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Texas Hires 20 TAX Grab

Jaypratt

Well Known Member
Mentor
Texas Hires 20 TAX GRAB

Builders In Texas, Beware!!

Texas has hired 20 people to take Sales Tax on our planes.
Is there a Texas Tax Lawyer out there? We need help.

The State is asking for sales Tax on airplanes regestered after 2003.
Like you, I bought a Kit in a no sales tax state, put it together with sweat equity, made it fly. Never did buy an 'airplane'. Now the state thinks we should pay Tax on the finished thing?

Ideas???
 
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EX POST FACTO??

At least that is what I remember it being called.

Unless there was an existing law on the books from 2003, it would seem that they might have a hard time collecting these taxes.

Of course, this is government we are talking about here, and how often do they obey their own laws??

Mike
 
These tax laws have always been here. They just haven't been strongly enforced. In Texas, it's called a sales/use tax. The "use" part of it covers things bought outside Texas.
 
Kaleefornia has a State Use Tax box on the state income tax form. Here's their definition:

Do I owe use tax?

You generally owe California use tax when you use, consume, give away or store tangible personal property (i.e., products you can see, weigh, feel or touch, such as clothing, books, computers, DVDs or CDs) in California that you purchased from an out-of-state vendor. If the out-of-state vendor does not collect the California tax on your purchase, you must pay the tax


The California form has no place to indicate the specific items you are paying the tax on. I called the state tax dept. and was told that the tax payer is responsible for calculating the amount, paying the tax, and keeping the records of the items for which the use tax is paid.
 
Yep, most of us face this issue in our home states. Where they catch you in Indiana is technically, the tax is due in the year you purchased the kit. However, it's hard to find on the tax form and the instructions tell you specifically to not include airplanes in the use tax. Hwever when you license your new creation, they collect the tax and hit you with penalties for not paying it in the year it was due.

This last time, I had to make copies of my income taxes to prove I had already payed when I bought it. THey eventually accepted it.

Pony up, there's no escaping the tax man!
 
State Acft Sales Tax

I purchased my RV in September of 2003.

I had to contact the seller (widow of the builder). She agreed to sign the "Occasional Sales" exemption form so I won't have to pay the sales tax on a personal use aircraft. :p

If she had been a business owner and had a Texas (or any other state) sales tax permit, I would have been screwed! :eek:

It's a crazy law and someone decided that Texas is losing a lot of revenue here so let's go after those guys having all that fun!

According to the folks in Austin, if a broker (I know a few locally) sells aircraft for people and signs the Sales Agreement, instead of the individual owner signing it, the broker is required by law to collect the state sales tax for their area.

It's a "gotcha" from many different directions. :mad:
 
bsacks05 said:
Ideas???

Move to Florida

Same kind of tax in FL. I was advised to submit mine after I buy the Finish Kit. Seems 'they' know about the prices of Van's kits and are 'happy' as long as you claim (and pay) on those amounts.
 
I think we may be in trouble

I searched the Texas State Comptroller web site and found this info. It appears that if you BOUGHT your aircraft from another individual who is NOT in the business of selling airplanes, you are exempt as an "Occasional Sale". You need to get the seller to sign some form.

For our RV's we built ourselves though, it looks like we owe USE tax on the KITS we bought out of state from Van's. The state sales and use tax is the same 6.25%. I searched their web site and found the court case below regarding this. It is an old court case, but will probably set precedent. I'm not feeling well right now..... If someone knows any different, speak up now!

Court Case
 
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I wonder if these same folks are going into the property tax business, collection thereof, as well...

Who's paying property tax on hangars they rent from a municipality?

- Mike
 
Think of it this way

In oregon we pay 9% income tax on every dollar we earn whether we spend it or not.

Ya, makes me feel real good when folks come over the border and pay for expensive items with cash...Basically I subsidise it.

Sales tax...Your getting off easy.....!

Frank
 
Check State laws if you moved...

