Avoiding Sales/Use taxes

nickmatic

nickmatic

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Nickmatic
So I'm looking to purchase an airplane and I've been reading a lot about avoiding sales and use taxes but it's a BIG topic. I feel I understand the basics pretty well, but am not 100% confident how to do it. I've seen some aviation tax experts out there who seem to be charging a ton for their services so I thought I'd see if anyone here can shed some light.

I'd like to set up an LLC either in Delaware or Nevada to protect my privacy and provide a small level of asset protection. I realize this isn't perfect, but it does seem like people are doing it and it's useful. A Nevada LLC is less expensive to maintain, so I'd like to use it instead of Delaware.

I'd probably take possession of the plane in a state with a fly-away exemption, so no sales tax.

But then the plane would be registered to my Nevada LLC and here's where I'm unsure what happens next... would they charge sales tax, or use tax?

It seems Nevada has a casual sale exemption so perhaps that would exempt me as well since this would be a casual sale (i.e. between people not regularly involved in the sale of aircraft).

I've also read about suppressing the N-Number from public record via the BARR program to avoid use tax but I'm not 100% clear that works.

Any insight out there on how people are doing this these days?

Thanks in advance!

Edit: maybe this should be in Flight Following. Any idea how to move it?
 
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Simplest way is to make the purchase direct from the existing owner, and not from a broker or dealer.

Even if the initial contact is a professional sales agent responsible for advertising the aircraft and handling much of the sales issues on behalf of the seller/owner, you can still work with the seller to have the aircraft "sold" direct to you, and the seller pays the broker on a separate transaction.

When the sale is "individual to individual", then that's considered a casual sale and sales tax does not usually apply.
 
Fly to Oregon. Get a mailbox at one of those mailbox forwarding places. Put that address on your registration. Wait about 9 months to a year, then submit an address change for the registration to the FAA. Close out the dummy mailbox. Congratulations, you have just committed tax evasion.
 
AggieMike88 said:
Simplest way is to make the purchase direct from the existing owner, and not from a broker or dealer.

Even if the initial contact is a professional sales agent responsible for advertising the aircraft and handling much of the sales issues on behalf of the seller/owner, you can still work with the seller to have the aircraft "sold" direct to you, and the seller pays the broker on a separate transaction.

When the sale is "individual to individual", then that's considered a casual sale and sales tax does not usually apply.
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Good luck getting around that in Michigan.
 
As far as blocking an N-number on a database somewhere, that might not work.

There have been many stories about office grunts from the state and county tax offices visiting the airports and making lists of all the registration numbers they see. Then they check against their tax rolls. Occasionally they get a few hits and make attempts to collect.

Then it's up to the owner to deal with it.
 
I was wondering a bit about this too...I just purchased a plane from a broker in FL and took it home to CA. Didn't pay sales tax to the broker...when and how does CA hit me up for the use tax...or it it up to me to declare?

Expecting to pay the bill but not gonna volunteer it until I have to!
 
In New York, huh?

And you want to avoid taxes?

:skeptical:

Dude, you live in a city and state that have filed multiple lawsuits over the course of four decades against Indian reservations over cigarette taxes; and that has been rumored to use unmarked cars to scope out the parking lots at Pennsylvania smoke shops for cars with NY plates, for the same reason. If there is any one thing that New York's government does zealously, it's collect taxes.

Soo... I suggest that you consult two lawyers: one to come up with a foolproof tax-avoidance plan, and another to defend you when you get arrested anyway. Also, always carry a toothbrush and some clean underwear with you. A lot of times the jails don't have any. Bail money would be a good idea, too.

-Rich
 
RJM62 said:
In New York, huh?

And you want to avoid taxes?

:skeptical:

Dude, you live in a city and state that have filed multiple lawsuits over the course of four decades against Indian reservations over cigarette taxes; and that has been rumored to use unmarked cars to scope out the parking lots at Pennsylvania smoke shops for cars with NY plates, for the same reason. If there is any one thing that New York's government does zealously, it's collect taxes.

Soo... I suggest that you consult two lawyers: one to come up with a foolproof tax-avoidance plan, and another to defend you when you get arrested anyway. Also, always carry a toothbrush and some clean underwear with you. A lot of times the jails don't have any. Bail money would be a good idea, too.

-Rich
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Haha, good advice! It's actually pretty likely I'll move out of NY for those reasons and others.
 
Art VanDelay said:
Fly to Oregon. Get a mailbox at one of those mailbox forwarding places. Put that address on your registration. Wait about 9 months to a year, then submit an address change for the registration to the FAA. Close out the dummy mailbox. Congratulations, you have just committed tax evasion.
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I've seen Oregon mentioned somewhere before but is it unique in this respect or can I do this in any state with no sales tax?
 
