When Does a Bunch of Parts Become An Aircraft?
That’s a good question!! It depends on whom you ask and you always need to know why they are asking. If you ask a normal aircraft builder, he will tell you that it isn’t an aircraft until it can fly. That seems kind of obvious.
However, if you ask the California Franchise Tax Board or State Board of Equalization, they will tell you that you owe sales tax on the parts; then, when it does fly, you owe personal property tax on the aircraft with its increase value, brought on by the fact that it now flies.
If you ask the County Tax Collector, he will tell you that you owe tax on any piece of usable personal property sitting in his county.
So, if you order sheet metal and pay the sales tax on the material cost, have it delivered to your home shop and beat it into a rudder that is attached to nothing, but is usable, you then owe County Personal Property Tax, even though it hangs in your shop for the next 5 years until you have an airframe to hang it on. It is, after all, a USABLE rudder; you just can’t use it, yet.
You see? It depends on whom you ask. So, let’s look at it from two tax aspects: sales/use tax and personal property tax. Here, in California, sales tax is collected by the State Board of Equalization, based on reports filed by you, but Personal Property Tax is collected by the County Tax Collector based on the airport manager’s report of what tail numbers are sitting on his airport on reporting day (usually January 1, but not always).
For sales tax, you will either pay sales tax when you purchase materials (Aircraft Spruce collects sale tax on things shipped to California addresses as they are shipped). If you buy your parts out of state, no sales tax unless the seller has a physical presence of some kind in California. There is a very large avionics company in the East that has to collect California sales tax for sales to California residents because it is owned by a company that has a store in California, too. So, shop around. See if shipping minus sales tax isn’t less expensive than lower shipping plus sales tax.
What about that kit? Well, the state of California has bullied a bunch of companies into collecting California sales tax when they have no responsibility to do so. Many years ago, the Quill Corporation, which sells office supplies, sued North Dakota for insisting that Quill collect North Dakota sales tax. In the U.S. Supreme Court case of Quill Corp v. North Dakota (1992) 112 S Ct 1904, 119 LE2d 91, the Supremes said that such policy violates the commerce clause of the U.S. Constitution and prohibited it. Nevertheless, some kit sellers insist that you pay sales tax on the price of the kit. Argue with them. That’s good fuel money going down the toilet.
But what about that personal property tax? Each year, for the privilege of owning personal property in California, you get to pay the County one percent of the depreciated market value of that property. That assessment is actually made through a form that you are supposed to file with the County Tax Collector each year. Since the form is complicated and no one seems to know anything about it, the Tax Collector just waits until he gets the tail numbers from the airport manager, then looks up who owns the plane, takes a value either off the internet services or out of TAP and send you a bill.
Who cares? One percent of a plane that the Tax Collector reckons should be valued at $125,000 (it would really sell for, maybe, $75,000 in this market) is $1,250.00. Even at $7.00 fuel, that’s 178 gallons of av gas, a couple of months hanger rent or a whole year’s insurance.
What do you do? First of all, find out from your airport manager which day he takes his poll. Then get your plane off his airport. Go to breakfast/lunch/dinner and tie down on the transient line in front of the restaurant. Go to lunch in Prescott or Flagstaff or visit Las Vegas or Lake Havasu that day.
Will they send you a tax bill if the plane isn’t finished? Sure. I got one this year on my experimental that still isn’t finished. I wrote, “This is not yet an aircraft. This number is not registered to any aircraft,” all over the form and sent it back. I have heard nothing more.
But it does raise an interesting question. Since that number is registered to an out of state company and there are no tail numbers on anything in my hanger, where did they get information that I might own an airplane with that tail number on it? Who knows, but I don’t and it’s not an aircraft. Yet.
So, for Personal Property tax purposes, it’s not an aircraft until it flies. Short of that it’s a large lawn ornament. It needs to be registered to fly. So, once you register and fly it, look for the tax guy to come around. Maybe you could register it out of state, paint it black and fly it only at night. But they will find you one way or the other. Count on it.
JWH 7–‘08