If you changed states during construction... check your state laws for exemptions...

AZ says this as a Use Tax exemption....

6. Tangible personal property brought into this state by an individual who was a nonresident at the time the property was purchased for storage, use or consumption by the individual if the first actual use or consumption of the property was outside this state, unless the property is used in conducting a business in this state.

Sounds like if you bought "bits" in another state, and worked on them, and then moved to AZ, you should be exempt from the Use Tax....

Consult your tax professional, but this could save a lot.... :)

gil in Tucson
 
Texas Budget

:mad: The State of Texas is BROKE... in dollar figures. This happened before in the late '80's early '90's. They need BIG money quick. The auto fuel prices are shutting down BIG SUV sales tax dollars, the news of auto fuel going to $4.00 is actually real. These task forces are put in place to fill the HUGE gap Texans are about to see in the budget very soon. Perry and his side-kicks are looking for money anyway they can get it.

We will probably have to pay! :mad:
 
Many states have this tax in one form or another. Georgia does and so does South Carolina but I think South Carolina's maximum tax is around $300. That's is why my plane will live in South Carolina. In Georgia it is up to the different counties to collect it, which kind of makes it hard to track where a plane is and what county the owner lives in. I know one person whose county tried to tax him on his plane and there isn't an airport in that county.
 
Texas Budget

When MY income drops, I've had to curtail my spending.

States should be no different.

Feds, either, for that matter.

- Mike
 
Move to Florida

Actually, moving to Florida would probably work.

DrHolling is correct, Florida has a sales and use tax. An exception to the tax laws of Florida permits you to bring into the state an item that you have owned outside the state for 6 months or more.

If you live in Florida and order a kit that is delivered to Florida, you have to pony up to the tax man.

You might want to check to see if Texas has a similiar exemption, if it applies to you. If not, there was a recent classified here for a lot at Loves landing airpark in Florida :)
 
Texas Broke???

Last I checked Texas had a 10 billion dollar surplus from all the property taxes they have been collecting...

-John
Houston
RV-7A Wings
 
Tax Man Cometh

I was one of the lucky ones who got a "tax due" notice last Thursday. After talking to the "nice folks" in Austin, here is what I think I know.
First I explained that I did not buy the airplane, I built it over a fairly long period of time, using parts from a number of sources. The hook is, that if you buy anything out of state and did not pay sales tax (Aircraft Spruce etc) , you are supposed to pay a self declaired state tax. They just usually don't pursue you on this for low value items...but an airplane grabs their attention. However, there is a 4 year statute of limitations on this, so if items were purchased more than 4 years ago, we get a free pass (which for me includes the kit, engine and prop) However even after explaining this to the tax agent, he stated that they still want to review all my records for all expenses paid from 4 years ago on. Potentially this could include items purchased even after the plane was flying. I was told to get my records together for all out of state purchases , send a declaration letter to Austin and an auditor would be assigned to my case to review accuracy and assign the tax rate (apparently the final tax rate is a function of not only the base 6.25%, but also a local adder). They did say that during this sweep, they would be waiving the penalties and interest if I paid by the end of May. So lets see....what accessories did I buy over the past few years....
 
Feel your pain, a $1,200-$2,400 letter

Jaypratt said:
Builders In Texas, Beware!!

Texas has hired 20 people to take Sales Tax on our planes.
Is there a Texas Tax Lawyer out there? We need help.

The State is asking for sales Tax on airplanes registered after 2003.
Like you, I bought a Kit in a no sales tax state, put it together with sweat equity, made it fly. Never did buy an 'airplane'. Now the state thinks we should pay Tax on the finished thing?

Ideas???
Join the Club, most states are like this. I feel your pain, but this is the way many states work. Kind of sucks. There was a golden age where experimental planes where kind of overlooked, but those days are long gone. Especially when you see price they sell for. Feel sorry for the Bonanza or Cirrus owner who paid 1/3rd to 1/2 million for their bird.