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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Good idea. I did.

It's a bit less oppressive in Upstate NY, but the taxes are still pretty high. But up here, at least government runs fairly efficiently, and public employees still understand the "service" part of "public service." Things like filing DBAs and such that took me weeks to do in The City take minutes to do here.

-Rich
 
In Florida, I bought a plane directly from an individual. It was up to me to pay the sales/use tax. My first thought was "who is going to know". My second thought was "am I willing to risk a tax evasion charge". I went down to the tax office and paid my 6.5% with a check. Within the next year I had three letters from the state containing threatening language explaining that aircraft purchases required the payment of use tax and that I was to immediately contact their office to arrange the settlement of this issue (or words to that effect). Since I knew the Florida Dept of Revenue could be real *******s I kept detailed records and photocopies of the tax return and the cancelled check. Eventually they stopped harassing me. But I was sure glad I just obeyed the law in the first place.

AggieMike88 said:
Simplest way is to make the purchase direct from the existing owner, and not from a broker or dealer.

Even if the initial contact is a professional sales agent responsible for advertising the aircraft and handling much of the sales issues on behalf of the seller/owner, you can still work with the seller to have the aircraft "sold" direct to you, and the seller pays the broker on a separate transaction.

When the sale is "individual to individual", then that's considered a casual sale and sales tax does not usually apply.
Click to expand...
 
Some states do not have sales tax on aircraft parts or aircraft.and some do in Florida if you did not pay a sales tax to the state you purchased the plane and you winter in Fla they want a sales tax.Maine was also trying the sales tax trick but lost a lot of aviation business so they relaxed that requirement.You can always use Delaware and incorporate there.
 
Well, I have not bought/sold an aircraft in NY, but as a resident of the state for the last quarter century, I'm pretty sure you aren't going to successfully evade taxes that easily.

Purchasing the aircraft through an entity such as a LLC may (or may not) offer some minimal protection as far as liability and privacy, although from my understanding, there's really no good reason to think a Nevada or Delaware corporation offers any benefit over a NY one. But that most certainly won't permit you to avoid NY taxation, if you are a NY resident and the aircraft is based in NY.

Of course, you could just not report the sale, as long as it's from an individual, and take your chances. But I agree with Nouveau, your best bet is to get professional advice, and start saving up for the fine, if you're caught evading taxes.
 
Mike, that's not even close to correct. Find some better sources for information.

AggieMike88 said:
Simplest way is to make the purchase direct from the existing owner, and not from a broker or dealer.

Even if the initial contact is a professional sales agent responsible for advertising the aircraft and handling much of the sales issues on behalf of the seller/owner, you can still work with the seller to have the aircraft "sold" direct to you, and the seller pays the broker on a separate transaction.

When the sale is "individual to individual", then that's considered a casual sale and sales tax does not usually apply.
Click to expand...
 
States mine the information from many sources including the FAA registry, FBO's, hangar land-lords, others. Assume they will find you.

Shawn said:
I was wondering a bit about this too...I just purchased a plane from a broker in FL and took it home to CA. Didn't pay sales tax to the broker...when and how does CA hit me up for the use tax...or it it up to me to declare?

Expecting to pay the bill but not gonna volunteer it until I have to!
Click to expand...
 
Why would one want to evade sales tax? The government provides such awesome irreplaceable services from it!!

(LOL!)
 
No. And even if you do it in Oregon you may find it doesn't help. In most states the sales tax and the use tax are part of the same statute. Even if you don't buy it there, it's subject to tax if you base it and use it there.

nickmatic said:
I've seen Oregon mentioned somewhere before but is it unique in this respect or can I do this in any state with no sales tax?
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the NE state auditor is coming after people now like vultures for sales/use tax..my buddy bought a bonanza a few years ago in KY from a dealer...just got a bill the other day for 16k in taxes and penalties
....hide yo kids...hide yo wife and yo Mf#ckn airplane
 
OP, it shouldn't be in Hangar Talk or Flight Following; it should be in one of the forums that lets you post anonymously. [Only half-joking]
 
There is no meaningful benefit to be derived from holding the plane in an LLC (of whatever state), and by holding the plane in a foreign state LLC, you establish the certainty of corporate tax filings in two states, as well as a strong presumption by one or both states that the plane is a business-purpose aircraft.

I simply don't understand where this "hold it in an LLC" myth got its start. Nuts.
 
