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When does a kit become an aircraft (for tax purposes)

DrillBit

Well Known Member
Any CA builders ever been in this situation: registered their kitplane w/FAA in year N, but didn't get final inspection, a/w cert, and make first flight until year N+1?

Did you receive a personal property tax bill from the county for tax year N+1, and if so, did you bother trying an appeal on the basis that it wasn't (yet) assessable as an aircraft?

The CA Tax and Revenue code defines an aircraft* as "...any contrivance used or designed for the navigation of or for flight in the air _which has been flown at least once_..." (Emphasis added.)
The lien date for assessing aircraft property tax is Jan 1st each year, but despite having an FAA N-number, a kitplane that has not flown is not yet assessable as an aircraft. Assuming the kitplane flies in year N+1, it is assessable in year N+2 and thereafter until its FAA registration is cancelled.

Always a dilemma, deciding if it's worth standing up to the tax man saying, "Notice me!" :eek:

___
*Part 10, Chapter 1, sect. 5303 (a).
 
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Any CA builders ever been in this situation: registered their kitplane w/FAA in year N, but didn't get final inspection, a/w cert, and make first flight until year N+1?

Did you receive a personal property tax bill from the county for tax year N+1, and if so, did you bother trying an appeal on the basis that it wasn't (yet) assessable as an aircraft?

The CA Tax and Revenue code defines an aircraft* as "...any contrivance used or designed for the navigation of or for flight in the air _which has been flown at least once_..." (Emphasis added.)
The lien date for assessing aircraft property tax is Jan 1st each year, but despite having an FAA N-number, a kitplane that has not flown is not yet assessable as an aircraft. Assuming the kitplane flies in year N+1, it is assessable in year N+2 and thereafter until its FAA registration is cancelled.

Always a dilemma, deciding if it's worth standing up to the tax man saying, "Notice me!" :eek:

I have no specific advise to CA; but as someone who deals with tax authorities quite often at my day job the "notice me" fear is very overblown. I would just call your taxing authority and ask them the question; typically their employees don't want you to pay any more tax than you legally have to either and are usually very helpful.

If you're correct that it should be deffered until next year, which it appears it should per your quote; they will likely take care of it quickly.

Edited to add: Looked up your registration on FAA website, you can show the airworthiness information is all blank may help for documentation.
 
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Unfortunately, no. The first person to answer the phone at the assessor's office said yes, having flown is a necessary condition. But she passed me to her supervisor, who thinks that registration alone is what makes the kit and airplane. We chatted for a while but it was clear he either didn't know about the first flight definition or for some reason thinks it doesn't apply.
 
As far as the FAA is concerned, the "project" becomes an airplane upon being issued an airworthiness certificate.
 
Unfortunately, no. The first person to answer the phone at the assessor's office said yes, having flown is a necessary condition. But she passed me to her supervisor, who thinks that registration alone is what makes the kit and airplane. We chatted for a while but it was clear he either didn't know about the first flight definition or for some reason thinks it doesn't apply.

Bummer, did you give him the citation of the definition you posted? how was the tone of the conversation?

If you follow up again, I find it works best to make your tone assume he's right but you just wan't to better understand. "You obviously know more about this than me, but when I searched online and read the definition at Part 10, Chapter 1, sect. 5303 (a). it looks to me like the state doesn't define it as a taxable airplane until it's flown once, what am I missing?"

If he still is adamant, then you have to decide if the formal appeal is worth the hassle compared to the bill
 
The description in your last paragraph is how the county down here interpretes the tax codes. A couple of us have been told if it is registered and flys for the first time after 1Jan then you won?t see a property tax bill until the following year. I first flew in March ?18 and haven?t seen a letter from the tax man so far.
 
Reserved N number

I had them send me a bill the same year I reserved my N number, years before completed. In the end I did first flight in November and they registered it the following year.
Don't let their simplistic scan of FAA N numbers throw you.
 
