Category: Aviation News

Florida Aircraft Repair Maintenance Exemption – Aircraft Tax Lawyer Ari Good

Aircraft Repair and Maintenance Exemption in Florda
It’s good to turn wrenches

Florida Aircraft Repair Maintenance Exemption:  As a friendly reminder to aircraft owners (and snowbirds) nationwide, be advised that Florida wisely modified the “repair and maintenance” exemption this past June to apply to smaller, in fact most, planes, giving greater tax benefits to small aircraft owners having work done on their planes in Florida.

The aircraft repair and maintenance exemption in Florida has since 1994 provided that “repair and maintenance” labor charges are tax-exempt when performed on aircraft with a MTOW of greater than 15,000 pounds (10,000 pounds for helicopters).  Parts and equipment remained taxable “except as otherwise provided” in the exemption statute.  Fortunately for the airplane owner, the statute does indeed otherwise provide that “equipment used in aircraft repair and maintenance” (including replacement engines, parts and equipment used for such activities) is also tax exempt when used for these purposes.

Taxpayer information publication TIP #12A01-04 extends this exemption to planes weighing 2,000 pounds or more. This will obviously apply to most owner-pilot, single piston aircraft using the plane partially or wholly for business.

Also welcome are provisions of the Florida Administrative Code that provide that “labor, parts and materials used and actually incorporated into and becoming a component part of [the aircraft] in rebuilding repairing or reconditioning same for resale or exclusively for leasing are exempt.”  Since many of you have airplanes in leasing company is for purposes of Florida’s “sale for resale” exemption, you may enjoy these provisions and reap considerable Florida sales tax and use tax cost savings.

Please contact me at 877-771-1131 for more information about this exemption, possible pitfalls and how I can make this work for you.

 

Enter The Drones – FAA required to make room for UAVs by 2015

Ari Good aviation tax lawyer drones
Lousy legroom too

Enter The Drones – fSo from the looks of it it’s not so much a question of if, but rather when, private and commercial pilots will be sharing the American skies with unmanned aerial vehicles (UAVs), more commonly known as drones.  The FAA has at least as early as 1991 been collecting information and requests from industry and Congress alike regarding implementing these systems. The FAA Modernization and Reform Act of 2012 requires that the FAA implement the necessary procedures to put drones to share our skies by 2015, although it looks like they’re running into little delays here and there (perhaps not so strange for a government agency).

So, drones, are they a good thing or a bad thing?  Well, I say both.  The possible civilian uses are exciting.  I was listening to people sound off on the issue in a Google hangout (a little virtual town meeting on pretty much anything).  One person who influenced me the most was a fire chief talking about its department’s use of a drone to pinpoint hotspots in a dangerous wildfire.  He said that he would not have been able to get the fire under control nearly as effectively without it, since the area was too dangerous for helicopters and too distant for conventional aircraft.  Industries of all stripes lined up with their favorite uses, ranging anywhere from monitoring oil pipelines to crops to real estate professionals who want the coolest video ever for the neighborhood they’re showing.  The technology is impressive (and undoubtedly has multiple commercial uses).  So, there is no doubt there are some serious potential benefits and a fun, technological “gee whiz” factor.

Now the part that concerns me a bit.  Among the biggest proponents, and biggest customers, for drones are federal and state law enforcement agencies, many of whom already have them, even smaller bodies like my own hometown Collier County Sheriff’s Department.  Now I am a law and order guy but in a Constitutional democracy we have the obligation to ask, and the right to know, the types of policing operations would require mass, continuous and detailed surveillance?  There is no doubt that certain operations would benefit tremendously from this type of technology, and having drones in high-stakes scenarios could save officers’ lives.  The problem is that these machines are not like manned aircraft.  They don’t get tired, they can see almost anything, and they can watch over people 24/7, whether we like it or not.  We need to be honest with ourselves about human nature: isn’t a drone is just too cool a toy to sit underneath the government tree?  I vaguely recall a case from law school in which the court threw out evidence collected from a marijuana grow house because the police used electronic surveillance equipment to “look” through the grow house walls without a warrant.  So, maybe the drones will be looking for terrorists, maybe for pot, but what about a politically unpopular land-use or political gathering?  Food for thought.

In any case drones are already a reality in our US skies.  It is essential that the FAA continue to develop the appropriate regulatory and operational framework with the Constitution in mind.  From a technological standpoint, too, we also need to make dern sure we don’t have Predators smashing into cargo ships full of Spongebob Squarepants paraphernalia or shooting down 172s.  It sounds funny but computers can and do make mistakes, and these would be big mistakes.  There must be some sort of civilian oversight of law enforcement use of the drones, and, in my view, military missions are probably prohibited under the Constitution.  Given that there are some years of implementation to come it’s worth having a look at the issue and the current debate.

Mergers in Aviation: The Hawker Effect

Anyone who is familiar with the aviation industry knows that the past decade has been a tough one economically. A global recession, partnered with high fuel costs and rising operational costs, has had a devastating effect on many in the business. The circumstances surrounding this decade-long slump have caused a ripple affect that can be felt all across the industry. From the largest commercial carriers to the smaller business jet producers, companies have had to “tighten the belt”, metaphorically speaking, to keep from going under. In some cases, this has meant filing for bankruptcy, and facilitating a buyout via acquisition. For others, it means mergers with another business just to stay afloat.

