Kansas Boat Insurance Requirements
Out of state ownership can be a tax trap
As I flip through the pages of various publications and aircraft sites, I often cross advertisements or articles telling potential owners of sales and use tax benefits to owning an aircraft in a company outside the state. This is also one of the first questions they ask me when I receive a call from a potential owner, how can I set up a company outside the state to purchase an aircraft? My first question back is the kind of business will be? The person on the other side says there is no "business", it will be a company that owns the aircraft.
Not seem to matter if your passion is cars, boats or airplanes, one of the five states of the United States that no sales tax will set up your tent next to the road and start selling on the idea of preventing the sale and use tax. There is nothing in law preventing the establishment of a corporation in one of these states is perfectly legal. However, owning a corporation or LLC in a state that has no sales tax does not prevent your company from sales tax in another state.
If your accountant advises the use of a company in a state other than where he lives for the IRS, he probably knows what he's talking about. If the her lawyer advises the use of a business structure to minimize personal risk, you can be reasonably sure that he knows his area of expertise. However, if someone has reason to believe that their personal belongings in an out of state corporation or LLC legally prevent their sale or use tax liability in the state where you store and use the property, you're being led down a path of financial destruction.
Not many people believe that by register their aircraft in the name of a sale of Oregon, Montana, Alaska, New Hampshire, Delaware, or corporation or LLC, they have legally avoided and use tax. The truth is that they believe that they were not captured. Their ignorance of the law is not a valid defense when his case has to be discussed in front of authority state taxation. The fact that they were told by 50 people at your club for aviation as "Joe and Jane" did not pay sales tax does not change the truth John brutal. Everyone who has used a company out of state or the address to register your property is juggling a hand grenade with the pin pulled. In fact, the more juggling, more dangerous it becomes.
The following hypothetical story intended to explain the dangers.
In January 2000, John Doe from San Diego, Calif., was planning to buy a King Air 350 to fly the United States, Canada and Mexico for pleasure. Life had been good for John that he could pay off an aircraft $ 8,000,000.00. After locating several potential purchase of the aircraft, John began to research the ultimate cost of ownership, fuel consumption, maintenance, hangar fees, insurance, etc. In discussions with one of the sellers, John was struck with the reality of having to pay 8% sales tax, which in an aircraft $ 8000000 would amount to $ 640,000.00.
John started to pay attention to ads about buying the plane in Montana and other state tax advantageous. In March he was ready to commit to the purchase of aircraft. John contacted a lawyer for an announcement that he had kept saying that a Delaware corporation / LLC would eliminate the sales tax on the purchase and use. The attorney was careful to establish in law the Delaware Corporation and John bought the aircraft on behalf XYZ, Inc. to the address listed in Delaware Bill of Sale FAA and FAA registry. John flew via commercial airlines to Oregon to take delivery of its new King Air 350 and immediately flew to California where he was based in San Diego, CA.
For the next year John seemed literally to fly in the sales of California radar and use tax. In May 2006, John decided he wanted to re-register the aircraft to its address in California. Soon after the re-registration, a letter from Consumer Use Tax Section (cuts) the California State Board of Equalization (Board) arrived in his mailbox, requesting the purchase details. The hand grenade, but all had detonated.
John lawyer filed the tax return for the aircraft, saying the company was an out of state resident and the purchase occurred in Oregon. Moreover, counsel indicated the statute of limitations expired and, therefore, the transaction fell outside the scope of the Council.
The Council response was that no matter who owned the plane. They sent a letter which outlined sections of the California sales and use tax code, Regulation 1620, which says in pertinent part:
"Property purchased outside of California which is brought into California is regarded as having been purchased for use in this state if the first functional use of the property is in California. When the property is first functionally used outside California, the property will however, presumed to have been purchased for use in this state if it is brought to California within 90 days after purchase, unless the property is used or kept out of California, half or more of the time during the six month period immediately following its entry into this state. "
Countdown for the explosion had begun.
The accountant made a statement and documentation that claimed the plane was purchased for use outside the state. He included flight records and receipts of fuel for numerous flights between California, Texas, Florida, Washington, New York, Arizona, Oklahoma, Kansas, Canada and Mexico during the first six months of ownership.
The Board responded that even if the property was purchased outside the State, which entered California, within 90 days and not meet the 50% out of state storage and / or requirement of use. Therefore, it is assumed the aircraft was purchased for use within California. The Council issued Notice of Determination (Bill) on August 20, 2006 totaling $ 1,203,200.00, ($ 640,000.00 in taxes, $ 64,000.00 for a failure to file penalty of 10% and $ 499,200.00 in interest at 12% per year, 6.5 years). Included in the notice was a warning that interest rates an additional U.S. $ 6,400.00 each month that the tax was not paid.