What Andy Duff said: It sounds encouraging. As Andy said and I suggest, get ALL your receipts together. You might have to go in for an interview or might be able to do over phone and fax. Now do you show them ALL your receipts? Probably the big things, kit, engine, prop and may be a few panel items.

You want to go in as cooperative and honest. They will give you the benefit of the doubt you hope. This is an individual acting as judge, jury and executioner, so don't anger them or make them think you are trying to pull a fast one. The sooner you get it over with, the better it will be. It sounds like you will not get away with out paying anything. (Sorry just being honest.)

At some point you and the Tax man will have to agree on a valuation. If they say, "Its lower than other RV's", than say cost's vary by builder's ability to bargain hunt, buying used items and how you equipment your plane. I would not assume anything about their knowledge. They may indeed be learning about kit planes. However there is no doubt they got some training.

Obviously you want to get the valuation down as much as possible. Do they need to know about your triple EFIS, autopilot and color radar? You need to educate them, you built it from scratch and this is the VALUE you have in it, basic. I don't think its fair they tax you on sweat equity, but they can and do in other states. From what Andy said they don't sound like they are going for the "GOLD". They just want a piece of the sales tax on purchased items. That sounds fair.

Chance is you paid little or no sales tax along the way, but include everything thing you bought and paid sales tax on (even out of state). That should come off the final tax bill. Usually sales tax paid in or outside the state can not be double charged.

A friend went through this in another state and they where happy with just Van's kit receipt. They did not include the engine, prop, panel...etc. He had the receipts but they did not ask. They said "What did the kit cost?", and he told them. He paid tax on about $8,000 (old RV-4 kit price).

It sounds like they are going to give a waiver on fines and interest, which is good news. Plan B is ignore it, but that is a bad plan. That only works when they don't have you number or know the plane is based in a state at all. I personally think $25k to $30k would be reasonable, but than its not what I think it's what Tax-man thinks. It's very possible you paid less. An EAA article was written about the guy who built a RV-6 for $30,000, not too long ago.

It likely will be friendly and easy process. The hard part is writing the check. All they want is to get some money out of you, based on a reasonable value, key word reasonable. They probably want to give you some break, but they also don't want someone trying to make a fool of them either. They'll be happy that acted fast and paid a fair value. The "FAIR" part is to be debated. :eek:
 
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I am not a lawyer but an interesting question. Texas, unlike some states does not have a state registration requirement. Our aircraft are federally registered and the airways are federally administered, with that in mind why a "state use fee" for operating a federally registered aircraft in federally administered airspace? I know the answer ..... because they can.
 
I'm all for sharing information on this and other topics related to our passion - and in fact, Jay and I talked about this before he posted, and I said this was a good idea, to let folks know and discuss what was going on. The only caution I'd urge is is to remember that bright young tax guys working for a government know how to search and read the internet these days as well, so if you start putting down specific values and/or strategies that they might use to prove the specific worth of our aircraft, we might be working against one another.

I'm generally not very paranoid, but I'd hate to be discussing the value of my aircraft and have an auditor through down a printout of a thread from VAF as evidence of how it should be more than I am stating......;)

Just my 2 cents.....(after tax value, of course)
 
Andy Duff said:
(apparently the final tax rate is a function of not only the base 6.25%, but also a local adder

Correct. The maximum sales tax rate in Texas for ANY transaction is 8.25%. 6.25% goes to the state, the other (up to) 2% goes to counties, cities, school districts, and believe it or not, hospitals. All are considered separate entities and have their own tax rates applied on a county-by-county basis. I own a business in Texas, have sales all over Texas, and it's a real pain keeping the tax rates correct for all the different customers I sell to. When I file my sales tax quarterly, every one of the hundreds of districts that has tax coming to them has to be listed separately with the dollar value coming to them. Luckily I only have to write one check.... :eek:
 
Concerning Texas sales tax on aircraft - see the following from the Comptroller's office.

http://www.cpa.state.tx.us/taxinfo/taxpubs/tx94_168.html

Note especially the section on "Exemption As Occasional Sale" - this would apply to someone who buys a complete plane (or anything else for that matter) from a private individual who's not in the business of selling taxable items.


