Sales Tax Exemptions | Aircraft Tax Exemptions

AIRCRAFT, VESSEL & VEHICLE TAX EXEMPTIONS
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Common Sales and Use Tax Exemptions

Introduction:

Each aircraft, vessel, and vehicle that is purchased by a California resident or entity, or is registered in, or stored, used, or consumed inside of California within the first 12 months will be considered, by the California State Board of Equalization (BOE), to be subject to sales tax or use tax, unless the resident or entity claims, and documents one of the allowable tax exemptions prescribed by law.

The most common exemptions are briefly described below:

Interstate or Foreign Commerce

A six month exemption which requires more than 50% of the time to be used in interstate or foreign commerce during the six month period immediately following the first entry into California. An “out-of-state delivery” and “first functional use” prior to the first entry into California is required. Most aircraft could qualify for this exemption.

Not Purchased for Use in California

For purchases between October 2, 2004 and June 30, 2007, and after October 1, 2008:

A twelve month exemption that begins upon taking possession and/or title outside of California. Entry into California is prohibited unless repair, modification or retrofit work is the sole purpose for the entry. Upon completion of the work, immediate removal from California is recommended. Use outside of California is required during the "test period."

For purchases prior to October 2, 2004, and between July 1, 2007 and September 30, 2008:

A 90 day exemption that begins upon taking possession and/or title outside of California. Entry into California is prohibited. The 90 days is exclusive of any "storage for shipment" or "time of shipment to California." Use outside of California is required during the "test period."

Common Carrier

A twelve month exemption period which begins the date of “first operational use.” During the twelve months, more than 50% of the time must be used in common carrier operations. Federal and State laws conflict on defining a common carrier. Currently, the states sales and use tax laws supersede the Federal definition because the states were given the authority to set their own tax policy. If structured properly, most common carriers could qualify for the six month Interstate or Foreign Commerce exemption.

Transfer to Commencing Corp., LLC, etc.

A transactional exclusion from tax if structured properly. The receiving entity can not receive any “consideration,” including the assumption of debt.

Family Transactions

Items sold by the parent, grandparent, grandchild, child, or spouse of the purchaser, registered domestic partner, of the purchaser, or brother or sister (if both minors), and the seller is not engaged in the business of selling the type of property.

Gift

If the property is transferred and no consideration was given to obtain the property, no taxable event has occurred. Consideration may take many forms other than cash or loan. Consideration could also include a trade, assumption of debt, or cancellation of debt.