John Doe brought his lawyer on the case along with his accountant to file a petition for re-determination to have his case reviewed. Six months later, a conference was held and used taxpayer resources representatives previously submitted the documents to prove that the plane was purchased for use outside the state. They argued that most of the use of the aircraft from the date of purchase had been traveling to places outside of California. The staff of the Council replied that since the aircraft entered the state the same day it was purchased, the only time that would be assessed was the period of six months from the date of first entry into California.
Representatives responded that in Regulation 1620 it states, "unless the property is used or stored outside the state of California, half or more of the time during the six months immediately after their entry into this state. "They said the flight of John to Texas, Florida, Washington, New York, Arizona, Oklahoma, Kansas, Canada and Mexico during the trial period of six months constituted more than 70% of total flight time traveled. It was his assertion that, because the regulation provides that the property should be used "or" stored more than half an hour, the aircraft was exempt.
The Board staff responded to claims that in recent years the Board had been interpreting that the property should be used "and" stored for more than half an hour. Therefore, the percentage of flight hours flown into California versus outside of California does not mean anything in this case.
The representatives responded that when you When taking into account the aircraft was on outside locations, the actual total surpassed the 50 percent requirement in the Regulation. The Board responded that the receipts of fuel only prove that the aircraft was located at the time of purchase, and less than 15 recipes were submitted. Often there were periods of time exceeding 10 days which was not supplied receipt. The representatives responded that since two monthly rental revenue of an airport hangar in Canada for the months of February and May 2000. The team responded that even if the taxpayer had provided the recipe for months, not to prove the aircraft never re-entered California during that time.
The lawyer and accountant moved for flight logs serve as documentary evidence about the whereabouts of the aircraft during the period of six months, however, the auditor had sought Board flight online multiple sources trace to find that, although the majority of flights have been documented in the records, there was a material discrepancy documenting more than 20 flights unregistered.
The representatives then stated that the period of time that expired from the date of purchase was more than six years and it was impossible to recreate a trail of documents to prove that the taxpayers had supported his claim of exemption. The staff simply reminded the representatives that it is the taxpayer's burden of proof, not to overburden the staff of proving the exemption was not supported.
In addition, the Council's auditor determined that the Delaware Corporation was created simply to register the aircraft to avoid the tax and recommended a penalty of 50% to be added intentionally to register the aircraft outside of California with the intent to evade tax. The Board reached this conclusion, to determine that there was no business transacted by the company, the firm's location was a Post Office Box and an agent of transmission was used for incoming email.
On June 7, 2007, John received a decision and recommendation of the Board. The appeal was denied due to an aircraft can not be adequately stored and used outside the State of California, over 50% of the time during the first six months immediately after the first entry to this state. In July 2007 John received a notice of redetermination, totaling $ 1,607,680.00 in taxes ($ 640,000.00), interest ($ 583,680.00), 10% missing files penalty ($ 64,000.00) and a 50% intent to evade penalty ($ 320,000.00).
On April 4, 2008 John wrote a check to the Board for more than $ 1,607,680.00, after exhausting a supply agreement with the Council and an oral hearing before the elected members of the Board of Equalization, which found the staff positions within the laws and regulations. After adding up the bill of R $ 35,000.00 in legal and accounting costs that were incurred for the establishment of out of state corporation, submitting their returns, and representation before the California State Board of Equalization, the time had finally run down to zero and detonate the grenade, the inhalation of almost all the liquid funds of John. John is trying to sell your King Air 350 to replace the equity in your home, which he took borrowed against to pay off their debts.
The sad truth is that John could have avoided the tax legally in California. He had no need of the Corporation in Delaware and he could have the aircraft registered to your address in California. Instead of hiding in a bomb shelter and waiting for an explosion, all you had to do was wrap it in himself the armor of a specialized program that is prepared by experts in sales and use tax to understand how the camera works inside.
About the Author
Associated Sales Tax Consultants, Inc. is the pioneer of aviation and marine sales and use tax exemptions. Since 1980, we have represented over 4,500 business and individuals to legally avoid the sales and use tax on these purchases. Do not become victims of circumstance; be prepared – Hire a true EXPERT!! For more information on this article or other sales and use tax issues, please contact Joseph Micallef at (866) No CA Tax (662-2829).
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