Airplane/Aircraft vs Florida Sales Tax – The Basics
On the surface, Florida sales tax seems like an incredibly dull and simple subject. If someone sells tangible personal property at retail in Florida, they likely have an obligation to charge, collect, and remit sales tax to the state. This applies to all items of tangible personal property, no matter how big or small. However, due to their large price tags, our Tallahasian friends at the Florida Department of Revenue ("FL DOR") tend to go after the large items. After all, it makes sense to go after larger items to get more bang for their buck and large items are often registered and/or tracked. It should come as no surprise that aircraft deals have been on the FL DOR's hit list for some time now.
This is the first of a series of articles intended to address the major tax and financial issues that come up with the aviation industry. In this article I will discuss the run of the mill, vanilla airplane dealer transactions. Then in subsequent articles, I will discuss more complex Florida sales tax issues relating to aircraft. Some of the topics will include leases versus operating agreements, aircraft repair issues, repossessions, constitutional issues discussing purchasing an airplane somewhere else and then bringing it into Florida, and sales tax issues with fractional ownership arrangements. While we do not pretend to be aircraft experts, we happen to know a few things about Florida sales tax. This area of the law has been particularly interesting to me because after all, airplanes are just way more intriguing than sales tax.
Perhaps the most vanilla or run of the mill sales tax transaction involves just an ordinary sale or lease of a plane within Florida borders. Whether you rely on my blog or the Department of Revenue's sources, you will quickly find that rule 12A-1.007, Florida Administrative Code ("FAC") deals with all sorts of scenarios dealing with airplane sales. The first thing to know when dealing in aircraft, is the first item discussed in the rule; Under Florida law, the sale of an aircraft is the sale of tangible personal property. Therefore, if the sale occurs in Florida, sales tax is due on the full sales price. Florida law also demands that anything else that is "part of the sale" of the aircraft be tacked on to the sales price and subject to sales tax. Items like commissions, aircraft accessories, and mandatory delivery charges are all lumped into the total and subject to sales tax.
Example: Buyer purchases a shiny new Gulfstream G650 for $60 million. The seller is required to charge sales tax and Buyer is required to pay $3.6 million of sales tax plus any applicable surtax.[1]
It is also worth noting that Florida law treats an operating lease the same as a sale. Therefore, if that same G650 was leased instead of purchased, then sales tax would be due on each of the lease payments. If, however, the lease was a capital lease, then it is treated as a financing transaction and the sales tax rules apply as if the "lease" was a sale. The operating versus capital lease rules can get a little tricky and are outside of the scope of this article.
If you are an aircraft dealer then you should also be familiar with the general principles of sales tax regarding tax-exempt sales. As a general rule, the sale of tangible personal property is subject to sales tax absent some exemption. If you or your client is selling planes, then they should either collect tax or collect a piece of paper that says no tax is due. Therefore, if your customer extends a valid resale certificate then the transaction is exempt and no tax need be collected.
A common issue that arises with airplane dealers is when a non-Florida customer purchases a plane in Florida but intends to immediately return it to his/her home state. If the purchaser is a non-dealer in another state, then the seller must obtain an affidavit, as shown in Rule 12A-1.007, FAC. In addition, the non-Florida purchaser removes the plane from Florida within 10 days (20 days after the completion of repairs), the non-Florida dealer provides proof of removal, the buyer provides written proof of registration within 30 days, and the plane cannot come back into Florida for 6 months. Easy enough right?
EXAMPLE: Lee, a New York resident, comes to Florida to purchase an aircraft from Airplane Dealer Inc. If Airplane Dealer Inc has Lee complete the documentation in rule 12A-1.007 and all of the conditions above are met, then no sales tax is due.
If the out-of-state buyer is a dealer, then a different set of "simpler" rules apply. If the non-Florida dealer provides a statement that it will transport the plane outside the confines of Florida for resale, then it is exempt from Florida sales tax even though the non-resident dealer does not have a Florida resale certificate. Like the non-dealer customer, rule 12A-1.007 provides the "suggested" form that must be completed. Like the Department of Revenue, we highly suggest you follow the suggested form, because if you don't have that exact form the FL DOR will not accept it and you will have a fight on your hands.
EXAMPLE: LEE'S AIPLANE SHOP, a licensed New Jersey dealer, wants to buy a plane from Airplane Dealer, Inc, a Florida licensed airplane dealer located in Palm Beach. If Lee's Airplane shop completes a different form (slightly less stringent) than the resident form above, the airplane is exempt from tax.
Another common scenario that we are faced with is the situation in which someone buys a plane in another state and brings it down to Florida. Complimentary to the concept of a sales tax, is a use tax. Use tax applies not on the sale, but rather on the use of tangible personal property in Florida. It works similar to sales tax, and if a piece of property that would be subject to sales tax is used in Florida and no sales tax is due, then use tax will make it taxable. Under Florida law, if property is purchased and used for 6 months in another state then the property's first use is said to have occurred elsewhere and no Florida use tax will apply. If, however, the item is purchased elsewhere and brought into Florida within 6 months of the purchase, then use tax applies on the full price.
Example 1: John purchases his $60 million G650 in California on January 1, 2015. On March 3, 2015, he decides to visit his parents in Boca Raton, Florida. Being that the aircraft is in Florida within 6 months of purchase, Florida takes the position that John owes Florida $3.6 million in use tax less any tax paid in CA.
Example 2: Jim purchases a $60 million G650 in a state where no sales tax is due on January 1, 2015. In August he has an epiphany and realizes that his shiny new G650 would look gorgeous at his Palm Beach home so he flies it down to Palm Beach. Being that the plane was purchased and remained out of state for longer than 6 months, no use tax is due.
This use tax strangeness can result in a crippling got-ya tax or it can make for interesting planning opportunities. Either way, if you buy or sell aircraft you need to be aware of it. Also, if someone were to purchase a plane in another state, stop in Florida for a day, and then continue on a trip, why should Florida be entitled to tax on that transaction? What if the owner didn't even know its operator had it in Florida for a day? Should that subject the whole sales price to sales tax? This issue will be more deeply discussed in future posts.
It is easy to see that even in the most basic airplane sales transactions, Florida sales tax can be a real pain. Although it is not as interesting or exciting as purchasing your new private jet, you or your client can save a world of headache if proper planning is considered. More importantly, you and your client can save a lot on your sales tax donations if structured and planned correctly. If you are thinking about buying a plane, recently purchased a plane, or are in the business of buying planes then please do not hesitate to call us for a free consultation.
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., based in Fort Lauderdale, Florida. Mr. Donnini's primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned an LL.M. in Taxation at NYU. You can read more about Mr. Donnini in his firm BIO HERE.
ADDITIONAL RESOURCES
BOAT CAR PLANE DEALERS: FL SALES TAX FORMS, published June 14, 2015, by Jerry Donnini, Esq.
FLORIDA USE TAX AUDIT LETTER?, published April 28, 2015, by James Sutton, CPA, Esq.
GO TO JAIL FOR NOT PAYING FLORIDA SALES TAX?, published November 3, 2013, by James Sutton, CPA, Esq.
[1] Surtax is a sales tax in which the county may charge an additional 1.5% of the sales price. Therefore, if the county imposes a 1% surtax in the county the sale occurred, the seller would owe an additional tax. However, the county surtax on tangible personal property, such a $60 million G650, is capped at $5,000. Assuming a 1% county, the seller would only have to charge an additional $50 of surtax. Seems hardly worth mentioning on a $63.6 million deal, but if a dealer sells a high quantity of planes than the pesky surtax can add up.