See the following for general information on Texas use tax - [if you buy stuff from a seller in Texas you generally get pay the sales tax at the time of purchase - if you buy stuff out of state (on the internet for example) and don't pay sales tax then you are generally subject to Texas use tax]

http://www.cpa.state.tx.us/taxinfo/sales/faq_use.html#use1

There is no tax on sweat equity.

So, to go back to Jay's original post, Texas has a statute that imposes use tax on the parts that were bought out of state for which no sales tax was paid in the other state, but the tax is on the price of the unfinished parts, not on the value of the aircraft after the parts are assembled.
So... we need to keep invoices and builder's logs to be able to show what parts we paid cash for, and what part we paid blood, sweat and tears for.

Whether it's "fair" to target big ticket, easy target, items like airplanes - and not to go after every item subject to sales or use tax is another issue.

Also, be aware, airplanes used in business are subject to business personal property tax. The tax man did visit local airports in Dallas last year to inventory aircraft and owners were sent "rendition" forms.
 
I may be in the minority, but I don't have a problem paying taxes in that case. I know when I purshase out of state good that FL will hit me with the sale tax. I don't like it one bit but we have to pay for all the services we get. My main gripe with taxes is that I'd like better money management on their part.

I'm missing the argument that because it's an airplane it's unfair to now be taxed. It doesn't matter what it is (yes there are a few exemptions), the sales tax guys always try to collect. They went after a friend of mine who owns a restaurant for the sale tax on comp dinners... you may be offering the dinner but the state is not.
 
The Five stages of Tax Grief

Ironflight said:
I'm all for sharing information on this and other topics related to our passion - I'm generally not very paranoid....

Just my 2 cents.....(after tax value, of course)
"You are not paranoid unless they are really are out to get you." author unknown

That is true but it is what it is. There is no escaping death and taxes. The info is out there already. I get your point where all Texas RV owners get together and not "fight each other". I know you are not saying this but collusion and evasion of paying taxes will get you into deep doo-doo.

I liken this to a loss and the grieving process:

1. Denial, shock and Isolation:
2. Anger:
3. Bargaining:
4. Depression:
5. Acceptance:


You can fight it. Say that they have to prove you owe tax, but that likely will not work. I hate it and got a few letters like this. I found personally the sooner I paid it and got it over with, the better I felt, sooner.

In states that have property tax, sales tax, income tax, use tax (boat & plane) and personal property, we have to pay.

There are no secrets. The data is already out there. My point is don't falsify records or lie. You can forget (Gonzales style 60-70 times) but don't make it up. When you intentionally evade taxes, and they can prove that, the more trouble you can get.

My estate lawyer who also does taxes told me about another airline pilot she represented; He made up an out of state address to avoid state income tax. He got caught and she helped him avoid jail and fines, but he still had to pay the tax plus interest. Some Northwest pilots made the news a year or so ago. They went to jail for tax evasion. Now this was federal and state income tax, but the point is made.

We all go through the five stages of tax grief like you all, but we all pay. :( I guess its good and I'm blessed I have money and a plane that I have to pay taxes on. :rolleyes:

I thought about starting a transition training business with my RV, since I have all the CFI tickets. It would have lowerd some tax bills, but when I worked out the savings in tax, verses the cost in extra insurance, time and effort verses income, I would go broke avoiding paying a little tax.

There's nothing wrong with trying to pay as little as (legally) possible. They expect that and probably will deal with you if its reasonable. The tax guys may be lazy, but they are not dumb. They don't want a fight they want money and move cases.

What really surprised me is the Texas 8.25% rate! Usually on big ticket items like planes and boats they have a lower tax rate. Texas does not have income tax, so there you go. As some one wrote some states take income tax and personal property tax. Texas has no income tax, so they are going to stick it to you in other areas, property / plane tax.

