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State Sales Tax Audit Risk
Unlike IRS income tax audits, state sales and use tax audits occur on a regular basis. In some states, it is a certainty that an aircraft owner will receive a sales or use tax inquiry from the state Department of Revenue after the purchase of an aircraft. Therefore, if you are claiming a sales tax exemption on the purchase of an aircraft, you should be prepared to present documentation and flight logs to support the exemption claimed.
With the advancement of flight tracking websites and the requirement of state aircraft registration, it is unlikely that you can avoid scrutiny of your aircraft from state taxing authorities by using a Delaware or Montana LLC. This state tax avoidance strategy is playing a game of hide and seek. If caught, you will owe the sales/use tax on the purchase plus penalty and interest.
State sales and use tax planning varies greatly from state to state. Some of the more common exemptions that may be available are:
= Interstate commerce exemption.
= Occasional or private party purchase exemption. = Rental and leasing exemption.
= Commercial use exemption.
Due to the mobile nature of an aircraft, it is important to determine if your aircraft may be subject to the jurisdiction of multiple states and locales, such as the state of a second home or office location.
As the year-end nears, and considering heightened IRS audit interest in private aircraft, this may be the perfect time to conduct a thorough review and inspection of your aircraft recordkeeping practice, review flight logs and gather documentation to support business flights. KA
Daniel Cheung is a principal of Aviation Tax Consultants, LLC (aviationtaxconsultants.com). ATC’s consulting services include the elimination or reduction of sales and use tax at the time of purchase, maximizing income tax savings, controlling the cost of personal use
of the aircraft, complying with passive activity loss and related party leasing rules and Federal Aviation Regulations. Cooperation with
the client’s current tax and legal advisers is welcome and encouraged.
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NOVEMBER 2024
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