Aircraft Exemptions | Tax Experts | Aircraft Interstate Commerce Exemption

OUR SERVICE IS DESIGNED TO GUIDE YOU THROUGH THE AIRCRAFT EXEMPTION PROCESS SUCCESSFULLY AND TO KEEP YOU APPRISED OF THE ONGOING STATUS OF YOUR FLIGHT PERCENTAGES. WE REQUIRE MONTHLY DOCUMENTATION SUBMISSIONS TO GATHER EVIDENCE OF THE PRECEDING MONTH'S STORAGE AND USE. THIS INFORMATION ALLOWS US TO MONITOR YOUR EXEMPTION ON A PERPETUAL BASIS.

By utilizing our experience and informational research abilities, we will analyze your aircraft transaction by correlating the sales and use tax laws with your personal circumstances and needs. Based on our review of the details of your acquisition, we will provide you with a detailed, yet flexible, written analysis which will guide you through the complex maze of California’s sales and
use tax laws and regulations. This analysis, when implemented properly, will result in the aircraft acquisition being exempt from California sales and use tax.

In addition, we ensure that all aspects of the sales and use tax law are met and your legal obligations are satisfied. We maintain communication with the State on your behalf so that you will never have to interact with the auditor. Moreover, we maintain a complete set of supporting documents for the entire test period to meet the State’s audit objectives and we also maintain an in-house copy for the duration of the statute of limitations.

Upon receipt of your monthly documentation, we conduct a thorough review and input all pertinent data into our monitoring system. We will advise you if there are any perceived problems with the documentation submitted or other deficiencies within the documentation. We will also notify you of your test period percentages (exemption-specific) and make recommendations accordingly.

Upon completion of the exemption test period, we will conduct a three step final review of all documentation. The final two steps are conducted by former State auditors who objectively and subjectively review the evidence for any possible issues.

After our final review, your file is prepared for submission and delivery to the State for granting your exemption.

IT IS SO IMPORTANT TO FOLLOW BOTH THE SUBSTANCE OF THE TRANSACTION (LAWS AND REGULATIONS), AS WELL AS THE FORM (SUPPORTING DOCUMENTS) OF THE TRANSACTION. IT IS MUCH EASIER TO HANDLE BOTH THE FORM AND SUBSTANCE REQUIREMENTS WHILE THE PURCHASE IS BEING MADE AND ALL DOCUMENTS ARE CURRENT AND AVAILABLE, RATHER THAN AFTER THE FACT WHEN MEMORIES ARE FADED AND DOCUMENTS BECOME LOST, MISPLACED OR ARE UNREADABLE, WHICH MAY RESULT IN THE EXEMPTION BEING DENIED.

Aircraft not purchased for use in California
(Regulation 1620):
In order to meet this exemption for all aircraft purchased prior to October 1, 2004, and for aircraft purchased between July 1, 2007 and September 30, 2008, you only need to “first functionally use” the aircraft outside California and keep the aircraft outside California for more than 90 days.

However, for all aircraft purchased between October 1, 2004 and July 1, 2007, and aircraft purchased after September 30, 2008, the 90 day requirement was extended to 12 months by the California Legislature.

Aircraft purchased for use in Commercial Interstate or Foreign Commerce (Regulation 1620):
The most common exemption we secure for our clients is provided pursuant to the provisions of Regulation 1620. The requirements are very simple, yet very complicated if you are not a tax specialist.

First, you must take title and/or possession of the aircraft out of the state of California. You must be careful not to create a tax liability in the state where you are taking title or possession.

Secondly, you must “first functionally use” the aircraft outside of California. “First functional use” is a legal requirement that is achieved by either simply flying the aircraft or by flying the aircraft with a passenger and/or cargo. Whether you need a passenger and/or cargo to meet the “first functional use” requirement will depend on how many seats are designed into your aircraft.

Lastly, to complete the exemption you must use the aircraft by conducting business in interstate commerce more than 50 percent of the flight hours on the aircraft during the six month test period immediately following the aircraft’s first entry into California.

