Tax question - buying a California aircraft

Fearless Tower

Fearless Tower

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Fearless Tower
While I'm waiting for a response from an 'Aviation Tax' pro, I figured I'd ask this here:

Anyone have experience buying an aircraft based in CA and moving it out of the state?

If all goes well, I'll be buying a plane that is currently based here in SoCal. I'll be moving it with me to Virginia this summer.

I keep hearing from the broker and other stuff on the web that the only way to avoid the CA use tax is to take delivery/close the deal outside of the state of CA. However, the way I read the CA tax code, it seems like you can close on the airplane in CA and avoid the use tax as long as you are a non-resident and you immediately remove the A/C from the state:
http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1593.html

Anyone dealt with this before?
 
No, but can you please post your results. As their are some nice planes in CA I would consider.
 
One PoA'er who will know quite a bit about aircraft purchases and sales tax is Wayne Bower. It might be worth his consult fee if he helps you avoid lots of headaches and financial landmines.
 
Have the owner bring the aircraft to Nevada. If you buy in California you will be liable for California state tax. If you pick up the aircraft in Nevada make sure will document the purchase in Nevada, because California will want their tax money.

BTW Nevada has no state tax!!
 
Garthur said:
Have the owner bring the aircraft to Nevada. If you buy in California you will be liable for California state tax. If you pick up the aircraft in Nevada make sure will document the purchase in Nevada, because California will want their tax money.

BTW Nevada has no state tax!!
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That is an idea. One of the challenges of this is that I am legally an AZ resident, so if I take delivery in AZ, I will have to pay AZ tax as well as VA tax where the aircraft will be kept


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Garthur said:
Have the owner bring the aircraft to Nevada. If you buy in California you will be liable for California state tax. If you pick up the aircraft in Nevada make sure will document the purchase in Nevada, because California will want their tax money.

BTW Nevada has no state tax!!
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But they do have a sales tax, but normally not concerned on vehicle sales between private parties. Unless you do more than two or three a year, and then you are a dealer.
 
Is there extradition for nonpayment of state taxes? :devil:
 
Oregon was (and I think still is) the best west-coast state for closing such deals. It's gotta be done right, however, in that the owner must fly the plane to Oregon, the transaction must be closed there (usually through escrow) and the new owner then flys the plane away. It's better if the buyer and seller don't travel together in the subject airplane enroute to the closing. A fuel purchase and photo can be used to paper the file with proof you were actually there. I closed two G-V deals there as well as one King Air 350.
 
Palmpilot said:
Is there extradition for nonpayment of state taxes? :devil:
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No, but the state of CA is known for pursuing use tax cases to the point where they have actually been successful in getting liens placed on aircraft. And since CA is as broke as ever, they are going after everything they can.


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wabower said:
Oregon was (and I think still is) the best west-coast state for closing such deals. It's gotta be done right, however, in that the owner must fly the plane to Oregon, the transaction must be closed there (usually through escrow) and the new owner then flys the plane away. It's better if the buyer and seller don't travel together in the subject airplane enroute to the closing. A fuel purchase and photo can be used to paper the file with proof you were actually there. I closed two G-V deals there as well as one King Air 350.
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Wayne, I have seen several tax experts say this- that the deal must be closed outside of CA, but where in the CA tax code does it actually say that. I can't find it. The document I linked above seems to indicate that a non-resident can purchase the aircraft as long as it is immediately removed from the state and does not return within the specified time period.


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I frankly don't remember the details. You may (or may not) know that I do this stuff many times each year all over the country and must figure out the gitcha's and gotcha's of each state's aviation taxation law, much of which changes from time to time.

"Fly-away states" is the terminology used to describe states that allow transactions to be untaxed if the planes are immediately removed and do not return (to be based) for some period of time. Oregon has long been known as a fly-away, California has not. Further, California has a long and distinguished reputation as a ruthless and relentless pursuer of anyone they think may have violated their laws, and may pilot-owners finally said no mas and started closing deals in OR. I subscribe to a service that provides a summary of each state's aviation tax provisions and will try to look up the current situation.


Fearless Tower said:
Wayne, I have seen several tax experts say this- that the deal must be closed outside of CA, but where in the CA tax code does it actually say that. I can't find it. The document I linked above seems to indicate that a non-resident can purchase the aircraft as long as it is immediately removed from the state and does not return within the specified time period.


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"California has a long and distinguished reputation as a ruthless and relentless pursuer of anyone they think may have violated their laws, and may pilot-owners finally said no mas and started closing deals in OR."

