Property Taxes Saving Techniques

The article written last month titled “Proper Delivery Outside of California Begins the “Use Tax” Exemption Process” explained the importance of, and how to, properly take delivery of an aircraft outside the state, which is the first step in the California sales and use tax exemption process.  If you didn’t get a chance to read that article you can contact Aero-tax Compliance Experts, LLC (ACE) for a copy or visit www.aero-tax.com.

Many aircraft owners and potential owners have contacted us for an explanation on California’s “first functional use” requirement.   We have learned that there is a lot of mis-information and confusion on this issue.  Our attempt is to clarify some of the confusion that exists and eliminate the mis-information with the “first functional use” requirement for the California use tax exemption process.

“First functional use” is a critical component of the California use tax exemption process.  California Sales and Use Tax Regulation 1620 defines first functional use as “use for which the property was designed.”  An aircraft is defined in Law section 6274 as “any contrivance designed for powered navigation in the air except a rocket or missile.”  Logically, one would conclude that first functional use of an aircraft is flight because aircraft are designed to fly; right?  Not necessarily.  In my experience with the sales and use tax law, one can not rely upon logic. 

The California State Board of Equalization (BOE) has effectively confused the term “for which the property was designed” with “how big it is,” or “how is it configured.”  I’ll explain; in May of 2002 a staff member of the BOE’s tax counsel (writer) drafted a memorandum to another staff member explaining to them the writer’s interpretation of first functional use.  Somehow, the writer deduced a formula, or justification, to distinguish between aircraft designed for personal purposes and aircraft designed for commercial purposes.  Simply put, the writer concluded in the memorandum that an aircraft with 6 or fewer seats was an aircraft designed for personal purposes, and an aircraft with 7 or more seats was designed for commercial purposes. 

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To confuse the issue even further, the writer decided that all jet aircraft were designed for commercial purposes, and “personal” aircraft could be “configured” for commercial purposes.  Additionally, the writer added that it was possible for someone to justify a large jet as a personal use aircraft.

Now that the writer made a distinction between personal and commercial aircraft, the writer defined the “first functional use” for each.  Aircraft that are designed for personal purposes were first functionally used when flown, and aircraft designed for commercial purposes were first functionally used when flown with a passenger or cargo onboard.

We have researched and reviewed several thousand legal opinions and rulings from the BOE on this issue.  The BOE had interpreted first functional use as flight, up until this memorandum was drafted and distributed throughout the agency.  After the distribution its effect was immediate, and in some cases a retroactive application of the new formula.  During our research, we developed the industries most successful approach to complete the first functional use requirements pursuant to the current standards, and have projected other items that may be required in the future. 

As a standard practice, Aero-tax advises that the purchaser bring someone, to the out of state delivery location, to act as a true passenger (not a pilot, co-pilot, flight crew, CFI, etc.) onboard a flight (or two) outside of California before proceeding with their specific exemption.  In addition, this flight must begin in one state, country, territory, etc. (not California), and end in a separate state, country, territory, etc. (not California).  For example, this flight may depart from the out of state delivery location (Oregon), to another state (not within California or Oregon).  Depending on the “design/size” of the aircraft and for those who are claiming the commercial interstate or foreign commerce exemption, they must conduct business at the location they travel to.  In addition, documentation must be obtained to support the business purpose (i.e., meeting notes, invoices, proposals, etc.) of the flight.

After the first functional use flight has been made, and prior to departing that location, fuel must be purchased, ideally using a credit card.  This will generate a fuel receipt that will contain documentary evidence that the aircraft was at this location on a specific date.  Additionally, a statement will be needed from the passenger onboard the aircraft during the “first functional use” flight.  Depending upon the type of exemption you are claiming the aircraft may or may not be allowed into California.   

If the foregoing process and documentation are properly completed and collected, the “first functional use” requirement should be adequately fulfilled.  The smallest variation could mean disaster for the tax exemption.

The “first functional use” is only one of the small, yet critical, parts of the California use tax exemption process.  There are many aspects which must be completed successfully and documented in order to secure the exemption.  ACE will guide the purchaser through the process and ensure the success by monitoring each aspect of the exemption requirements.

Unless otherwise expressly indicated, any advice contained herein was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any sales or use tax, interest or penalty that may be imposed.  To be certain the exemption requirements are accurate for your specific situation, call one of our tax experts to discuss.

Other articles will be coming out periodically to explain other aspects of the California sales and use tax laws, regulations, legal decisions, exemptions, or other related matters.  If you have a specific sales and use tax topic that you would like discussed or explained please send us an email to joe@aero-tax.com. 

Related California Property Taxes Articles

States are offering hefty tax incentives and rebates for homeowners who install green energy solutions like solar panels. California solar installers have become the bridge and they are providing education to consumers on how to get the most out of these incentives. In addition, California solar installers have gained access to tools that are used to evaluate power production in many locations. When solar energy is mentioned, many people think of the rewiring procedures and need to have battery storage. However, with improvements in technology, it is now possible to enjoy renewable solar energy easily. Some solar panels have built-in batteries that allow them to store energy and hence no need to have battery storage.

Photovoltaic (PV) solar panels being offered by California solar installers are very efficient and the designs are more attractive compared to previous, older, legacy models. The panel’s power supply is better since they are connected directly to the utilities, and the grids are used to store power – this process is referred to as net metering. The benefit is that, during the hot part of the day, homeowners sell the power back to the Utility Company. When the day is cold, homeowners draw back energy from grid. The homeowners are paid depending on how much power their panel has generated at the end of each month.