In summary, all three of the aforementioned requirements must be met to qualify for the exemption. However, after the exemption is granted the aircraft may be used in any fashion without affecting the exemption.

Common Carrier (Regulation 1593):
Generally, this exemption is granted for an aircraft used in FAR Part 135 common carrier service. The aircraft will qualify if during the first 12 months after purchase the aircraft is used more than 50 percent of its flight hours in common carriage.

It should be noted that certain hours on the aircraft are not counted in total hours and that hours used in contract carriage do not count as common carriage.

Exempt Occasional Transfers:
There are excluded from tax certain transfers of aircraft to individuals, corporations, LLC’s, and other entities if structured properly.

Family Transactions:
Generally, aircraft sold by the parent, grandparent, grandchild, child or spouse of the purchaser, or brother or sister (if both are minors) are not subject to tax unless the seller is a retailer of aircraft.

Leasing Aircraft (Regulation 1661):
If you acquire an aircraft which you are going to lease, Regulation 1661 allows you to pay use tax on the fair rental value rather than cost. Tax on fair rental value is almost always significantly less than tax on cost. Timely election requirements are necessary to pay tax measured by fair rental value.

Sales for Resale:
Many people who try to avoid tax by purchasing an aircraft for resale often create a double tax because the transactions were not properly structured.

Call us today at

916.369.1200

Free Analysis

Whether you are considering purchasing an aircraft, have paid sales tax on a recent aircraft purchase, or are contacted by the Board to audit your transaction, you should contact us immediately.

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In Our
Client's Words

“We enthusiastically recommend the election by anyone having detrimental State Sales Tax Assessment problems to use the services of Associated Sales Tax Consultants.”

– D.H., President
I-5 Rentals, Inc.

“I would like to thank you and your staff for all of your efforts and professionalism in handling my audit. It has been a long hard 5-year battle, but because of your knowledge and perseverance we came out with a no change audit. You helped me establish the standards that are necessary to insure that any future audits will be much less complicated and should be completed in a much more timely manner. The future of my business was at stake and it feels like the weight of the world has been lifted. I will always be indebted to you and your staff and would recommend your firm to anyone.”

– F.E.
Greenhouse Cafe

“This is the 5th aircraft purchase for us which has been handled by Associated Sales Tax Consultants. In each instance, ASTC has demonstrated knowledge, diligence and professionalism in overseeing the transactions, offering sound advice, imposing essential discipline in the paper work and taking care of all the mysterious details of getting through the exemption process successfully. I wish that all the service providers that our companies engage during this year will perform as well as ASTC has. I would be happy to recommend ASTC to anyone that wants to qualify for an exemption. Although the fees seemed high at the outset, in reality, our affiliates have saved several hundreds of thousands of dollars, and the peace of mind knowing the process will be certain, is well worth the cost.”

– J.A.
Arc en Ciel Immobilier, Inc.

“I was impressed with the professionalism of Associated Sales Tax Consultants interacting with the Board resulting in an exemption of California Use Tax.”

– J.H., President
ECV Corp.

COMMON MISTAKES MADE WHEN INTERPRETING AND APPLYING SALES AND USE TAX LAWS:
• TAKING DELIVERY INSIDE CALIFORNIA
• IMPROPERLY DOCUMENTING THE AIRCRAFT AND STORAGE AND USE DURING THE TEST PERIOD
• THINKING THAT YOU DON'T OWE TAX BECAUSE THE SELLER DIDN'T CHARGE YOU TAX
• REPLYING ON VERBAL INFORMATION FROM A STATE EMPLOYEE, DEALER OR BROKER
• USE OR STORAGE OF AIRCRAFT OUTSIDE THE STATE FOR MORE THAN 50% OF THE TIME
• BELIEVING CHARITABLE, NON-PROFIT ORGANIZATIONS ARE EXEMPT
• REGISTERING YOUR AIRCRAFT OUT OF STATE
• FORMING A DELAWARE OR OTHER OUT-OF-STATE CORPORATION
• MOVING THE AIRCRAFT OUTSIDE OF CALIFORNIA FOR 12 MONTHS