IL and CAL are known as the two most vigorous collectors. Not much you can do in IL other than write the check.

JHW said:
The last thing i need is a dispute with the state of IL. I just wrote a letter with photos to justify the valuation and wrote the check. Got the sales tax receipt and deducted it from my federal income taxes. There are more important things in life to worry about than dodging the government.
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