The PV panels from California solar installers are able to convert electricity from light with the use of different configurations. The measure of panel quality depends on its energy conversion ratio and the higher the percentage the better and efficient the solar panel. However, before purchasing a solar panel it is important to review the rating of panels to determine the efficiency of the complete solar component instead of part review. It is important to evaluate life cycle of panels to determine their friendliness to the environment.

Solar companies ensure people and the environment benefit from its activities by reducing the consumption of less eco-friendly energy while still offering the same benefits. California solar installers offer various programs and they include energy efficient application rebate program and California PV incentives. Others include California property tax incentives, single-family affordable solar housing program, CES new solar homes partnership and solar water heating rebate program. In addition, many solar installation companies also offer emerging renewable programs, sales tax exemption for alternative energy manufacturing equipment and self-generation incentive program.

California solar installers run California solar initiative, which is part of California governor Arnold Schwarzenegger’s program for 1 million solar installations. The program aims to achieve three thousand megawatts of solar electricity by the year 2016. Solar installers work on solar panels installed in homes, businesses, farms, schools, government organizations, and non- profit organizations. Anyone can benefit from the rebates offered by California solar installers as the cost of PV solar panels have fallen due to improved efficiencies in the industry. You can also benefit from tax exclusion when you purchase certain panels and install them in the period between 1 Jan 1999 and Dec 31, 2016.

California and the American Tax Revolt: Proposition 13 Five Years Later

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California rundown: EDD Auditing, Property Tax and BOE taxes.(CATax): An article from: California CPA

This digital document is an article from California CPA, published by California Society of Certified Public Accountants on September 1, 2010. The length of the article is 818 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available immediately after purchase. You can view it with any web browser.

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Title: California rundown: EDD Auditing, Property Tax and BOE taxes.(CATax)
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How to Legally Reduce Your Property Taxes (Calif)

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The The Permanent Tax Revolt: How the Property Tax Transformed American Politics

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Tax cuts are such a pervasive feature of the American political landscape that the political establishment rarely questions them. Since 2001, Congress has abolished the tax on inherited wealth and passed a major income tax cut every year, including two of the three largest income tax cuts in American history despite a long drawn-out war and massive budget deficits. The Permanent Tax Revolt traces the origins of this anti-tax campaign to the 1970s, in particular, to the influence of grassroots ta

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Taxes in California fall into three categories. There are taxes on income, on property, and on sales.

Let us look first at income tax. This is paid on personal income. It is a progressive tax that varies according to the size of the income. There are six tax bands. On the first ,622 of taxable income 1% tax must be paid. This goes up to 2% for the next tax band between ,623 and ,698. The third tax bracket, ,699 and ,776, pays 4%. It is 6% on incomes between ,777 and ,394 and 8% on incomes between ,395 and ,467. Above that level tax is payable at 9.3%.

In addition there is a 1% surcharge on incomes over million. This makes the highest income marginal tax rate 10.3% in California.

Tax returns must be submitted by April 15 every year. They should be made on Form 540EZ, Form 540A (short form), Form 540 (long form) or Form 540-ADS.

Couples can file joint tax returns. In this case the allowances for each tax bracket are doubled.

Sales tax varies across California. In January 2002 it was generally 7.25%. This figure includes state, county and local sales taxes. The state component is 6.25%. But in some cities and counties with their own powers of taxation it may be higher.

What is regarded as taxable may vary from business to business. Gift wrapping may or may not be counted as a taxable item for sales tax purposes. Some businesses treat it as a non taxable item. when food is gift wrapped the gift wrapping service may be taxed but the food itself exempt.

Taxes are payable on real estate in California. But there are many exemptions. Those who think they may be able to claim an exemption should apply to the local County Tax Assessor’s office for information. Some homesteads are exempt from local property taxes. Disabled citizens and senior citizens may be eligible for tax postponement. This applies to their principal residence only. It involves recording a lien against the property. Interest is charged on the postponed tax.There is also an assistance program for eligible home owners and renters. It consists of a once a year payment that is based on a proportion of the tax payable on their homes or included in their rent.

There are no inheritance taxes in California. Estate tax is being brought into line with changes in federal estate tax law and is currently being phased out. For people who died after January 1 2005 there is no need to file an estate tax return.

There are no intangible personal property taxes in California. Only real estate is liable for taxation under California taxation law.

More details can be found on the California Franchise Taxboard Website. The state’s instruction book will explain about the exemptions that are allowable and what refunds can be claimed. The instruction book also explains the program of voluntary fund contributions that can be made by California citizens.

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How to Reduce Your California Residential Property Taxes

If you’re going to prepare a California residential property tax appeal because of the decline in value of your home or investment property, then you will benefit from the practical guidance in this book. 1. No other book focuses exclusively on how to reduce your California real property taxes due to the decline in market value. 2. While helpful, state and county guides do not provide advice on how to minimize your property tax bill. 3. This book explains the advantages and disadvantag

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Property Taxes and Tax Revolts: The Legacy of Proposition 13

Property tax revolts have occurred both in the United States and abroad. This book examines the causes and consequences of property tax revolts, focusing on California’s experience with Proposition 13. New theoretical approaches and evidence from a comprehensive empirical study are used to highlight the equity and efficiency of property tax systems. Since property taxes are local government’s main revenue source, the book includes a comparative study of the evolution of local government followin

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California Property Tax (Second Edition) by James S. Bone, CPA, M.B.A., C.M.I., is a concise guide to the complex web of California property taxes–the agencies that administer them and legal concepts and processes that support them. California property taxes are administered by 58 county governments of California, primarily through activities of three elected officials: the assessor, the auditor-controller, and the tax collector. The State Board of Equalization (BOE) regulates county assessment

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