| Often people ask my opinion of the
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| | specifications.
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| various exemptions that can be used to
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| | 3. Aircraft Owner must obtain "operations
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| exempt an aircraft from California sales
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| | specifications" that prescribe the
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| and use tax. I have a canned response
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| | authorizations, limitations, and
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| that runs them briefly through the
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| | procedures under which each kind of
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| available methods. Many times they
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| | operation must be conducted.
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| question why we dont propose using the
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| | A. Type of aircraft, registration numbers
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| "Common Carrier" or "Part 135" exemption
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| | or markings and serial numbers of each
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| as it is often referred to in the
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| | aircraft authorized for use must be
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| industry.
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| | listed.
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| Aero & Marine Tax Professionals ( are
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| | 1. Copy of the operators (Aircraft Owner)
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| experts in helping people avoid paying
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| | Federal Aviation Administration (FAA)
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| sales tax on their aircraft purchases.
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| | Part 135 air carrier certificate.
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| If they insist I explain it to them, I
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| | 2. FAA registration documents identifying
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| start by asking some simple questions:
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| | when the aircraft was added to Aircraft
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| 1. Do you intend to place your aircraft
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| | Owner fleet.
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| on charter because you want to generate
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| | 3. A list of the operators certified
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| some revenue to off set your costs?
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| | pilots.
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| 2. Do you think this exemption is a
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| | 4. Evidence of insurance coverage (a
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| viable method of legally avoiding
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| | complete copy of the policy) for common
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| California sales and use tax?
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| | carrier.
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| If they answer yes to either question I
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| | 5. A complete copy of the aircraft flight
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| attempt to clarify their interest even
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| | logs during the first twelve months of
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| further.
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| | operational use. (Please note: copies of
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| 3. Are you sure that you want someone
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| | actual flight logs are required. Computer
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| else in control of your aircraft?
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| | print-outs are not acceptable.)
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| 4. Are you sure that you want strangers
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| | 6. A summary which describes each flight
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| in your "new" (to you) aircraft?
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| | during the first twelve months of
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| Once they convince me that they intend to
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| | operation.
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| use the common carrier exemption they get
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| | 7. Aircraft log books and receipts which
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| "the speech".
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| | support all non common carriage use (i.e.
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| California Sales and Use Tax Regulation
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| | personal use).
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| 1593 is the regulation that details what
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| | 8. Aircraft log books, passenger briefing
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| is required to support this type of claim
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| | cards, FAA flight plans, trip logs,
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| for an exemption. This is the longest
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| | weight and moment sheets and other
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| test period of all the possible
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| | related evidence which supports common
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| exemptions. Where Regulation 1620 uses 90
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| | carrier flights and revenue.
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| day and six month tests, 1593 requires
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| | 9. Copies of operators customer revenue
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| twelve months.
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| | billings showing the amount charged on
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| Unless the aircraft owner is also in
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| | all charter flights, Federal Excise tax
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| possession of a common carrier
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| | returns and customer contracts. Each
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| certificate which is covered under
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| | flight which is claimed to be charter
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| California Sales and Use Tax Law Section
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| | during the first twelve months of
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| 6366, he must enter into a lease with a
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| | operational use must be supported by a
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| organization that has a certificate. This
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| | corresponding invoice.
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| lease is covered under section 6366.1.
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| | 10. A complete copy of the aircraft or
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| This is where the use of this exemption
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| | engine maintenance logs showing total
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| gets very tricky.
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| | engine hours recorded since the date of
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| The California Sales and Use Tax
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| | purchase.
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| Regulation covering this area is
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| | 11. A complete copy of the sales contract
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| explained below. Regulation 1593 exempts
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| | which verifies the purchase price, date
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| from tax aircraft used in this state as a
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| | and location of the delivery of the
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| common carrier. The pertinent parts of
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| | aircraft.
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| the regulation are as follows:
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| | 12. A complete copy of the lease
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| "(a) DEFINITIONS.
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| | agreement, if the aircraft was leased, to
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| (2) COMMON CARRIER. As used herein, the
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| | the actual operator.
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| term common carrier means any person who
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| | 13. A copy of all lease payment invoices
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| engages in the business of transporting
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| | made to lessor (owner) by the lessee
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| persons or property for hire or
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| | (operator).
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| compensation and who offers his or her
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| | 14. Copy of evidence establishing the
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| services indiscriminately to the public
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| | pilot was an employee of the common
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| or to some portion of the public.
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| | carrier and listed as same in the
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| (b) APPLICATION OF TAX.
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| | provisions of the operational
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| (1) AIRCRAFT. Tax does not apply to the
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| | specifications .
