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Aviation Taxes: Welcome to the Aviation Tax Blog

author photo of Guy Nevers

Welcome to the new Aviation Tax Blog! In these posts, I look forward to discussing the tax issues you can expect when owning a private aircraft. I may select topics that are particularly timely or challenging – or simply an item that I find particularly fascinating (I think a lot in aviation tax is fascinating!). However in some cases – I’ll also write on topics suggested by readers – so please let me know if there are particular aviation tax issues that you’d like addressed.

With an upfront cost of anywhere from a few hundred thousand dollars to tens of millions of dollars, a private aircraft is a very expensive asset to own. There are other ways to enjoy the benefits of private aviation...be it charter, jet card or fractional ownership. However each carries with it subtle variations on the tax costs of those benefits.

An aircraft is tangible personal property. That means there is the opportunity for every state with sales or use tax to tax that aircraft. Items such as the purchase of the aircraft, use of the aircraft, fuel, or by far the largest cost of owning the aircraft - maintenance - are all items subject to sales or use type tax. An unscheduled maintenance stop can bring with it a nasty tax surprise in addition to the repair bill.

Not only does an aircraft provide states the opportunity to subject the aircraft to sales and use tax, but also subjects your Company to an income or franchise tax. An aircraft is a nexus creator. (Simply put, nexus means connection) By virtue of it being tangible personal property, once it lands in a state, your Company has a physical presence in the state and thus nexus. Unless you qualify for the Federal protection from the state income tax, you may have a filing obligation in that state as a result of your aircraft physically present in the state.

As tangible personal property, States with a personal property tax may tax the value of the aircraft. Most typically this would be an apportioned amount based on the valuation of the aircraft as found in published aircraft valuation manuals. Each State where you land the aircraft provides an opportunity to subject your aircraft to their property tax.

Lest we forget the Federal Government via our good friend the IRS subjects aircraft to the Federal Excise Tax on Transportation. This tax is computed based on the amount you pay for the trip and an additional amount if your trip involves any layover stops along the way.

As you can see, the upfront cost of the aircraft is but a small part of the total cost to own an aircraft. In future blog entries, I'll focus on aviation sales or use tax issues - but will also reference some of the other tax issues mentioned above.

Have a comment or question? Is there a topic you'd like to see discussed? Submit your question or comment below and we'll be sure to get in touch!

Guy J. Nevers CPA MT is the founding member of Nevers Consulting Group, LLC; a firm that offers a full spectrum of sales and use tax services as well as other federal and state tax services. You can learn more about him on his bio page as well as his Firm Profile.

Other recent “Aviation Tax” posts by Guy Nevers, CPA, MT:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

3 Responses to Aviation Taxes: Welcome to the Aviation Tax Blog

  • Posted by Alexey on March 7, 2017 4:58am:

    Dear All, we are non resident company (Marshal Islands) going to have closing in South Caroline

    The seller is a non resident company (Marshal Islands)
    The buyer is US company
    The aircraft is G550 with Austrian (OE) registration

    It is not supposed that the seller will pay any taxes in the USA. Are we right?
    Thank you for your reply in advance

  • Posted by Hollister on July 19, 2016 11:10am:

    Have a 1965 Pawnee that was purchased in Nevada by a friend and customer for $49000 and then given to us. We made the inspections and flew the plane to California in 2014. Now the state of CA has assess a tax based on blue book info for $65000. I issued proof of the deposit made by the friend to the seller of $49000, but the state will not accept that as proof of payment and the seller will not cooperate with the state of CA in proving any letters of the amount of purchase. I have paid CA for the taxes based on the $49000, but they will not accept anything less than tax based on $65000 and are threatening collection actions. What are my options if any?

    • Posted by Author photo of Guy Neversguyneverscpa on July 19, 2016 5:31pm:

      Good evening Hollister thanks for dropping by!

      Looking at your website, it looks like you use the aircraft for towing gliders for a fee. Are you operating under a part 135 certificate or other type certificate.

      Looking at the California law, the assessor must use market value in determining the value subject to assessment. Typically the value used is the aircraft bluebook winter edition; a shame because the other major valuation guide the Valuation Reference Guide or VRef does provide adjustment computations that would allow you to adjust for usage over and above the annual hours guide.

      California assessors are very stubborn and without any substantial documentation of the actual purchase price (invoice purchase agreement and proof of payment) you will have a very hard time getting the assessment reduced. Also a shame the seller is not cooperating; but not unexpected. I have found in my practice that getting these important documents after the fact can be painful. It's always best to get these documents at the time of the purchase so there can be no misunderstandings later on.

      Let me know if this helps and if you have any other questions.

      Kindest

      Guy

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