Category: Aircraft Sales Tax

Aviation Business News – A View From The 2012 FATA Conference

Aviation Business News
A report from the 2012 FATA Conference

For those looking to keep up on Florida’s aviation business news, one of the best events of the year was the 2012 Florida Aircraft Trades Association (FATA) annual conference.  This three day event included aviation business news, recent developments in aircraft sales tax laws, aviation industry outlooks and, of course, golf, dinner and drinks!

Of the many excellent presentations one of my favorites was the “manufacturers’ panel”.  Leaders from Gulfstream, Piper, Cessna, and Embraer talked a little about the state of the aircraft industry and recent sales data.

Dustin Cordier, Regional Vice President for Cessna Aircraft Company, was pleased that in addition to sales of new aircraft being up slightly from last year there is also a robust market in the used aircraft market.  Aircraft between 3 and 10 years old constituted a combined 80% of the near 1000 Cessna transactions that occurred in Q1 2012, with an emphasis on the North American market.

Steve Cass of Gulfstream reported that sales of their largest aircraft continue to improve.  Simon Caldecott of Vero Beach-based Piper Aircraft expressed “cautious optimism” about the remainder of 2012, encouraged by well-improved numbers from the last few years in Piper’s newer models.  Clint Clouatre of Embraer, the “new kid on the block” confirmed everyone’s recognition of the BRIC countries (Brazil, Russia, India and China) as major markets for general aviation aircraft going forward.

Special thanks to lobbyist Eric Prutsman, who worked tirelessly in Tallahassee to bring about positive changes for Florida’s aviation business, such as extending the state “maintenance and repair” aircraft sales tax exemption to aircraft of 2,000 GTOW and smaller, Association President Sandy Showalter for his excellent leadership and consummate skill as the Conference MC, and of course Paula Raeburn, without whom FATA would not be nearly as colorful, effective or fun!

If you’ve never stayed at the Four Seasons Palm Beach, I might add, I absolutely recommend it, and I would also like to thank whatever tech company was there with the same color badges for not throwing me out when I crashed your unbelievable buffet breakfast on the veranda.  Look, it was an accident!

Year End 100% Aircraft Bonus Depreciation

Aircraft Bonus Depreciation
Aircraft bonus depreciation still in sight

From year-end 2011:  “As the holidays approach our thoughts become preoccupied with but one thing: how can I purchase an aircraft and write off 100% of the cost basis in the first year? Well, perhaps not for everyone, but here’s what you need to know: if you purchase an aircraft and place it in service by December 31, 2011 you will qualify for the 100% bonus provision provided you meet all of the other requirements. This is a considerable benefit under any circumstances.

If this is NOT possible, however, and you must place your aircraft in service next year, you are probably still better off than you would have been had you “only” been able to take the 50% bonus. This is because assets placed in service in the fourth quarter of the year do not receive the full first-year depreciation allowance. Your bonus allowance reverts back to 50% for assets placed in service in 2012. By waiting until early next year, you still receive this benefit, but are now able to take the full year MACRS depreciation allowance. In other words, unless the value of your depreciation allowance is considerably greater than it will be next year, you’re better off taking your time and making sure you have done your tax planning carefully, not only at the federal but also at the state – sales tax – level.”

Update 2012:  The good news:  100% bonus depreciation is still with us on qualified aircraft purchases through the end of this year.  What’s “qualified”?  There are several factors, including that you purchase a new (or substantially rebuilt) aircraft, and that you take delivery and place it in service before the end of the year.

The bad news:  This might not be around forever, which as bad news goes is pretty acceptable in my book.

On “Corporate Jet Loopholes” and other silly titles

Here we are again with the populist rant against the “corporate jet loophole”. Let’s start with some basics: the “loophole” refers to the bonus depreciation provisions that allows taxpayers to write off, in most cases, 100% of the purchase price of new, tangible personal property in the year in which the asset is placed in service.

Now, no one can argue that a 100% writeoff is a bad deal. In fact, it is nearly unprecedented in that under present law there is no ceiling on the amount that can be depreciated. So, as far as “corporate jets” are concerned, it is certaintly nice to have.

Here’s the problem, though, one of many: Exactly how many “corporate jets” are there relative to the amount of capital equipment that is placed in service every year? The bonus provisions are not a corporate jet anything – they will apply to most new purchases of business equipment, perhaps backhoes, vehicles, manufacturing equipment and so on – perhaps the very equipment needed to provide those “shovel ready” stimulus jobs which never showed up. The issue has been framed purely for political purposes: to create the idea that somewhere in the tax code lies a provision hand-crafted and narrowly tailored to give a huge writeoff to “corporate jet” purchasers at the expense of everyone else.

Second, the bonus provisions apply only where the property to be depreciated is “first used” by the taxpayer – i.e. new. There remains a large inventory of used aircraft of all sizes, jets and otherwise, and prices remain largely flat. In terms of the number of units sold the “corporate jet” loophole is smaller than many believe.

This all, of course, sets aside the real damage, which is to the image of general aviation in general, one of the few remaining bastions of American manufacturing. U.S. aircraft manufacturers, and the people that work for them, face more foreign competition than ever from sleek foreign competitors.

Perhaps it’s obvious to point out that this is not about fairness. Rather, it is about cynically pressing buttons designed to inflame and exaggerate classic us versus them cliches. No issue is one-sided, but a little truth wouldn’t hurt.

General Aviation Caucus Lobbies For New York GA Competitiveness

New York, like Florida, may be beginning to draw back from policies that punish general aviation in the state. Aircraft buyers routinely go to Connecticut, which does not charge sales tax on larger aircraft, in order to save considerable sales tax upon purchase. While aircraft rentals are subject to use tax when returned and based in New York, aircraft owners still have the option to base aircraft nearby. This results in a loss of revenue in the form of annual inspections, hangar leasing and other activity crucial to the economy of New York.

NBAA’s Handy State Tax Guide

The National Business Avaition Association publishes a very handy “quick reference” tool to state laws concerning aircraft sales and use tax, aircraft registration, fuel tax and related tax issues. This service is free to NBAA members with usernames and passwords to www.nbaa.org. This service resembles, though certainly doesn’t replace, a similar compilation available through publisher Conklin & DeDecker.

Whatever resource you use, however, must be current as to recent tax law changes. Florida only recently, for example, created new provisions governing sales and use tax applied to aircraft returned here within 180 days of purchase. Contact a qualified aircraft tax advisor for details and the most recent updates. Also visit our website, at https://www.goodattorneysatlaw.com/aviation.html.