Tax attorney advice: Misunderstanding Will Double Your Tax (II)

Even if you made your purchase 5-6 years ago, your transaction is not exempt if you do not possess a letter from the Board which affirms you have supported your claim for exemption. Do not be lulled to sleep by the fact that you have not been contacted by the Board. They know they have approximately 9 years after your transaction to legally notify you that you have been assessed tax.

The Board will find you through property tax assessments or during a routine audit of a California retailer who sells you fuel. They do not have to be in a hurry to notify you they are aware of your property. As long as they notify you before the statute runs out they can collect the tax. Imagine getting a notice seven years and eleven months after the tax return due date. You will not only be assessed tax but penalties and interest as well. This will easily double the amount you originally owed.

The Board is in control if you fail to file a tax return. The following example is intended to point out the danger: John Smith purchases an aircraft for $1,000,000.00 on March 12, 1995. The tax rate in his county is 8%. Therefore, the potential tax is $80,000.00. Mr. Smith registers his aircraft in the name of an out-of-state corporation called Smith Investing, Inc. The corporation was advised that if the aircraft was used in charter operations more than fifty percent of the time it would be exempt from tax. Because the aircraft is registered to an out-of-state address, Mr. Smith believes he has no obligation to file a tax return.

During the period of March 1995 through March 1996 the aircraft is in fact used in an exempt manner by being flown on bonafide charter flights more that 50% of the time. In June 1997 the aircraft is picked up by the county property tax personnel on a random unannounced visit to an airport. The Board runs the tail number through the FAA registration database and discovers the name of Smith Investing, Inc.

A further check of the public records reveals a link to John Smith of California. Mr. Smith is now on the radar screen of the Board auditors.

About the
AuthorThomas A. Alston is the president of Aero & Marine Tax Professionals (http://www.aeromarinetaxpros.com). He has successfully filed hundreds of tax returns with the California State Board of Equalization. Mr. Alston is California's premier specialist in legitimate tax avoidance on aircraft, vessels and vehicles, having published many articles on sales and use tax.