Even before the pandemic crippled most state governments in the United States, California was aggressive at collecting (and spending) taxpayer’s money. At no time has that been more evident than when someone residing in California buys an aircraft and hangar’s it in the State.
But those that are ‘in the know’ have been reluctant to share the closely held secret of how they LEGALLY avoided paying sales tax when they bought their aircraft in California. We’ve heard the questionable stories and shaky strategies from what seems like every other pilot we’ve met over the years, on how their pilot buddy registered their aircraft in Montana or blocked their N-Number with the FAA and avoided paying sales tax. However, we rarely hear it directly from the person that avoided paying the sales tax. The story always seems to be told second or third hand, leading us to conclude that most of those stories are just that, stories. For those that have been able to ‘hide’ their aircraft from the California Department of Tax & Fee Administration (CDTFA) and avoid paying sales tax, it has been nothing more than dumb luck for them to avoid the tax man. For those that have tried and failed, they have had to not only pay the sales tax that was due, but they’ve had to endure excessive fines and penalties for their efforts.
So how do we go about LEGALLY avoiding sales tax on aircraft purchases in California? We use the California Interstate and Foreign Commerce Exemption in most cases. This exemption has been around for more than a decade and we’ve helped hundreds of aircraft purchasers utilize the exemption to save hundreds of thousands of dollars in sales tax. On the surface, the exemption is not difficult to obtain, but when you start looking at all the details and what it takes to obtain approval for the exemption from the CDTFA, it’s a lot more difficult than it looks. That’s why it makes sense to hire professionals like those here at Ascendant Aviation Tax & Accounting to assist you with your purchase and exemption.
Below is a short synopsis of how the exemption works:
Why does California allow this exemption?: The purpose of the exemption is to exempt sales & use tax for purchasers of aircraft who intend to base their aircraft in California and use it predominantly outside of California for business.
Summary of the Rules:
First, you have to close on the purchase of your aircraft OUTSIDE the State of California. If you close in California, the exemption is disallowed.
Second, you have to conduct a business flight before the aircraft enters California after closing.
Third, you enter California to start the six-month ‘clock’ on the ‘test period’.
Finally, if after the six-month test period, you have conducted more than 50% of your flight time outside of the State of California, for business purposes, then you can apply for the exemption and you will be deemed to have complied with the rules to be exempt from sales or use tax on your aircraft purchase in California.
Why is is so hard to make the exemption work?: There are many reasons that someone loses out on the opportunity to take advantage of the exemption.
– They don’t have business use of the aircraft.
– They close in California instead of outside the State, as required.
– Their business use outside of the State falls under the 50% mark.
– They don’t conduct a business flight outside of the State before first entering California.
– The most common and BIGGEST ERROR in trying to implement this exemption that we have seen over the years, is that the aircraft owner doesn’t have proper documentation. It’s not that the owner doesn’t keep good paper work, it’s that they are not aware of the kind of documentation that the State asks for with these exemptions and by the time they have submitted their application and received a request for additional information from the State, it is too late to get everything they need.
That is where Ascendant Aviation Tax & Accounting comes in. We make sure that a proper strategy is put in place before you even take delivery of your aircraft. We will even create the Limited Liability Company that will own your aircraft. We make sure you have the proper paperwork, we work with you on the logistics of taking delivery properly and getting the aircraft to California. We provide you guidance and documentation that you will need to prove your case with the CDTFA and finally, we complete the application and represent you before the CDTFA. And when you work with Ascendant Aviation Tax & Accounting, you won’t be working with interns or clerks, you will work with the professionals that know the rules and do this type of tax work every day. We will be here to answer your questions through the entire process and we will celebrate with you when you receive that letter of determination stating that your exemption has been accepted by the CDTFA.
But what if I don’t have business use of the aircraft or out-of-state business use of the aircraft?: We have dozens of partners throughout the United States that can help you get the business use you need to qualify for the exemption. Most of our competitors will tell you how to qualify for the exemption. Some of them will even help you with the paperwork to get the exemption. But, NONE of our competitors will ‘find’ you the business use you need to take advantage of the exemption.
It doesn’t matter if you have a single engine piston or a Boeing Business Jet, click on the “Schedule Call” button at the top of this page to schedule a Free Consultation call on how we can make this strategy work for you.
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