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| sale of and the storage, use, or other
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| | 15. FAA airman competency/proficiency
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| consumption of aircraft sold, leased, or
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| | check Federal Aviation Regulation 135
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| sold to persons for the purpose of
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| | forms for all pilots flying this plane.
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| leasing, to: (A) a person who operates
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| | 16. Copies of flight crew logs.
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| the aircraft as a common carrier of
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| | 17. Copies of aircraft logs showing pilot
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| persons or property, provided:
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| | training time, test flights, and
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| 1. the person operates the aircraft under
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| | maintenance ferry flights.
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| authority of the laws of this state, of
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| | 18. Each certificate holder shall prepare
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| the United States, or of any foreign
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| | and keep current a manual setting forth
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| government, and
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| | the certificate holders procedures and
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| 2. the persons use of the aircraft as a
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| | policies concerning the operation of the
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| common carrier is authorized or permitted
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| | aircraft which are acceptable to the FAA
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| by the persons governmental authority to
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| | administrator. Please provide a copy of
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| operate the aircraft;"
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| | said manual.
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| (c) USE OF AIRCRAFT.
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| | 19. Provide a copy of the air worthiness
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| (1) COMMON CARRIERS. In determining
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| | certificate for the Citation.
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| whether a purchaser or lessee of an
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| | 20. The common carrier aircraft must be
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| aircraft is using that aircraft as a
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| | operated by a U.S. certified airman
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| common carrier of persons or property,
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| | employed be the certificate holder.
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| only that use of the aircraft by the
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| | Please provide copies of employment
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| carrier during the first 12 consecutive
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| | agreements or payroll records of the
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| months commencing with the first
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| | certificate holder.
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| operational use of the aircraft will be
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| | 21. Provide a load manifest for each
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| considered. This test period does not
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| | common carrier flight which must contain
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| include, and is extended by, the amount
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| | the following information:
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| of time, prior to the first use of the
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| | A. Number of passengers
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| aircraft as a common carrier, during
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| | B. Total weight of the loaded aircraft
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| which the aircraft is in the physical
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| | C. The maximum allowable take off weight
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| possession of a repair station certified
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| | for that flight
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| by the FAA or a manufacturers maintenance
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| | D. The center of gravity limits
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| facility undergoing modification, repair,
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| | E. The registration number of the
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| or replacement. The period of this
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| | aircraft
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| extension/exclusion shall not exceed 12
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| | F. The origin and destination of the
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| months. If the purchaser does not own the
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| | aircraft
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| aircraft for 12 consecutive months
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| | G. Identification of crew members and
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| commencing with the first operational
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| | their crew position assignments
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| use, as may be extended as provided
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| | H. The pilot in command and the second in
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| herein, then only the period of time
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| | command pilot
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| commencing with the first operational use
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| | The documentation must establish that the
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| that the purchaser owns the aircraft will
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| | principal use of the aircraft was as a
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| be considered.
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| | common carrier during the first twelve
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| (A) "Operational use" means the actual
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| | months of operational use. Effective
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| time during which the aircraft is
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| | January 1, 1997, Section 6366 provides a
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| operated in powered navigation in the
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| | rebuttable presumption that a person is
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| air. Operational use includes positioning
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| | not engaged in business as a common
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| or repositioning aircraft by flying the
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| | carrier unless the yearly gross receipts
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| aircraft from one point to another
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| | from such operations exceed twenty (20%)
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| ("ferry flights") except when such
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| | percent of the purchase price of the
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| flights are solely for purposes of having
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| | aircraft, or fifty thousand dollars
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| the aircraft repaired. Ferry flights
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| | ($50,000), whichever is less. Prior to
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| solely for the purpose of transporting
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| | January 1, 1997, a person was not
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| the aircraft to a repair location, or
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| | considered engaged in business as a
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| solely to return from a repair location,
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| | common carrier unless the yearly gross
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| are not operational use, nor are test
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| | receipts exceeded ten (10%) percent of
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| flights as described in subdivision
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| | the purchase price of the aircraft, or
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| (d)(2) or personnel training as described
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| | twenty-five thousand dollars ($25,000),
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| in subdivision (d)(4).
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| | whichever is less."
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| (B) If the aircraft is used as a common
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| | In response to the onerous document
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| carrier for more than one-half of the
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| | request from the Board, KAL contacts the
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| operational use during the test period
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| | office of WCG and discovers the phone
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| the carriers principal use of the
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| | number is disconnected. After a few weeks
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| aircraft will be deemed to be that of a
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| | of panicked nervousness KAL discovers
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| common carrier except as provided in
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| | that WCG went out of business and all of
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| subdivisions (c)(1)(D) and (c)(1)(E).
