Buying a new (or new to you) aircraft is a huge highlight for most pilots. There is nothing more special than closing on the aircraft, filing the paperwork with the Federal Aviation Administration (“FAA”), and taking the plane out for a flight. That can all quickly be ruined by the Florida Department of Revenue. The Florida Department of Revenue appears to be making it a priority to make assessments against aircraft owners. The Florida Department of Revenue may consider aircraft owners to be an easy target. That certainly does not have to be the case. This article discusses the most common pitfall aircraft owners face leading to a Florida sales and use tax audit as well as the audit process in order to provide an understanding of what to expect.
Most aircraft purchasers do not consider any sales or use tax implications when purchasing an aircraft. Rather, the focus is on regulatory aspects and closing the deal. This approach can and does present pitfalls to owners. As part of the FAA registration process, the aircraft owner will list an address with the FAA. This address is publicly available in the FAA Registry. The Florida Department of Revenue knows this. The Florida Department of Revenue will take a look at the FAA Registry from time to time and look for registrations with a Florida address. Upon finding some lucky “winners” (better read as victims), the Florida Department of Revenue will send a letter to the address listed in the FAA Registry. The letter will read something to the extent of how the Florida Department of Revenue tries to fairly administer the tax laws of Florida. The letter goes on asking the recipient to voluntarily incriminate themselves so the Florida Department of Revenue can make an assessment.
With the audits I have seen, both when I was at the Florida Department of Revenue and now in private practice, auditors have been provided glaringly obvious information to show certain aircraft are not subject to Florida sales or use tax. Nonetheless, audit staff continues to mercilessly pursue aircraft owners as a source of revenue that is considered to be easy pickings.
A great example of this is an audit where the Florida Department of Revenue assumed the aircraft was subject to Florida sales or use tax solely because the aircraft had a Florida address associated with the FAA Registry. In other words, the Florida Department of Revenue did not have any proof the aircraft actually came to Florida. Moreover, it could be affirmatively shown the aircraft did not come to Florida. I am wondering how the Florida Department of Revenue can assess Florida sales or use tax tax on an aircraft when said aircraft never enters Florida. That is quite perplexing to me.
As a whole, however, aircraft audits have exploded lately. Why now more than ever is not a question to which I know the answer. There are some helpful tips for aircraft owners for dealing with the Florida Department of Revenue.
First, just because the Florida Department of Revenue says you have to do something does not mean they are correct. I have been told countless times by Florida Department of Revenue personnel that a certain thing must be provided or done. I certainly have no problem pushing back on that knowing the individual to be incorrect. If the auditor wants to be difficult and say an assessment will be issued unless they get something very specific, I do not mind having them make the assessment and fighting the assessment in an appeal or via litigation. It tends to sting an auditor more when (s)he has to say in front of a judge why certain viable information was ignored. Second, do not ignore correspondence from the Florida Department of Revenue. You might disagree with whether you owe Florida sales or use tax or the fact of being audited in the first place. That is fine. I would as well. Ignoring the problem will not make it go away. Ignoring the problem can make things worse, a lot worse. Third, do not be afraid to get professional assistance. It may cost a little more in the short run, but having someone who handles these types of issues every day can save you money in the long term.
If you are lucky enough to receive an audit notice for your aircraft, what can you expect the process to be like? The audit starts with the initial audit notice, list of documents the auditor wants, and a questionnaire. It is your right not to start the audit for the first sixty (60) days. Do not let an auditor tell you otherwise. The documents requested are aspirational in nature. Not everyone is going to have everything being requested by the auditor. However, the auditor sure would like to make you feel like you should have the information and will be penalized for not having the information. Information that might be requested could include your purchase agreement, delivery documents, closing statements, and other similar items. In short, the Florida Department of Revenue wants to know where you purchased the aircraft, when, and for how much. Likewise, the questionnaire also asks similar questions. There is also a line on the questionnaire for saying how much tax you paid, which is a sly way of having you potentially incriminate yourself.
After you begin providing information to the auditor, it is not uncommon for them to request additional information. In fact, some auditors will force you to hurry and go at an unrealistic pace while they take their time to review the information you provide. Eventually, the auditor will send you their “thoughts” on what is subject to Florida sales or use tax and the amount of Florida sales or use tax owed. This is accomplished via a Notice of Intent to Make Audit Changes, which can be Form DR-1215 or Form DR-1216.
Once you receive the Notice of Intent to Make Audit Changes, you should have thirty (30) consecutive calendar days in which you may provide additional information and/or request a conference. Auditors do not always honor this time period, even though it is required by the Florida Department of Revenue’s own Rule! If there is still a disagreement between the auditor and you, then the likely outcome will be the auditor telling you they are going to make the assessment anyways. The auditor might also say that if you do not like it, you can always file a protest or litigate the assessment.
The next document that comes out is usually the Notice of Proposed Assessment. You absolutely must pay attention to this document. The Notice of Proposed Assessment gives you a limited amount of time to fight the assessment. If you receive the Notice of Proposed Assessment and do not timely fight it, you will lose the ability to challenge it. You are then stuck with the amounts being assessed. This is distinguishable from if you do not timely receive the Notice of Proposed Assessment. By way of example, if you get a Notice of Proposed Assessment on January 1, 2023, but the Notice of Proposed Assessment is dated June 1, 2022, I would absolutely advocate for fighting that. The Florida Department of Revenue should not be allowed to negatively impact your rights as a United States citizen and Florida taxpayer just because you did not receive their Notice of Proposed Assessment on the date it was dated. In fact, this is a big problem for the Florida Department of Revenue that we constantly challenge.
In summary, it is critical as an aircraft owner you know, understand, and assert your rights. While the Florida Department of Revenue may fight back, you absolutely must fight the Florida Department of Revenue to protect yourself. Otherwise, the Florida Department of Revenue will have no problem extracting money from you.
About the author: David Brennan is partner with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistate tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctor in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. While working for the Florida Department of Revenue as a Senior Attorney, David focused on various sales and use tax issues, including that of aircraft. You can read his BIO HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Section 212.02, F.S. - Definitions.
Section 212.05, F.S. - Sales, storage, use tax.
ADDITIONAL RESOURCES
AIRCRAFT USE TAX IN FLORIDA, published May 2, 2019, by David J. Brennan, Jr., Esq.
FL SALES TAX: AIRCRAFT 1% OF 6% RULE, published December 7, 2018, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
SALES TAX ON AIRCRAFT LEASING IN FLORIDA, published March 31, 2017, by David J. Brennan, Jr., Esq.
NO FLORIDA SALES TAX ON AIRCRAFT PURCHASED BY NON-RESIDENT?, published November 6, 2016, by David J. Brennan, Jr., Esq.