Every US state has its own combination of sales and use taxes, property taxes, and sometimes other surcharges it assesses on business aircraft based in, or even just flying to, the state. So how do you know where to arrange delivery of an aircraft to make best use of these? AvBuyer's Chris Kjelgaard asks the experts...
In addition to accounting for sales and use taxes on business aircraft, some states have generous exemptions too, so it’s fair to say that a tax consultant should always be one of the first team members hired by business aircraft buyers in the US to ensure the purchase is handled professionally, smoothly, and concludes successfully.
The most important thing is to call [the tax advisor] first, so you don’t make bad decisions, Daniel Cheung, Principal of aviation accountancy firm Aviation Tax Consultants highlights. “Make your tax planning proactively – call in a tax consultant in advance,” before the aircraft transaction gets under way.
Another reason why a tax consultant should be a core member of any US-based business aircraft acquisition team is that “the [US] tax code is not friendly in terms of complexity,” adds Cheung. “You have to deal with the IRS, the FAA, and even the Securities and Exchange Commission if you’re a public company.”
Cheung explains “proper planning obviously is the key” for any owner buying a business aircraft to minimize their tax exposure to the purchase. Assessments of sales and use taxes depend on where the aircraft is based or hangared, “particularly if the aircraft lives in two or three places”, in which case it may be subject to sales and use taxes in more than one state.
For instance, he notes, “Chicago, Illinois is extremely difficult in terms of tax, but Gary, Indiana [just over the Illinois-Indiana state border a few miles south of Chicago] is not.”
According to Cheung, “80% of the tax planning is based on IRS requirements”. These requirements should be a more immediate concern for the buyer’s purchase advisory team than compliance with FAA regulations, he says, because compliance is ongoing but the tax payment is one-time.
“So the primary discussion is focused on income tax requirements and ownership structure, because the key to the planning is ownership structure”, says Cheung.
“Who owns the aircraft is the key in terms of getting the bonus depreciation rights” which can be offset against tax liability, and “the corporate structure of the client will determine the structure of the ownership of the aircraft”.
This article was originally published by AvBuyer on May 8, 2024.
