California shuts tax law loophole

Aviation International News » September 2004
March 15, 2007, 7:46 AM

California has amended its aircraft sales and use tax law, essentially closing a loophole that allowed buyers of aircraft and other big-ticket items to escape paying sales taxes.

Under the previous law, aircraft purchased outside California and brought into the state within 90 days were subject to use tax. This allowed California aircraft owners to avoid the 7.5-percent tax by keeping newly purchased aircraft outside the state for the first 90 days of ownership.

The California legislature cited an article in the Sacramento Bee of “instances in which California purchasers of yachts from California yacht retailers were arranging delivery of yachts outside the territorial waters of California, leaving them in Mexico for the 90-day period and bringing them into California and escaping the California sales or use tax.”

According to the NBAA tax committee, the new law would establish a refutable presumption that an aircraft purchased outside California and brought into the state within 12 months is subject to California use tax if (a) purchased by a California resident or (b) subject to property tax in the state during the first 12 months of ownership or (c) used or stored in California during the first 12 months of ownership.

The measure does not apply to aircraft purchased or subject to a binding purchase contract on or before Oct. 1, 2004; aircraft operated more than 50 percent in interstate or foreign commerce during the first 180 days after purchase; or aircraft brought to California for repair, retrofit or modification and operated less than 25 hours while in the state.

However, because California’s State Board of Equalization still needs to release guidance or regulation to interpret the legislation, both NBAA and the Helicopter Association International are advising members to discuss the tax ramifications of new aircraft purchases with a qualified tax professional.

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