Forming a corporation

AirBaker

AirBaker

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For those of you that own aircraft under a corporation, where did you chose to incorporate? Any helpful tips that you've run into?

Thanks!
Chris
 
AirBaker said:
For those of you that own aircraft under a corporation, where did you chose to incorporate? Any helpful tips that you've run into?

Thanks!
Chris
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I think we've been down this thread before. Maybe it was on the other board. Anyway, the following graph is from a presentation I did on that subject a few years ago. The numbers may have changed but probably not appreciably.

Delaware has laws making is especially easy to establish a corporation there. They also do not charge sales/use tax in Delaware.

The problem is that in many states where sales or use tax is collected, they don't care where the airplane is registered - only where it is based and used. In my state forming a corporation in Delaware and purchasing an aircraft through it with the intent of avoiding state use taxes is tax fraud. A local judge did time at the state pen (and I don't mean a white collar country club) for doing just that with a motor home.
 
The best advice I can give is to spend some time with your attorney and CPA. While WA has the both the B&O and sales/use taxes, I've found that if I wanted to, I could incorporate in NV to avoid the B&O taxes, but with the aircraft that the corporation will own and the fuel services we'll be providing, we'll still have to pay WA for sales/use taxes. The savings would be negligible and we've decided that keeping everything "at home and close at hand" is just the easiest for us.
 
There is no state I am aware of where creating a foreign corporation (such as Nevada or Delaware) can legally reduce your tax burden. It certainly cannot do so (legally) in Texas. On the other hand, it exposes you to certain jurisdiction and venue in a state other than your own, where you might be sued and have to defend from a distance.

In most respects, this whole business of creating a corporation in DE rather than you r home state is utter foolishness; exception is publicly-traded corporations, where Delaware's corporation laws assist in maintaining control.

I suspect the main reason there are so many corporately-owned aircraft registered to DE is that there are so manyt publicly-traded (big) corps there, as well.
 
SCCutler said:
In most respects, this whole business of creating a corporation in DE rather than you r home state is utter foolishness; exception is publicly-traded corporations, where Delaware's corporation laws assist in maintaining control.
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THANK YOU Spike. I'm glad someone finally said this. It is long overdue and 100% Correct IMHO. I love it when a client comes in and tells me they want to incorporate in Delaware. When I ask them why they have no clue.
 
Spike- some say: in Texas no one has to render their vehicles (car truck airplane) to the local tax assessor for county or school taxes..
T, F, or depends on jurisdiction?
 
Dave:

It depends.

###

But first, glad it was not you in the Citation that crashed at Hobby today!

###

If the assets (be they cars, aircraft, whatever) are used for business, then they should be rendered for taxing. Different Appraisal Districts have different degrees of diligence in pursuing this. Some counties have folks go to the airport and take down tail numbers for cross-matching.

Points out a potential problem with registering an airplane to a corp, though- it is difficult to argue that an asset owned by a corporation (inherently business-oriented), but is not a business asset subject to taxation as Business Personal Property.
 
Thanks Spike. Yeah I read about the CJ crash, really sux. Kind of strange circumstances, from the first report.

A guy was telling me at the airport today that in Texas, we are a 'non-disclosure state'. He took that to mean we don't have to tell anyone anything about what we had (uh-huh) and no one could ever find out what we paid. (aren't mortgages recorded in the county courthouse, ours is)

SCCutler said:
If the assets (be they cars, aircraft, whatever) are used for business, then they should be rendered for taxing.
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So it is well accepted that personal vehicles are not rendered in Texas (wonder how long that will last)?
 
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We did a LLC in Texas for the Baron.

Agree completely with the Deleware tripe unless you've got a lot more than one aircraft at stake. Maybe it helps somewhere, but doesn't here as Spike has so eloquently stated.

The LLC can limit your liability for the errors of a partner. It won't do much; nor will a C Corp. if you're the pilot.

We wanted an ownership entitiy which afforded what ever protection we could get. Our plane is personal use. The LLC pays for hanger, insurance, maintanance. We have a reserve fund for major stuff. I'm pretty sure the local folks will come to us for tax even though personal use only; not looking forward to it.

I just had the A-36 in my name. When I showed the tax folks that, they just disappeared. My understanding is they are much more aggressive when a Corp or LLC.