Tax General:
Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have not income tax. New Hampshire and Tennessee limit their state income taxes to dividends and interest income only. Vermont is the worse at 9.5% income tax.

Texas is 39th in (overall) taxes: http://en.wikipedia.org/wiki/State_tax_levels
Massachusetts is the worst.

Does any one have a list of tax on airplanes / personal property by state?
 
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Andy Duff said:
They did say that during this sweep, they would be waiving the penalties and interest if I paid by the end of May. So lets see....what accessories did I buy over the past few years....

Not being registered or having a bill-of-sale yet, if anyone has info on TX tax forms and the waiver period, let us all know.
 
Shades of Gray

A few years ago, I thought in terms of black and white. When I was studying engineering, you either got the right answer or the wrong answer. But as I get older, I am starting to see things in more shades of gray. Those engineering equations are still valid, but you can come up with wildly different answers by making minor changes to the boundary conditions and assumptions. Is that right or wrong?.....it depends....
I think most of us accept the fact that taxes are a fact of life, and it is certainly my intent to pay all taxes that are fair and just. I am just trying to understand this particular tax and make sure I am applying the right boundary conditions and assumptions. The focus of my questions have been around where to draw that gray boundary area. If we puchased the plane all in one big chunk, then it is easy to see that there is a well defined sales tax that could be associated with that point in time. (although you can get an exemption for this is you bought it from a private source) However, when we are really talking about the sale of parts (not an airplane) you need to ask the question about where do you draw the line. Is it the total of all receipts up until the time the plane was registered...or is it up until the time flown. For most of us, purchase of the big ticket items is well in the past by the time we fly, but the out of state receipts might still be coming in well after the airplane was flying. Upgrades and improvements to the systems are all on the table now. When I talked to the folks in Austin, they indicated that whenever you buy anything out of state and don't pay sales tax, you need to obtain the little form (available online) and send off a check to Austin. This says that I need to be doing this for my son's new tennis shoes every bit as much as a new Garmin. I am currently in the exploration and discovery phase of trying to understand if a practical limit to the "internet sales tax" can and should be applied. I'm sure I will go through all the steps of the grieving process once I fully understand what we are talking about here, but for now I'm just trying to scope the problem.
 
Airplane Use Tax

In my state (Alabama) it took about 5 years before the taxman caught up to me. After a new governor was elected the county tax assessors were instructed to pursue all revenue. In the letter I received there was enclosed a copy of faa.gov registration stating the year I registered the plane in my name. I talked to the TAXMAN who was extremely knowledgeable about value, he even had a book (bluebook) of A/C values. And the use tax i.e property tax in Al...... 20% of fair market value X millage rate (.34) for about 175 dollars for 1965 C-172
 
In Oklahoma you will receive a letter from the tax commission about 90 days after you receive your "N" number. I had a little over $18000 paid for kits X 3.25% =$598 then $10 per year.
 
They have deep pockets to fill

grobdriver said:
I wonder if these same folks are going into the property tax business, collection thereof, as well...

Who's paying property tax on hangars they rent from a municipality?

- Mike

Riverside County California is very aviation unfriendly. The county owns and rents the hangars, and you pay the county property tax on the hangar if you rent it. They even charge property tax on tie down square footage if you rent a spot on the ramp.

rgds,
Mark
 
Leagaly cheating on your taxes

bsacks05 said:
Ideas???

Move to Florida

There has to be a way to legally cheat on your taxes:
Here in taxachusettes not only do we have to pay "use tax" but are required to pay a yearly fee to the Massachusetts aeronautical commission as well, and must place there stupid decal on the plane.
Can anyone recommend a aviation tax lawyer experienced in this area located in ma?
Thanks
 
Timing when to pay

Do anyone know what initiates the tax notice - Registration or N-number? Would it be better to register early so that Van's kits are the primary cost basis?
 
