Q : Do I have to pay sales or use tax on my aircraft, vessel or vehicle purchase?
A: Sales or use tax is administered dependent upon where the aircraft, vessel, or vehicle is stored, used or consumed, ASTC may be able to help you legally mitigate or eliminate the entire sales or use tax liability on an aircraft, vessel or vehicle purchase.
Q: Can I use an out-of-state corporation or LLC to avoid sales tax?
A: The age-old myth is to use an out-of-state entity to avoid paying sales or use tax on the purchase of an aircraft, vessel or vehicle. NO, you can not legally avoid paying sales or use tax by only using an out of state entity to purchase the aircraft, vessel or vehicle. The state where you domicile your aircraft, vessel or vehicle has the legal authority to levy sales or use tax on your purchase. In this era of revenue deficits, many states have dramatically stepped up their enforcement efforts to assess sales or use tax on all aircraft, vessel and vehicle purchases. Their tactics range from obtaining registration information directly from the FAA, Coast Guard or DMV, auditing manufacturer's or dealer's sale records, to requiring airports / FBO's / Marinas / RV Parks to submit listings of tail numbers, CF numbers and license plate information of visiting aircraft, vessels, or vehicles.
Q: I already bought an aircraft, vessel, or vehicle, can you still help or is it too late?
A: While it may be too late to structure a plan for sales and use tax, it is not too late for ASTC to review your purchase details, current ownership structure, and use patterns to determine if there is a way to mitigate or eliminate the tax.
Q: I am ready to close on an aircraft, vessel, or vehicle next week, is there enough time to get things set up?
A: Depending on the states that are involved, the closing location, how the aircraft, vessel or vehicle will be used. where you will domicile the aircraft, vessel or vehicle and how flexible the seller and buyer are — ASTC can create and implement a plan in as little as 4 hours.
Q: My CPA does my taxes, why do I need ASTC's services?
A: You will continue to work with your CPA on your accounting and income tax needs. ASTC will be responsible for structuring, implementing and executing an aircraft, vessel or vehicle sales or use tax avoidance plan that fits your needs, which is in full compliance with California sales and Use Tax Law.
Q: Do I have to pay sales tax when I sell my aircraft, vessel, or vehicle?
A: It depends. If you have made two prior sales within the previous 12 month period, yes, you will be required to collect and remit the sales tax to the Board of Equalization; unless they are sales of vehicles. If you are registered with the DMV as a vehicle dealer, then you are required to collect and remit sales tax to the Board of Equalization.
If you have not made two prior sales, then chances are you are not yet considered a retailer and would not be required to collect and remit the sales tax.
Q: I received a letter from the Board of Equalization asking me to pay sales/use tax on my aircraft, vessel or vehicle, can you help me?
A: Possibly, once the state authority "catches" you, it may be more difficult to overcome the burden of proof to support an exemption due to the amount of time which has passed since your purchase. However, ASTC's experts will review the notice and your transaction details and give you a definitive answer with no obligation to you.
Q: What is the difference between sales tax and use tax?
A: In California, transfers of tangible personal property for a consideration (sales and purchases) are subject to sales tax or use tax unless the law provides an exception (that is, an exemption or exclusion). Although the rates are generally the same, sales tax is imposed on the retailer for the privilege of selling tangible personal property in this state. The retailer may collect reimbursement from their customer if the contract of sale so provides. Although this is usually invoiced as "sales tax," it is actually sales tax reimbursement. Whether or not the retailer collects reimbursement, the retailer is liable for the tax due.
Use tax is generally imposed on the purchaser of tangible personal property that is used, consumed, or stored in this state. Sales of vehicles, vessels, and aircraft by licensed dealers are usually subject to sales tax, for which sales tax reimbursement is collected at the time of purchase. Use tax applies to the cost of vehicles, vessels, and aircraft purchased from non-dealers (for example, private parties) or are purchased/delivered outside California for use in this state. Use tax also applies to most leases of tangible personal property. Private party sales or brokered transactions are normally subject to use tax. If the first use of the property occurs in California, use tax may apply even if the purchaser is not a resident of the state. The sales and use tax are "mutually exclusive," which means that either sales tax or use tax applies to a single transaction, but not both.
Q: How does the Board receive information about my purchase?
A: The Consumer Use Tax Section, within the Board of Equalization, receives information from the Department of Motor Vehicles on vehicles, motor homes, and undocumented vessels and from the Federal Aviation Administration on aircraft. Records obtained from the United States Coast Guard identify transfers of ownership of documented vessels.
Q: Are transfer by barter, exchange, and trade-in subject to tax?
A: Yes, the total value or consideration given to acquire tangible personal property is included in the amount subject to tax. In general, consideration includes cash, assumption of any loan, cancellation of a debt, value of property traded or exchanged, value of services bartered, and any other payment, valued in dollars, given to purchase the property.
Q: What tax rate applies?
A: The tax rate is generally the same for sales tax and use tax. The use tax rate is based on where the property is used, stored, or registered. In the case of a documented vessel, it is the marina or principal mooring location. For an aircraft, it is the hangar or tie-down spot. For property registered with DMV, the tax rate is based on the address provided to the DMV by the registered owner.
Q: When is the use tax due?
