Understanding California Sales and Use Tax on Private Jet Purchases

Introduction

California, known for its stunning landscapes and bustling economy, has become a hub for various industries, including aviation. For those considering the purchase of a private jet in the Golden State, understanding the intricacies of sales and use tax is crucial. In this blog post, we'll delve into the specifics of California's sales and use tax as it relates to private jet acquisitions, helping potential buyers navigate the complex airspace of taxation.

Sales Tax Basics

In California, the sales tax rate varies by location and can include state, county, and local district taxes. As of my knowledge, the statewide base sales tax rate is 7.25%, but it can be higher in certain areas due to additional local taxes. It's essential to check the latest rates for your specific location as they may have changed.

Use Tax Considerations

In cases where the private jet will be based in California but was not purchased in the state, buyers may be subject to use tax. Use tax is applied when taxable items are bought outside of California but are used, stored, or consumed within the state. Buyers are responsible for self-reporting and paying use tax directly to the CDTFA.

Leasing and Fractional Ownership

For those exploring alternative ownership structures such as leasing or fractional ownership, the tax implications can vary. Lease payments for private jets are generally subject to sales tax in California. Fractional ownership arrangements may also have specific tax considerations, and buyers should seek professional advice to navigate these complex structures.

Private Jet Purchases and Sales Tax

When it comes to purchasing a private jet, California generally imposes a sales tax on the transaction. The tax is applied to the full purchase price, including any additional costs like delivery charges or customization fees. It's important to note that California's sales tax is not collected directly from the seller but is instead paid by the buyer to the California Department of Tax and Fee Administration (CDTFA).

Exemptions and Exceptions

While sales tax is the norm for private jet purchases, certain exemptions and exceptions may apply. There are three many avenues of approach for private jet owners. In California, certain tax exemptions exist for private jet purchases, and understanding these exemptions is crucial for buyers looking to navigate the complex terrain of sales and use taxes. Three key exemptions to consider are the Common Carrier Exemption, Interstate Commerce Exemption, and Principal Use Exemption.

1. Common Carrier Exemption:

 
• The Common Carrier Exemption is designed for aircraft used by common carriers for transporting persons or property for hire.
 
• Common carriers are entities that operate as transportation providers for the public or specific industries. For example, an air charter service that offers flights for hire to various customers may qualify as a common carrier.
 
• To qualify for this exemption, the private jet must be used exclusively and directly in common carrier operations. Any non-qualifying use, in the first twelve months of operation such as personal use by the owner, may impact eligibility for the exemption.

1. Interstate Commerce Exemption:

 
• The Interstate Commerce Exemption applies to aircraft used in interstate or foreign commerce.
 
• If a private jet is regularly engaged in transporting persons or property in interstate or foreign commerce, it may qualify for this exemption. Interstate commerce involves the movement of goods or passengers across state lines.
 
• Similar to the Common Carrier Exemption, the aircraft must be used exclusively and directly in qualifying activities to be eligible for the Interstate Commerce Exemption. Usually, a six month test where at least 51% of the aircraft flight hours must be for interstate commerce to include certain business travel for business owners.

1. Principal Use Exemption:

 
• The Principal Use Exemption is applicable when the principal use of the aircraft is outside California.
 
• If the private jet is primarily used outside the state, it may qualify for a partial or complete exemption from California use tax. The exemption considers factors such as flight hours, flight miles, and the location of maintenance and storage.
 
• Buyers should keep detailed records of the aircraft's usage to demonstrate that its principal use is indeed outside California. The biggest point to realize is that if your aircraft lands in California within 12 moths of the purchase you could be held liable for California use tax. Tip: Do not underestimate the lengths California will go to get paid.
 

Conclusion:

It's important to note that meeting the criteria for these exemptions requires careful documentation and adherence to specific regulations. Additionally, exemptions may not apply uniformly to both sales tax and use tax, so buyers should be aware of the distinctions. Navigating the complexities of tax exemptions in the context of private jet ownership often requires professional advice. Consulting with tax specialists, especially those experienced in aviation transactions, can help buyers ensure compliance with California tax laws and maximize the benefits of available exemptions. Additionally, tax laws are subject to change, and it's advisable to stay updated on any revisions or amendments that may impact these exemptions. Consulting with tax professionals who specialize in aviation transactions is highly recommended to ensure compliance with California tax laws and to optimize the overall financial impact of private jet ownership in the Golden State. If you have questions or want to get more information from a professional, at ROC AVIATION we can help get you in touch with the right people. Just send us a message via our contact page.

Disclaimer: This blog provides general information and is not authored by a Certified Public Accountant (CPA) or tax professional. It is not a substitute for professional advice. Readers are urged to consult with a qualified CPA or tax advisor regarding their specific circumstances. The author disclaims any liability for errors or actions taken based on the information provided. External links are not endorsed, and tax laws may change, so readers should verify information independently. Use of this blog constitutes acknowledgment and agreement with this disclaimer.