Good point

Wow, tinkin outa da box.

As long as I can remember the conventional wisdom was to wait as long as possible to register the plane, to not have to pay taxes any longer than necessary.

You may be on to something, get it registered asap, with only the Vans kit receipts, I wonder what the $$$ would pencil out to??

Any tax experts out there??

Mike
 
Excessive taxation is not a fact of life, it's the result of an apathetic populace allowing power/money-hungry individuals to steal from the producers in order to buy votes from the parasites.

Until we, the producers, get together and fight this continuing encroachment into our lives, it will only continue to increase.

"Our safety, our liberty, depends upon preserving the Constitution of the United States as our fathers made it inviolate. The people of the United States are the rightful masters of both Congress and the courts, not to overthrow the Constitution, but to overthrow the men who pervert the Constitution."

? Abraham Lincoln
 
Registration....

Rick_A said:
Do anyone know what initiates the tax notice - Registration or N-number? Would it be better to register early so that Van's kits are the primary cost basis?
Rick... it shouldn't be the N-number since no plane is attached to a straight N-number reservation...

They wouldn't know to tax you on a small SLA or a Lear Jet.... :)

Registration should do it... I'm sure each state analyzes new registrations constantly.... :(

gil in Tucson
 
You can register anytime. It MUST be registered before the Airworthiness Inspection.
 
Assessing value by model

Well this leads me to think registering my airplane a Vans RV-9a might not be the best idea...they are worth too much!
How about a Smith-1.
Then its just the receipts that I come up with that will access the value.
 
PAY EVERY YEAR

In some states you have to pay use or property tax on your plane EVERY YEAR; The yearly rate may be lower than a one time sales tax rate, but still that really sucks. So Texas one time sales tax on the kit may be a deal. :rolleyes:
 
Use Tax vs Personal Property Tax

As George has pointed out, in some states there are two types of taxes on aircraft which shouldn't be confused. Sales/use tax and Annual Personal Property Tax. In Kaleefornia we have the privilege of paying both. :(

I could be wrong here (I don't live in TX), but a Use (sales) Tax is typically calculated solely on the purchase price (amount on receipt) of the kits and parts you purchase out of state. When you register the aircraft its fair market value is irrelevant to the Use Tax calculation. You simply pay tax on what you paid for the kits and parts, regardless of what you call the aircraft when you register it.

For those states that also collect an Annual Personal Property Tax (homes, cars, airplanes), the tax is calculated every year by multiplying the fair market value of the finished airplane times some set tax rate (e.g. 1%). This is where people in certain states have found it useful to register the aircraft as something other than an RV-X, with the intention of making the value of the aircraft hard for the tax man to determine.

Taxes... sigh. At least the weather is good here. :rolleyes:
 
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For you Texans that have been hit so far, what month/year was your airplane registered? I got hit for my Tcraft purchased in Sept '03 late last week. I just wondered how fast they are working their way through the registration database.
 
Statute of Limitations

I don't believe the four year statute of limitations in Texas starts running until you file a Sales/Use Tax Return. The statutes are open until you file a return. After filing the return the state then has four years to audit the return.

Mark
N410MR
 
Statue

And that very well could be true. It's hard to get a real answer out of the people at the Comptrollers office when you call. You never get the same answer it seems...
 
RV7Factory said:
This is where people in certain states have found it useful to register the aircraft as something other than an RV-X, with the intention of making the value of the aircraft hard for the tax man to determine.

I can hear the radio call now:

"Tower, this is experimental leaf blower 5000 niner seven bravo, ready for take-off."
 
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Evading the use tax by misleading or lying to the state tax auditor can make the problem worst than it already is. It is perfectly legal to avoid a tax but it can be a crime to evade a tax. There is a big difference in legally avoiding a tax and evading a tax by being less than honest with the state auditor.

Mark
N410MR
 
Avoid vs Evade

I really don't think anyone is trying to evade, just wanting to get a true and real education of what is correct.
 
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