A: For purchases of vehicles, undocumented vessels, and mobile homes, the use tax is due on or before the last day of the month following the month of purchase. Use tax on aircraft and documented vessels is due the last day of the twelfth month following the month of purchase or the last day of the month following the month the Board mails you a return, whichever period expires first. For example, if you purchased an aircraft on April 1, 2008, the use tax would be due April 30, 2009. However, if the Board mailed you a return dated June 15, 2008, the use tax would have been due July 31, 2008. In this case, the return's due date supersedes the 12-month rule because it occurs earlier.
Q: How do I report and pay use tax on a documented vessel or an aircraft?
A: A documented vessel is a vessel for which the U.S. Coast Guard has issued a valid marine certificate. To report use tax on a documented vessel, complete the use tax return found in the Board's publication 79. Use tax for an aircraft can be reported using the tax return in the Board's publication 79-A.
Instead of completing these returns, you may also report and pay the use tax by sending us a letter with all applicable information:
• Name and address of both purchaser and seller,
• Identification number of the property purchased, if applicable (that is, tail number,
• Documentation number, hull number or serial number, and so forth),
• Make, model, year of property, Date of purchase,
• Total purchase price,
• Location where property will be used, stored, or registered, and a daytime phone number.
Include a copy of the signed bill of sale, invoice, or closing statement which verifies your purchase price. Mail the use tax return or letter with payment for the tax due to the Consumer Use Tax Section of the Board of Equalization.
Q: How do I report and pay use tax on a vehicle or undocumented vessel?
A: When you register a vehicle or undocumented vessel with the Department of Motor Vehicles (DMV), you report and pay the use tax to DMV who is acting as the Boards statutory agent in collecting the tax. (An undocumented vessel is a vessel that is not required to have a marine certificate issued by the U.S. Coast Guard.) The registration constitutes filing a return with the Board. You do not need to file a separate use tax return with the Board for purchases of vehicles or undocumented vessels if you complete registration with the DMV. However, if you had purchased a vehicle or undocumented vessel and later sold it without completing registration with DMV, then use tax is due directly to the Board.
Q: Are there penalties and interest due if my payment is late?
A: Generally yes. Penalties and interest are calculated on the unpaid tax portion.
Q: Is there a provision for reduction or elimination of penalties and interest?
A: Yes, under certain circumstances. Please see the Board's publication 75.
Q: Can I dispute or appeal a Board determination of tax due?
A: Any person against whom a determination (billing) is made or any person directly interested may petition for re-determination of a billed liability. You have 30 days from the date of the Notice of Determination (bill) to submit a Petition for Re-determination. It must be in writing and specify the grounds on which you base your claim. If you have additional documentation to verify your exemption from tax, you may submit it along with your petition. (Revenue and Taxation Code section 6561).
The Board's Petitions Section will acknowledge receipt of your request and inform you of the additional documentation required to qualify for exemption/exclusion. If your petition is approved or adjusted, you will receive a statement showing the revised or canceled billing. If your petition is denied, you will be notified that the tax remains due.
If a Petition for Re-determination is not filed within the 30-day petition period, the determination becomes "final" and is forwarded to the Board's Centralized Collection Section for action. To avoid interest charges, you may choose to pay the tax portion of your liability while in the petition process.
Q: How do I request a refund?
A: If the Board finds that tax, penalty, and/or interest has been paid more than once or was unnecessarily collected, the person who paid the tax is entitled to a credit or refund. If the overpayment is caused by an error on a return, a refund claim must be filed within three years from the date the return was due. In the case of a determination, the refund claim must be filed within six months from the date the determination became final or within six months from the date of overpayment, whichever period expires later.
If an overpayment of tax was made to a dealer or broker on a retail sale subject to sales tax, you must request the refund directly from the retailer. The retailer, being the person who is liable for the tax, would apply for a credit or refund on their quarterly sales tax return and submit verification of its refund to you, the purchaser.
If you paid the tax to the Board or the DMV, you would make a request for a refund in writing to the Board. Your request should detail the facts explaining why you feel the tax was overpaid or collected in error and include copies of receipts, returns, canceled checks, and any other documentation that verifies your claim.
Q: What if I paid tax to a broker? Who is responsible?
A: Normally, when a broker acts as an agent without authority to bind the parties or transfer title, the broker is not considered a retailer and is not obligated to collect sales or use tax. However, effective January 1, 1996, the Sales and Use Tax Law was amended to provide that a purchaser who can provide receipts verifying that the sales or use tax was paid to a broker is relieved of the liability up to the amount of tax paid. The broker becomes liable for the tax, up to the amount collected, as a retailer. Any additional tax determined to be due is the obligation of the purchaser. Tax on transactions which occurred prior to January 1, 1996, remain the obligation of the purchaser, even if the broker collected use tax on the transaction.
Q : Do you have a California sales tax exemption update for aircraft, vessels and vehicles?
A: UPDATE: TAX LAW CHANGE AS OF SEPTEMBER 23, 2008 ~ with the signing of California's budget the Sales and Use tax laws have changed. The 90 Day exemption has been eliminated permanently. The new exemption period is 12 months. This law change has no effect on tax exemptions for aircraft, vessels or vehicles purchased for use in Commercial Interstate or Foreign Commerce, Common Carriage etc. For further information on the law change and how it may effect your transaction, contact a tax expert at (866) No CA Tax (662-2829).