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| | its records are unavailable. In this
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| Each flight of the aircraft is examined
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| | case, even though KAL met the substance
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| separately for purposes of determining
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| | of the transaction by operating the
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| common carrier use. For these purposes, a
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| | aircraft more than fifty percent of the
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| flight is the powered navigation of the
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| | time as a charter, the aircraft will be
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| aircraft from one location on the ground
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| | assessed tax of approximately $160,000.00
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| or water to the first point on the ground
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| | (assuming a flat rate of eight percent.)
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| or water at which the aircraft lands.
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| | KALs failure to maintain control over the
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| (C) A flight qualifies as a common
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| | documents (the form of the transaction)
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| carrier use of the aircraft for purposes
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| | has created the situation where the King
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| of the exemption only if the flight is
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| | Air purchase is taxable.
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| authorized or permitted by the
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| | My advice to all aircraft purchasers who
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| governmental authority under which the
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| | intend to claim this type of exemption,
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| aircraft is operated and involves the
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| | is: Do your homework.
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| transportation of persons or property.
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| | 1. Work with reputable charter companies.
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| Where the aircraft does not itself
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| | Make sure the charter company has been
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| transport the person or property to a
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| | around for a long time, has good
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| location on the ground (or water), the
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| | references, and has solid financial
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| flight does not qualify as a common
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| | backing. In addition, even if you are
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| carrier flight for purposes of the
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| | secure with your choice of a charter
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| exemption.
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| | operator. Require them to provide you
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| For example, John Q. Taxpayer purchases a
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| | with the required documentation on a
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| used King Air in the state of Texas for
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| | monthly basis.
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| $2,000,000.00 and owns the aircraft in a
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| | 2. The most difficult part of your
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| Delaware corporation known as King
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| | documentation request is section 12 of
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| Aircraft Leasing (KAL). Cal contracts
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| | the list. The charter company must
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| with Western Charter Group (WCG), an
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| | provide copies of every invoice they
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| organization at Van Nuys Airport with a
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| | issued to their customers for every
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| legitimate Part 135 Carrier certificate
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| | claimed charter flight. Often, the
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| to have operational control over KALs new
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| | charter companies are reluctant to make
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| aircraft.
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| | this information public. Make the charter
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| As of this moment, the insurance for the
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| | company sign an agreement that guarantees
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| aircraft and the FAA maintenance
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| | you will receive the documents, other
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| requirements just accelerated the cost of
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| | wise your transaction will be taxed.
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| operating the aircraft. Unless KAL did an
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| | 3. Do a complete economic analysis before
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| economic analysis of this type of use, it
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| | you decide. Consider the additional costs
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| may discover that the additional
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| | of operation, and the effect of federal
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| operating costs may outweigh the tax
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| | depreciation before you decide to claim
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| savings.
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| | this type of exemption.
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| KAL operates within its understanding of
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| | If all the above requirements start to
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| Regulation 1593 and the scope of the
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| | give you a headache, or begin to convince
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| lease agreement with WCG for one year
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| | you that youd rather buy a Volkswagen bus
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| (the test period), then KAL decides to
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| | and then take a sip of cool ice tea and
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| remove the aircraft from Part 135 use and
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| | smile. Recently the Board has adopted
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| merely use the aircraft for its personal
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| | Regulation 1620 (b0(4) which will allow
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| business use. In year three KAL is
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| | you to use a test period know as
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| contacted by the Board of Equalization
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| | commercial interstate flight hours to
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| (Board) and a review of KALs exempt
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| | exempt aircraft. It does not require the
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| status is scheduled.
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| | extra expense of operating as a common
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| The Board sends a list to KAL and
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| | carrier, the test period is on flight
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| requests the following documents:
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| | hours only, and it is only six months
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| "COMMON CARRIER EXEMPTION CLAIM
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| | long. Even if you want to use a Part 135
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| DOCUMENTATION REQUIRED FOR REVIEW
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| | Carrier, you can exempt your aircraft in
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| 1. In order to qualify as a common
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| | only six months by using this new
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| carrier the air carrier certificate must
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| | regulation.
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| be in the name of the common carrier.
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| | Yes you can have the best of both worlds.
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| 2. A certificate holder under this part
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| | You can have a reputable charter company
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| may not operate an aircraft under part
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| | operate your aircraft and you dont have
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| 121 and part 135 of this chapter using a
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| | to meet the onerous requirements of the
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| name different than the business name
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| | twelve month test.
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| appearing in the certificate holders
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| | I will cover this new regulation in a
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| provisions of its operations
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| | future article.
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