I received a notice every year when I reserved a N number. Every year I sent the form back with a letter stating it was a kit not an aircraft. Never heard anything from them until the next year. That went on for several years.

Now that is flying I'm sure they will send me a tax bill after I submit the form this year.
 
I built my airplane in Kalifornia and registered it two years before I had the Airworthiness Certificate. I also got a tax bill the following year. I let Tax Collector know that it was still a collection of parts. The bill went away with that notification. The airplane first flew in September 1997. I let the Tax Collector know in November that it was now a flying airplane. They sent me the tax questionnaire in 1998, then the tax bill, and I paid the personal property tax for the first time in 1998.
 
Any CA builders ever been in this situation: registered their kitplane w/FAA in year N, but didn't get final inspection, a/w cert, and make first flight until year N+1?

Did you receive a personal property tax bill from the county for tax year N+1, and if so, did you bother trying an appeal on the basis that it wasn't (yet) assessable as an aircraft?

The CA Tax and Revenue code defines an aircraft* as "...any contrivance used or designed for the navigation of or for flight in the air _which has been flown at least once_..." (Emphasis added.)
The lien date for assessing aircraft property tax is Jan 1st each year, but despite having an FAA N-number, a kitplane that has not flown is not yet assessable as an aircraft. Assuming the kitplane flies in year N+1, it is assessable in year N+2 and thereafter until its FAA registration is cancelled.

Always a dilemma, deciding if it's worth standing up to the tax man saying, "Notice me!" :eek:

___
*Part 10, Chapter 1, sect. 5303 (a).

Personal property tax is one thing........:mad:

But the sales tax will cause some pain.........:eek:

Don't ignore it, it grows over time with interest......:(
 
+1 on most replies.
I paid state sales (use) tax every year, on my CA income tax return, on purchases. When asked about use tax, that's what I told them. Never heard anything more.
County sent me a notice about evaluating aircraft for property tax. I sent a letter back, pointed out that there was no AW paperwork, it was a collection of "parts", not an airplane. Heard nothing more until the next year, when it was flying, then I paid. As others have noted, assessment date in CA is Jan 1. If your AW date is after that, you won't have to pay until the following year. Tax is due 31 Aug. This can cause some pain: if you sell your airplane between 1 Jan and 31 Aug you still owe the tax.
 
I would just add if your first flight is before 12-31 you get to pay for the whole year not pro rated. In my county, (Tehama) first flight date was honored, but they seemed to become aware of it AFTER the A/W cert was issued. Never was asked by the county or state about sales tax. And be sure to become familiar with the ?incedental? sales tax rule. That is a one time sale from a private party is not taxable. So I didn?t have to pay on the engine and avionics as they were all second hand.
Tim Andres
 
As far as the FAA is concerned, the "project" becomes an airplane upon being issued an airworthiness certificate.

Very true. N748PK has never been issued an AW cert, as shown in the FAA registration database.
 
Bummer, did you give him the citation of the definition you posted? how was the tone of the conversation?

Tone was professional, even cordial. I wasn't prepared to cite chapter and verse, especially since the first person I spoke with knew the must-have-been-flown-once.

It's probably wise to try the informal route one more time--with what might become my positions in a later, formal hearing all squared away.
 
I had them send me a bill the same year I reserved my N number, years before completed. In the end I did first flight in November and they registered it the following year.
Don't let their simplistic scan of FAA N numbers throw you.

Nothing from Alameda county for the years N748PK was reserved. Just after it became a real N-number on a not (yet) airworthy set of assembled (mostly) airplane parts.
 
I received a notice every year when I reserved a N number. Every year I sent the form back with a letter stating it was a kit not an aircraft.

Hmmm...I returned the aircraft report owners must fill out every year as to airframe and engine hours, new or upgraded avionics, etc. with the words "KIT AIRCRAFT THAT HAS NEVER FLOWN" written prominently (I thought) in several places. Even included a cover letter explaining it wasn't an aircraft.