Dave
 
California doesn't care where your coporation is based (CA or elsewhere), you'll pay CA the same amount of coporate tax either way if you're doing business in the state. You also won't dodge CA use tax or property taxes if the plane is based in the state for any significant length of time in the first 12 months of ownership. Our 182 is owned by a CA LLC, to provide liability protection between the three LLC-member/pilots.

Jeff
 
This will be for personal use as well, but we need the ownership of the aircraft to match the hangar. It becomes tricky with adding partners.

I guess the question is... Are there particularly bad states to incorporate in? Looks like California had a high annual tax for an entity like what we will become.
 
AirBaker said:
This will be for personal use as well, but we need the ownership of the aircraft to match the hangar. It becomes tricky with adding partners.

I guess the question is... Are there particularly bad states to incorporate in? Looks like California had a high annual tax for an entity like what we will become.
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The point is, you will always be subject to laws of the jurisdiction where you will operate, as well as the laws of the jurisdiction where you are incorporated. Hence, you will virtually always have more expense and complication of you are incorporated in a different state from that where the aircraft is domiciled.

Now, some folks have successfully avoided higher taxes in their home states by incorporating in another, lower-cost state.

What could be bad about that?

Well, the success of his construct depends abolutely upon the aircraft and its operation being undisclosed and undiscovered in the state where the aircraft is kept and primarily operated. Inevitably, you will (some day) be discovered, at which time you will learn what the penalties for non-reporting and non-payment of applicable taxes are (hint: penalties are punitive in order to encourage compliance).

So you might pull it off for a while, then pay through the nose for the education you get later on.

But try this sometime:

1. Call up one of those outfits that advertises in various magazines, suggesting that you incorporate in (insert state name here) to save taxes;

2. Ask them if they will indemnify you against any assessments of taxes in your home state, if same are assessed;

3. Ask them is they are providing legal advice.

You'll get a "no" on both questions (especially emphatic on the second one). They'll tell you all they do is "provide a service" (placed in quotes, because I do not consider it a "service" when it actually creates greater exposure to costs and greater complication in reporting).


===

So my answer is, it is "especially bad" to incorporate in a different state than that in which you and the aircraft are based, because it will gain you nothing and will (sooner or later) cost you more.

As always, I (lacking divine existence and nail-holes in my hands) am ready to be proven dead wrong, and (also as always) am not providing legal advice to anyone; Just hoping that no one I know ends up needing extra legal advice as a result of believing a "free lunch promise" in a magazine ad.

Fly safe. /s/ Spike
 
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While I own my own business; I didn't have a clue about the aviation issues so I took advice from others and contacted: Advocate Tax Consulting in Indianapolis (they also have a website). For a retainer fee, they organise everything and provide reports to your regular accountant and will defend you in court or audit. They are easy to work with and appear to be knowledgable.

Scott
 
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FWIW, all three corporations I've started (one business, two aviation) were registered in my home state of Minnesota, mostly for the reasons already given, but also because my normal sources of legal help are here and most familiar with the local landscape.

I suspect that in the case where the primary and mobile asset(s) of a corporation aren't really local to any given state a Delaware corporation might actually have advantages. I assume that in the case of an aircraft this would mean the airplane spends less than half it's time in any one state.
 
Well,
I'm not apposed to paying property taxes on the aircraft in a given state, but CA has a minimum annual tax of $800 for an LLC. When we're not making money, that just seems HIGH.

I was thinking of incorporating in another state, but leaving the aircraft registered in CA.
 
AirBaker said:
Well,
I'm not apposed to paying property taxes on the aircraft in a given state, but CA has a minimum annual tax of $800 for an LLC. When we're not making money, that just seems HIGH.

I was thinking of incorporating in another state, but leaving the aircraft registered in CA.
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Well, Laddie, I think that you'll find that CA would consider you to be doing business in CA if the plane is based there, and you'd be then paying the $800.00 to the FTB.

But, like I said, I ain't givin' legal advice, for here, there or anywhere else, on the forum. But I'd sure as shiite get legal advice before I made a decision.
 
Hate to say it, but Taxicafornia has some real issues with me. Just don't understand how the residents keep allowing all these taxes/fees to stay in place.