While the merger between Continental and United Airlines grabbed the biggest commercial headlines in 2010, there’s another story that’s grabbing everyone’s attention in the GA world. That story is the eminent acquisition of the bankrupt Wichita-based aircraft manufacturer, Hawker Beechcraft, Inc. Hawker filed for Chapter 11 bankruptcy in May, 2012, after massive layoffs and a steady profit loss had damaged the company beyond repair. The company had admitted to losing $1 billion in the previous two years, and was unable to pay their overall accrued debt of $2.3 billion with the state that they were in.

This is where Chinese aircraft manufacturer Superior Aviation Beijing stepped in. This past July, the company made a $1.70 billion offer to purchase ailing Hawker that was accepted by both parties. The deal is pending approval from a U.S. federal bankruptcy court, and sources close to both parties say the deal should be completed this month. But what does this mean for the future of Hawker? And will this become a bigger trend for other GA aircraft manufacturers in the United States?

If all goes as planned, Hawker will still continue to produce aircraft, but will be downsized in certain areas. The company has already applied to sell vacant land back to the city of Wichita, which will help to cut expenses and recuperate losses. The issue that has many in the industry concerned is that this could happen to other GA manufacturers if they begin to see similar types of profit loss. This could cause struggling manufacturers to merge with each other, rather than run the risk of going bankrupt and being purchased by overseas investors.

Luckily, for a few of America’s bigger manufacturers, the economic outlook for 2013 looks to be on the up and up. Take Cessna, for example, who’s profits have steadily risen this past year, and with an increase in production and new management strategy, hope to keep the current growth trend going for many years to come. If this model is copied, it could keep the majority of GA producers in the black for a long time.

At the end of the day, what the Hawker bankruptcy can teach us is that poor financial management can lead to massive ripple effects. It shows this not only for the company itself, but also for the greater American aircraft production industry. While Hawker should serve as an example, it doesn’t necessarily represent the norm. With a strong financial plan and good management structure, GA manufacturers will be able to adapt to the new global financial climate and weather the storm. This way mergers and bankruptcy hearings will be a somber memory, and not a current reality in the future.

Aircraft Personal Use: SIFL Rates For The 2nd Half Of 2012

Aircraft Personal Use:  SIFL Rates 2012

This article provides the “ingredients” used in calculating Standard Industry Fare Level (SIFL) charges for personal non-entertainment (PNE) use of aircraft. 
For the uninitiated, the SIFL calculation is used to impute income (compensation) to the executive using the plane for a narrow class of non-business, but non-leisure related activities.  PNE use can include, for example, the use of the plane to attend a family funeral.  The expenses attributable to these flights are generally deductible so long as the executive recognizes the SIFL phantom income.

The most updated SIFL rates for flights taken between 7/1/12 -12/31/12 are:

  • 0 to 500 miles = $.2569 per mile
  • 501-1,500 miles = $.1959 per mile
  • Over 1,500 miles = $.1884 per mile

These charges are calculated “marginally” like income tax rates, that is, you calculate the SIFL mileage charge for each stratum and then add them together. Example:  1,000-mile flight will require calculating 500 miles x $0.2569, plus 500 miles x $0.1959.

This figure is then multiplied by an “aircraft multiple” that depends on two additional factors, first, the Gross Takeoff Weight (GTOW) of the plane, and second, whether the individual generating the SIFL charge is a “control” versus a “non-control” employee.  In essence, the larger the plane the larger the multiplier, since SIFL is a “special valuation rule” designed to capture the theoretical value of a first class ticket aboard that type of plane.  Also, control employees generate more SIFL income than non-control employees, in theory an adjustment that attributes more income to owners, directors and officers than to other employees.  In some cases this reduces the overall bill (a non-control employee multiplier for a small airplane is as low as 15.6%), and in others greatly expands it (a control employee flying a heavy jet multiplies the miles by 4).  Call me for the exact figures and some things to look out for.

Top off this figure with a “terminal charge”, which is updated twice per year.  The terminal charge for the second half of 2012 it is $46.97 per SIFL-qualified flight.

(Updated 08/23/2012)


Florida extends aircraft maintenance tax exemptions

Florida legislators wisely passed a law that expanded the pre-existing tax exemption for aircraft maintenance costs, including equipment used in repairs. This is great news for general aviation aircraft owners and business aircraft operators. The law was initially passed by the Florida House of Representatives in February 2012, and has been in effect since July 2012.

Under the old Florida law, the maintenance tax exemption was applicable to aircraft weighing more than 15,000 pounds (rotary aircraft weighing over 10,000 pounds). This meant that most light-weight, corporate, and private aircraft were subject to in-state maintenance and repair tax, and small aircraft owners took their business elsewhere accordingly. The new law reduces the weight limit to 2,000 pounds, considerably broadening the types of aircraft that fit in under the state tax exemption.

This revision is a home run for the Florida general aviation community in a sluggish economy. With this new tax exemption there are rising hopes that Florida can return to its leadership role in attracting general aviation contractors and related small businesses. Florida is now one of 32 states to have passed significant aviation-based tax exemptions in the last few years. Both lawmakers, and local business leaders, expect an immediate boost in employment, maintenance traffic, and production.

Rep. Stephen L. Precourt, chairman of the Finance and Tax Committee, introduced the new tax exemption law as a bill, and moved it directly to the House late last year. However, the bill was initially created based on provisions provided by two separate bills, introduced by House Rep. Steve Crisafulli, and Senator Mike Bennett. Their goal was to expand sales, use tax, and maintenance tax exemptions to encourage economic growth in the industry. The new tax exemption bill, formally known as HB7087, was heavily supported by local organizations such as the Florida Aviation Trade Association (FATA), the Florida Airports Council (FAC), and the Aircraft Owners and Pilots Association (AOPA).