The official form may have made it all to easy to conclude it was an aircraft. Maybe should have started with a simple letter explaining why I cannot complete an aircraft report on a bunch of incompletely assembled airplane parts that have never flown.
 
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I built my airplane in Kalifornia and registered it two years before I had the Airworthiness Certificate. I also got a tax bill the following year. I let Tax Collector know that it was still a collection of parts. The bill went away with that notification. The airplane first flew in September 1997. I let the Tax Collector know in November that it was now a flying airplane. They sent me the tax questionnaire in 1998, then the tax bill, and I paid the personal property tax for the first time in 1998.

Thanks for the data point, Gary. You were in SoCal, if I recall correctly? Already heard from Craig that San Diego hews to the "must-have-flown" rule.
 
Personal property tax is one thing........:mad:

But the sales tax will cause some pain.........:eek:

Don't ignore it, it grows over time with interest......:(

I've previously posted my sales/use tax story. I didn't pay as every untaxed order from Vans and several other out-of-CA vendors came in, but I didn't plunk down a few AMU's with my state tax return about 3 or 4 years ago. When FTB (or BOE--why does California have such weird names for their revenue departments :confused:) sent a letter asking about applicable sales taxes after the registration went up in the FAA dbase, I showed them a copy of that return, receipts for the untaxed orders, and a check for << 1 AMU for a few things bought in the meantime. Got a letter back from them saying "this file is now closed".
 
I would just add if your first flight is before 12-31 you get to pay for the whole year not pro rated.

CA tax code says aircraft are assessed once and only once a year, on Jan 1st. A kit aircraft that first flies on any other day in that year was a collection of parts looking more or less like an airplane on Jan 1st. Can't be assessed until Jan 1st the following year.

So doing a first flight on Jan 2nd affords one maximum tax-free EAB aircraft ownership....
 
The on-going saga

Well...a second call to the assessor, with all relevant citations ready to quote, was not successful. If an appeal was filed, the assessor told me, THEN he would look up my citations and relevant case law, etc. Gummint 1, Informal appeal 0.

I was incensed about filing an appeal as it carries a no-refund filing fee! Pay the gummint not to tax an asset that by law is NOT an asset in the first place? Absurd!

But, there is another avenue: Application for refund of property taxes paid where the dispute is not assessed value, but that the assessment itself is invalid. No filing fee.

Alameda County has 1 AMU of my hard-earned dollars in the bank, but if the Hearing Officer agrees with the plain meaning of the law--an aircraft cannot be assessed until it has flown--I'll get a refund with interest.
 
My letter to the county (2010) simply said, ?per the FAA, I do not own an aircraft, as I have no A/W certificate. I only own parts. I will notify you when I receive an A/W certificate.? Alameda county seemed happy enough with that back in 2010.
 
Well...a second call to the assessor, with all relevant citations ready to quote, was not successful. If an appeal was filed, the assessor told me, THEN he would look up my citations and relevant case law, etc. Gummint 1, Informal appeal 0.

I was incensed about filing an appeal as it carries a no-refund filing fee! Pay the gummint not to tax an asset that by law is NOT an asset in the first place? Absurd!

But, there is another avenue: Application for refund of property taxes paid where the dispute is not assessed value, but that the assessment itself is invalid. No filing fee.

Alameda County has 1 AMU of my hard-earned dollars in the bank, but if the Hearing Officer agrees with the plain meaning of the law--an aircraft cannot be assessed until it has flown--I'll get a refund with interest.

Yes, Virginia, there is a Sanity Clause after all. Just received a letter from the Alameda County Assessor: ?Pursuant to your request?cancellation of the 2018-19 assessment has been initiated.?