Some discusssions with friends there rolled up my sox! Annual valuation tax on the plane; use tax on an hanger if you're renting it on top of prop. tax if you own it. Crazy fuel taxes and additives: the list goes on. My dad retired after working has last eight years at a national company there. They chased and threatened him when he left the state for income tax on his pension--crazy!! No thanks for all the years you paid taxes; just pay them the rest of your life whether you live here any more or not.

End of rant. I just don't understand it!

Dave
 
Dave Siciliano said:
Hate to say it, but Taxicafornia has some real issues with me. Just don't understand how the residents keep allowing all these taxes/fees to stay in place.
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Because in the end, the total state and local tax burden in California really isn't among the highest in the country (I looked, and for 2005 we're #20). I think this is largely due to the real estate property taxes being relatively low compared to many other states.
 
Jeff Oslick said:
Because in the end, the total state and local tax burden in California really isn't among the highest in the country (I looked, and for 2005 we're #20). I think this is largely due to the real estate property taxes being relatively low compared to many other states.
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Thanks Jeff! Where did you look. I'd like to peruse that info and compare it to us here in Texas. Our property taxes are very high. Geesh, I'll have to reconsider my opinion of Taxicafornia if you've found some better info.

Dave
 
Dave Siciliano said:
Thanks Jeff! Where did you look. I'd like to peruse that info and compare it to us here in Texas. Our property taxes are very high. Geesh, I'll have to reconsider my opinion of Taxicafornia if you've found some better info.

Dave
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California's property tax system is very interesting, compared to ours. In essence, ever since "Prop 13," back late 70's early 80's-ish, your valuation for property tax purposes (on your home, this does not apply to income property) can only increase by a very small amount. Hence, my property taxes when I was Jeff Oslick's neighbor in Fullerton (a delightful community, I commend it to anyone who'll listen as a fine place to live) were dramatically higher than those of the elderly couple next door; then again, the elderly couple nest door could not possibly have afforded to remain in the fully-paid-for home they lived in, but for Prop 13.

Since you can make a reasonable evaluation of whether you can or cannot afford the taxes before you buy the house, I thought it was as reasonable a system as any, and had no complaints about it then. Of course, I cannot recall what my property taxes were, but I know they were (1) high enough to hurt, but (2) not so high that I wanted to slit my wrists. After property taxes, of course, came the income taxes, and the added hassle of filing one's annual FTB540 form. The marginal rate (when I was there) was 11%; I have no idea what it is now.

Of course, I just got my first $10,000+ property tax bill here, so I am not certain how it all settles out. Am told that all the tear-down activity in the 'hood ensures that my property value is very high. Guess that's great, if I am in a selling mood!

When I moved to California, I expected to be smothered by the outrageous taxes, and it was not all that bad. The days of the Texas legislature being able to have essentially unlimited services with minimal taxes are gone with the decline in the depletion allowance revenue to the state. I just wish that the nimrods in Austin would figure out that they can't keep spending as if the pocket has no bottom.

===

Off-topic enough for you?
 
SCCutler said:
California's property tax system is very interesting, compared to ours. In essence, ever since "Prop 13," back late 70's early 80's-ish, your valuation for property tax purposes (on your home, this does not apply to income property) can only increase by a very small amount. Hence, my property taxes when I was Jeff Oslick's neighbor in Fullerton (a delightful community, I commend it to anyone who'll listen as a fine place to live) were dramatically higher than those of the elderly couple next door; then again, the elderly couple nest door could not possibly have afforded to remain in the fully-paid-for home they lived in, but for Prop 13.

Snip...
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My house, in Orange County Ca, has a taxable value of $332,025. It was
purchased in 1990. My annual propery tax is $3664.52 that makes it 1.1%. The houses in my neighborhood are selling between $700,000 and $800,000.
I believe that the taxable value can only be raised by 3% per year.

greg
 
SCCutler said:
I just wish that the nimrods in Austin would figure out that they can't keep spending as if the pocket has no bottom.
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Can't do that, Spike -how else can they guarantee re-election except to pander to the wants of every last constituent. "Unable" is not in their vocabulary.
The system is broken... spending on programs etc:
-answers the constituent (shuts them up) and helps guarantee their vote
-makes the politicians feel good (we are 'helping' the people!)
-has little negative reinforcement
All gas, no brakes; something is gonna crash and cost someone a bunch of money.
 
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