Texas comptroller formed a special division in 2007 to chase airplane transactions. They have been very thorough and even more successful.
taters said:
the NE state auditor is coming after people now like vultures for sales/use tax..my buddy bought a bonanza a few years ago in KY from a dealer...just got a bill the other day for 16k in taxes and penalties
....hide yo kids...hide yo wife and yo Mf#ckn airplane
Click to expand...
 
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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...and they love people who try to hide behind Delaware and Nevada corporate entities - more work for the owner to try to prove that the asset is not a business asset.
 
You need to study them law books about nuances. LLC is much easier to pernounce than Delaware Corporation and makes you sound so much smarter when you say it.

SCCutler said:
There is no meaningful benefit to be derived from holding the plane in an LLC (of whatever state), and by holding the plane in a foreign state LLC, you establish the certainty of corporate tax filings in two states, as well as a strong presumption by one or both states that the plane is a business-purpose aircraft.

I simply don't understand where this "hold it in an LLC" myth got its start. Nuts.
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OP just renounce the yankees and move to boston. We have all the fun tyranny and taxes of ny, you'll feel right at home, except aircraft and aircraft services are tax exempt.
 
Unfortunately, eventually they catch up to you. As much as I hate to say it, suck it up pay the tax. You may want to set up an LLC or corporation to purchase and own the aircraft. The LLC or corporation would then be the owner and pay the tax. While I have not fully researched this path in my state, it may (?) be a beneficial method to move ownership and only pay the tax once. Most likely, results probably vary by state. Nonetheless, keep great records of the tax payment because states are so screwed up, they may come a time in the future where they claim the tax was not paid and you will need proof. In Illinois, the tax is 6.25% on purchase price or FMV which ever is higher.
 
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ClimbnSink said:
OP just renounce the yankees and move to boston. We have all the fun tyranny and taxes of ny, you'll feel right at home, except aircraft and aircraft services are tax exempt.
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Yeah, but you talk funny.

-Rich
 
Laws vary greatly by state. TX has an occasional sales exemption statute that excludes aircraft from both sales and property tax if certain criteria are met.



TE=asgcpa;1249377]Unfortunately, eventually they catch up to you. As much as I hate to say it, suck it up pay the tax. You may want to set up an LLC or corporation to purchase and own the aircraft. The LLC or corporation would then be the owner and pay the tax. While I have not fully researched this path in my state, it may (?) be a beneficial method to move ownership and only pay the tax once. Most likely, results probably vary by state. Nonetheless, keep great records of the tax payment because states are so screwed up, they may come a time in the future where they claim the tax was not paid and you will need proof. In Illinois, the tax is 6.25% on purchase price or FMV which ever is higher.[/QUOTE]
 
Not sure about the casual sales tax issue in NV, I know it works for cars but you do not pay personal property tax on cars.

Aircraft are charged as personal property tax in NV. Whether you pay it or the LLC pays is not an issue, it will be paid. Failure to self report the property and pay the tax is evasion.
 
WI has it's own aircraft registration along with a sales tax.

I'm not sure I understand how it's reasonable to charge sales tax on a private sale between owners on a used item but they charge it.

They did send me a free airport directory for my multi-thousand dollar check though so I guess it's all fair right?
 
Simple solution: buy it, don't register it, and fly it on the down low.

edit: and pay cash.
 
No sales tax in ma. But they do have a registration fee yearly ,one way or another they are going to get your money.
 
asgcpa said:
Unfortunately, eventually they catch up to you. As much as I hate to say it, suck it up pay the tax. You may want to set up an LLC or corporation to purchase and own the aircraft. The LLC or corporation would then be the owner and pay the tax. While I have not fully researched this path in my state, it may (?) be a beneficial method to move ownership and only pay the tax once. Most likely, results probably vary by state. Nonetheless, keep great records of the tax payment because states are so screwed up, they may come a time in the future where they claim the tax was not paid and you will need proof. In Illinois, the tax is 6.25% on purchase price or FMV which ever is higher.
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I think they probably do eventually catch up to you. But I didn't mention that I'm not really based anywhere right now. Not that I'm homeless, per se, but I'm selling my condo in NY and going to hop around for a while and have some adventures. I don't see why I shouldn't register the plane in a state with no tax since I might as well be "living" there as much as living in NY.
 
nickmatic said:
I think they probably do eventually catch up to you. But I didn't mention that I'm not really based anywhere right now. Not that I'm homeless, per se, but I'm selling my condo in NY and going to hop around for a while and have some adventures. I don't see why I shouldn't register the plane in a state with no tax since I might as well be "living" there as much as living in NY.
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You are all set, pick a state with the best tax deal and become one of its productive but sometimes absent residents.
 
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!
 
Oops, looks like that was mentioned earlier...
 
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