One down, three to go. In the intervening weeks, the lower echelons in the assessor?s office decided that, since I had leased a hangar at KLVK since 2015, and the airport?s annual based-aircraft reports showed an associated (reserved!) N-number, then N748PK had ?escaped? assessment in the prior 3 tax years. :eek:

One would assume the Assessor will cancel the bills for those tax years too. Or I may be formally explaining the nature of Time?s Arrow in another series of petitions?.

Lessons:

1/ Never refer to an airplane project by a reserved let alone an issued N-number in any airport paperwork. (Or maybe put down November-Zero-November-Echo, N0NE, a conveniently non-conforming registration number.)

2/ When Aircraft Property statements arrive the year after registration, the do not fill them out. Send a letter saying you can?t complete the form without committing perjury because to the best of your knowledge, a collection of parts must have flown (in very close formation) at least once before it is considered an aircraft.

Due to a heavy end-of-year work schedule and holiday obligations, I wasn?t able to track down and fix an aggravating static leak until today. Just a few items to do before final inspection. N748PK will fly in 2019, after the first of January. Huzzah!
 
If your A/W inspection is after Jan 1, you won?t owe taxes for 2019. But expect to fight this battle again around June.
While they should not be assessing property tax on the airplane parts for previous years, you may (if not already) get the property tax bill for the hangar, even though you don?t own it. In CA the county can?t tax cities (LVK is a municipal airport) but they can pass the bill on to you. It will say ?possessitory interest? on the bill.
 
same issu, different state.

Good luck with your California taxes!

In North Carolina I had a similar issue but there personal property tax is bases on the county where the plane is bases, which were different in my case. I got (high) bills for the county I lived in while building and later a bill from the county where I based the RV.

I negotiated with the county and convinced them I had only $16k in the kit, which they accepted.
 
It's been many years but we also ran into the tax issue when we lived in CA and built our former RV-8A at Torrance (TOA). At the time I carefully read the paperwork regarding the personal property tax and was able to "interpret" it as requiring payment on the value of the kit. So I did just that, paying on kit value only but not including the engine, avionics, propeller, paint, interior, etc. First flight was in 2002 and we moved out of state in 2006 but my annual personal property tax payments were never questioned.

FYI when I make up the cost/benefit matrix for where to live after we left the Golden State, I noted that Colorado has no personal property tax on airplanes nor any sales tax on aircraft parts. The -8A was sold but our -14A happily lives here now with us.
 
Taxes

Illinois when you start thinking about buying a kit they willsend you a tax bill seriously I think guys are setting up LLC is in states which have no taxes
 
Valuation

How how have your valuation's been established?

My old Baron had a bunch of old birds to be compared to and I was able to negotiate on the valuation. But for the RV-10 that I'm building, I'm wondering how that will go, especially with a much smaller pool of airplanes in the market and various modifications from plan that may alter the value.

I'll probably just end up bargaining with them, but curious how everyone else has gotten this done.
 
Illinois when you start thinking about buying a kit they willsend you a tax bill seriously I think guys are setting up LLC is in states which have no taxes

If you're talking about setting up an LLC in *another* state than which you live/build/fly, I think that's been tried but doesn't work. Search the forums here, should be lots of info.
 
Sales tax

Personal property tax is one thing........:mad:

But the sales tax will cause some pain.........:eek:

Don't ignore it, it grows over time with interest......:(

I purchased that vast majority of my kit in 2010 from a private party. I assume that sales tax was payable by that first party since (in Colorado) sales tax is not assessed on a "private sale". The airworthiness Cert was issued last month. What sayeth the noble collective?
 
I purchased that vast majority of my kit in 2010 from a private party. I assume that sales tax was payable by that first party since (in Colorado) sales tax is not assessed on a "private sale". The airworthiness Cert was issued last month. What sayeth the noble collective?

Colorado may be different, but your synopsis is correct for Georgia. I confirmed this with the State's "Guy" who is responsible for collecting sales tax on new aircraft registrations and other non-mainstream transactions.
 
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