I think the OP is right about being able to fly it out right away and be exempt as long as he doesn't return within 12 months. The problem may be in proving it. I think you are required to file a use tax return in any event and receive an exemption from the state. What are you going to do if you just fly to VA and three or four years from now CA sends you a letter assessing you with tax plus penalties? I would get advice from an expert.
 
Fearless Tower said:
That is an idea. One of the challenges of this is that I am legally an AZ resident, so if I take delivery in AZ, I will have to pay AZ tax as well as VA tax where the aircraft will be kept


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Are you buying this from a private party? There is NO tax on transactions between private parties here in AZ.

You will have to pay the annual tax which is only $25.00 for old "classic" airplanes.

Paul
Indian Hills Airpark Salome, AZ
 
I'll bet money that if you don't pay some sort of sales tax in California you'll wind up paying one in Virginia.
 
steingar said:
I'll bet money that if you don't pay some sort of sales tax in California you'll wind up paying one in Virginia.
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Oh, definitely.

VA is one of the special states. Even if I did pay the use tax in CA, I would still have to pay Virginia tax as well. No way around that. But, at least VA tax is only 2% vs around 8% in California.
 
pmanton said:
Are you buying this from a private party? There is NO tax on transactions between private parties here in AZ.

You will have to pay the annual tax which is only $25.00 for old "classic" airplanes.

Paul
Indian Hills Airpark Salome, AZ
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No, there is a California based broker involved.
 
For clarification, brokers represent one of the parties in the transaction but do not take title. Dealers buy from the owner, and then re-sell to a subsequent buyer. Who has title to the airplane you're buying?

Fearless Tower said:
No, there is a California based broker involved.
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hiflier said:
"California has a long and distinguished reputation as a ruthless and relentless pursuer of anyone they think may have violated their laws, and may pilot-owners finally said no mas and started closing deals in OR."

I think the OP is right about being able to fly it out right away and be exempt as long as he doesn't return within 12 months. The problem may be in proving it. I think you are required to file a use tax return in any event and receive an exemption from the state. What are you going to do if you just fly to VA and three or four years from now CA sends you a letter assessing you with tax plus penalties? I would get advice from an expert.
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That is certainly the way the CA tax code reads. They even have a form for the exemption. What seems confusing is that every aviation tax professional that has posted anything on the web insists that you must not close on the airplane within the state. That may be out of extra caution, not sure.

Aeromarine Tax Pros have not gotten back to me yet, so I am going to try giving another group recommended by the broker a call.
 
I have closed several transactions in which Aeromarine represented a CA-based seller, and one with a WA-based seller. Good guys to work with on the deal side, but I had no reason (or interest) to learn about their fee structure.

Fearless Tower said:
That is certainly the way the CA tax code reads. They even have a form for the exemption. What seems confusing is that every aviation tax professional that has posted anything on the web insists that you must not close on the airplane within the state. That may be out of extra caution, not sure.

Aeromarine Tax Pros have not gotten back to me yet, so I am going to try giving another group recommended by the broker a call.
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My personal experience. Live in CA with a home in AZ.
If the broker takes title, then its a dealer sale. If he acts as a go between and the transfer is from private party (regardless of where it comes from) and the sale takes place in AZ. There is no sales tax. That is hands down the best way to handle it. If you register it with the FAA at the AZ address, the FAA will notify Arizona and they will hence notify you. They will inquire as to if and where you paid sales tax. And if it was private party sale (exempt from sales tax). I have bought a number of CA vehichles (cars) and registered them in AZ thus avoiding the sales tax. Once registered in AZ you should not bring them back to CA.

Once the Sales tax issue is Satisfied, CA has an annual property tax which is arround 1%. At my California Airport, the facilities manager sends all the tail numbers to the county each year. They want their property tax.

If you take delivery in CA, my understanding is that you will be on the hook for the sales tax. At all cost, take delivery out of state. I think Nevada has a sales tax. They have no state tax but thats a whole different issue.

Keep us posted on your results.
 
Fearless Tower said:
While I'm waiting for a response from an 'Aviation Tax' pro, I figured I'd ask this here:

Anyone have experience buying an aircraft based in CA and moving it out of the state?

If all goes well, I'll be buying a plane that is currently based here in SoCal. I'll be moving it with me to Virginia this summer.

