Smart Parts sales tax not unusual
Operators of Bombardier jets are dismayed because they now have to pay state sales taxes on parts purchased through Bombardier’s Smart Parts program. Several operators who spoke to AIN on condition of anonymity said one of the primary reasons they participate in Smart Parts is to control and budget annual operating costs. “This adds a new dimension to overhead we didn’t budget for 2010,” one said.
“This issue applies to sales tax charged on parts shipped to certain states in which Bombardier is required to collect and remit sales tax,” explained a Bombardier spokesperson. “Bombardier adheres to all tax laws in states and countries where it operates. Bombardier maintains that Smart Parts is an effective cost-per-hour budgeting solution for its customers.”
The requirement to pay state sales or use taxes on items purchased outside of the state is confusing to consumers. And it doesn’t matter whether the item is ordered online, over the phone or via the mail system. According to Nel Stubbs, vice president of Conklin & de Decker and a long-time student of tax issues, “If an aircraft is based in a state that has a sales/use tax and the part is brought into that state and installed on an aircraft, that state’s tax rules apply. There can be exemptions, such as a [Part] 135 exemption.”
Vicky Boladian, an associate tax attorney at Aerlex Law Group in Santa Monica, Calif., added more details to explain the tax issues with Smart Parts and out-of-state purchases.
“States are aggressively pursuing broadening their scope on taxation,” she explained, “and, as of now, eight states have informed Bombardier that sales and use tax should be assessed on shipments of Smart Parts.”
In California, she added, whenever taxpayers–whether individuals or businesses– buy something from an out-of-state vendor, they must pay sales tax on those purchases. If the seller doesn’t collect the sales tax, the taxpayer is still obligated to pay a use tax “when the taxpayer uses, stores or consumes the product in the State of California. Specifically for California, the parts are considered to be tangible personal property, which is subject to California’s sales and use tax regulations. As a result, Bombardier decided to collect sales tax and act as an agent for remittance purposes so that its California purchasers would not be assessed a surprise use tax on the parts.”
Boladian warned that Smart Parts buyers must ensure that they are paying the correct sales tax rate for their location. In California, each county assesses its own rate, for example. “Out-of-state vendors often apply tax at the statewide rate; however, you are liable for use tax at the full rate in effect at the California location where you first use the merchandise.”
According to Boladian, the issue for Bombardier has to do with its representation in California. “Out-of-state vendors are generally not required to pay California sales or use tax if they are physically present in California only for trade shows and their only connection with California is to ship products to customers in California by U.S. mail or other common carrier.
“A representative from Bombardier stated that Learjet, which is the distributor of Smart Parts, was informed that the collection of sales tax was mandatory under recent interpretation of the California sales and use tax regulations. Although Learjet is based in Kansas, it was considered to have nexus to California. If you look at the Bombardier Web site under U.S. contacts, you can see that Bombardier authorized service and line maintenance facilities [are located] in California.
Therefore, it is likely that the State Board of Equalization determined that Bombardier had representatives in California and, therefore, forced Bombardier to register with the State of California for purposes of collecting sales/use tax from California purchasers.”