I keep hearing from the broker and other stuff on the web that the only way to avoid the CA use tax is to take delivery/close the deal outside of the state of CA. However, the way I read the CA tax code, it seems like you can close on the airplane in CA and avoid the use tax as long as you are a non-resident and you immediately remove the A/C from the state:
http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/sutr/1593.html

Anyone dealt with this before?
Click to expand...

Best of my knowledge as a non resident removing the plane from state you are not liable for those taxes.
 
So, just got off the phone with a tax pro and here is what they told me:

Yes, CA does in fact have a 'Fly-away' exemption. The reason however, that everyone strongly advises against taking delivery in this state is because the Board of 'Equalization' (if that doesn't scream socialism, I don't know what does) is a royal pain in the butt and will try to go after you to collect anyway to the point where you are likely to have to retain legal services just to prove that you were legit all along.
 
Henning said:
Best of my knowledge as a non resident removing the plane from state you are not liable for those taxes.
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The one hangup that I seem to have with this deal is that the BOE defines resident differently from the state income tax definition.

I would appear to be exempt from everything, with the exception that when I am looking to close on this airplane, my place of employment will still be in CA which would give them claim to collect the tax even if I immediately removed it.

What is interesting is that contrary to other opinions here and on the web, the tax pro is telling me that I would have to pay 6.6% sales and use tax to the state of AZ if I took delivery there and 6.8% if I took delivery in NV.
 
Fearless Tower said:
According to the tax consultant, Nevada does indeed impose a tax on aircraft sales (6.8%)
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I did my plane at friends address in Oregon when I lived in CA, to the best of my recollection there was no paper trail to show where the sale had been conducted.
 
We closed the deal on an aircraft in CA. The aircraft was used out of state more than it was in state. The test period was for 180 days. We were granted tax exempt status. Wouldn't you know that after we were granted tax exempt status the state came back to get more info to see if they had cause to reverse their previous decision. It was a pain but we beat it. In the end the owner almost paid as much in legal fees as the tax would have run.

The owners ego was the defining factor in where we took delivery of the airplane. Do yourself a favor. Go up to Oregon, sign for the plane. First flight from oregon should have you land in another state besides california. Don't even fly in California airspace on that first flight. That is considered the same as landing here. Make sure from when you own it until you move back east that the airplane is out of state more than it is in state in the first 180 days. Even if you have to fly it to AZ or NV just to park it.
 
I have heard (unsubstantiated however) that Cali may still try to consider your first flight after taking delivery inside the state, and immediately flying it to out of state, as a de-facto "use" of the airplane in the state as the basis of a claim to collect the tax despite what the text of the exemption reads... and this is why people really prefer to take delivery outside Cali. I have a friend who bought an RV-4 from someone in Cali a few years ago and took delivery out of state (Oregon, I think) for this very reason.
 
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Fearless Tower said:
Oh, definitely.

VA is one of the special states. Even if I did pay the use tax in CA, I would still have to pay Virginia tax as well. No way around that. But, at least VA tax is only 2% vs around 8% in California.
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Not true. I moved my plane from Ohio to Texas to Virginia. The only place I had to pay use tax was Ohio as it's tax was higher than TX or VA. Virginia will only tax the difference if you paid a lower tax elsewhere.

Some municipalities/coynties in VS have annual personal property tax on airplanes, though.
 
wsuffa said:
Not true. I moved my plane from Ohio to Texas to Virginia. The only place I had to pay use tax was Ohio as it's tax was higher than TX or VA. Virginia will only tax the difference if you paid a lower tax elsewhere.
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Do you have a link to the appropriate reference? What I have read so far an what the tax pros have said doesn't quite agree. Granted the tax folks I have been talking to specialize with CA tax issues and don't deal with VA much




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Neal Howard said:
I have heard (unsubstantiated however) that Cali may still try to consider your first flight after taking delivery inside the state, and immediately flying it to out of state, as a de-facto "use" of the airplane in the state as the basis of a claim to collect the tax despite what the text of the exemption reads... and this is why people really prefer to take delivery outside Cali. I have a friend who bought an RV-4 from someone in Cali a few years ago and took delivery out of state (Oregon, I think) for this very reason.
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What happens is that they have up to 8 years I believe to come after you and when they do, it is up to you to prove your innocence. But, as it stands, by law, CA is considered a "fly away" state.


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Fearless Tower said:
Do you have a link to the appropriate reference? What I have read so far an what the tax pros have said doesn't quite agree. Granted the tax folks I have been talking to specialize with CA tax issues and don't deal with VA much




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Never mind, you are apparently correct. I just found I right on the tax form.


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