Second-hand kit purchase issues FL-TX

reader wrote:
I've read on the Cozy mailing list or the Canard Flyers list that in Texas
it was sufficient to state that all applicable taxes have been paid for a
plans-built. On the same list, it was mentioned that Massacusets wanted a
sales tax on all materials purchased from out of state.

I have a buddy here in Texas (he lives just north of Houston) who just
ordered a quick-build kit for an RV-8 and everyone is suddenly now
advising him he's going to have to pay "use tax" on the out-of-state
purchase of the kit and parts themselves. Seems that Texas is starting
to ramp up on trying to collect "use tax" on any out-of state
mail-order, online, and phonecall purchases of *any kind of
merchandise* for which the purchase price is on their radar screens. At
nearly $27K for the whole RV-8 quickbuild kit bought all at once, I can
imagine that amount is certainly going to be on someone's radar screen.
Now just how the state is going to track a sale of parts bought in
Oregon (home of Vans) I don't know.

Now just how the state is going to track a sale of parts bought in
Oregon (home of Vans) I don't know.

When he applies for a N number the state money collectors will be alerted

Texas most definitely has some strange rules on taxes with regards to
aircraft (and a few other things as well). The "use tax," as opposed
to a sales tax, is just another name for a sales tax on something
bought out of state (or in-state where no sales tax was collected).
It's basically the difference between what would have been due on an
in-state purchase and what was paid out of state. [For example, if I
buy a car out of state and pay 5% sales tax there, then bring it into
Texas, I owe an additional 3 1/2% "use tax."]

In the best case, there is no tax on "occassional sales" between
private individuals within the state. That should be his starting
arguement. However, if he bought it from the factory, then that will
not stand. It's a business-related sale. He can argue the "no tax on
internet sales" issue. That's the next best shot. However, there are
two problems there for anyone living in Texas.

First, a line item was added about 10 years ago that specifically
presumes aircraft to be business property and therefore tax is due. He
will have to prove that he has absolutely no business use for the
plane. [Interestingly, the line item to the tax code doesn't even
allow for proving otherwise. It says if you own your own plane, you
must be using it for business. However, they have no desire to see
anyone fight this in court and will back down if you can prove
otherwise.]

The second problem may or may not exist for any particular individual:
If the individual has any tax certificate in their own name, then any
purchase they make may be deemed by the state to be a business purchase
and tax is due. This means that in theory, since I own a small
business and hold an assigned business tax number in my name (DBA),
that if I give my neighbor $10 for an old tennis racket, it's a
business purchase and I owe use tax. In practice, of course, they only
find out about items during an audit, or big ticket items such as
aircraft and automobiles. Their computer program looks each year at
all autos and aircraft that are newly registered within the state, and
a card stating "you owe tax" will be sent (whether you eventually wind
up owing the tax or not).

Don Lewis n FTW wrote:
When he applies for a N number the state money collectors will be alerted

Ahh, I see.

jmk wrote:

In the best case, there is no tax on "occassional sales" between
private individuals within the state. That should be his starting
arguement. However, if he bought it from the factory, then that will
not stand. It's a business-related sale. He can argue the "no tax on
internet sales" issue. That's the next best shot. However, there are
two problems there for anyone living in Texas.

First, a line item was added about 10 years ago that specifically
presumes aircraft to be business property and therefore tax is due. He
will have to prove that he has absolutely no business use for the
plane. [Interestingly, the line item to the tax code doesn't even
allow for proving otherwise. It says if you own your own plane, you
must be using it for business. However, they have no desire to see
anyone fight this in court and will back down if you can prove
otherwise.]

Me and my flying partner own a 172 we bought from out of state from an
individual. The first year of ownership, the county tax assessor sent
us an affadavit to sign that swears the plane is personal use only and
not related to business, which is true, our plane is purely an
expensive toy. We were not charged any sales or use tax. I had presumed
the tax assessor simply discovered our plane when he or his staff
personally visits the airport every January looking for business
aircraft to tax, since the affadavit showed up during the very first
January we owned the plane.


The second problem may or may not exist for any particular individual:
If the individual has any tax certificate in their own name, then any
purchase they make may be deemed by the state to be a business purchase
and tax is due. This means that in theory, since I own a small
business and hold an assigned business tax number in my name (DBA),
that if I give my neighbor $10 for an old tennis racket, it's a
business purchase and I owe use tax. In practice, of course, they only
find out about items during an audit, or big ticket items such as
aircraft and automobiles. Their computer program looks each year at
all autos and aircraft that are newly registered within the state, and
a card stating "you owe tax" will be sent (whether you eventually wind
up owing the tax or not).

My buddy who's building the new RV-8 will probably fall into that
category. He owns a small restaurant and I think it is a sole
proprietorship, not a corp.

I took this off the Illinois tax website:
Tax Rate
The rate is 6.25% of the purchase price or fair market value,
whichever is greater.
If you acquire the aircraft by purchase from a person or business
that is not in the business of selling aircraft at retail, you must pay
tax on the aircraft's purchase price. If the aircraft's purchase
price is less than the fair market value, you must pay tax on the
aircraft's fair market value on the date acquired or the date brought
into Illinois, whichever is later. If you acquire a share of an
aircraft, tax is based on the purchase price or fair market value of
the share acquired. There is no provision for a trade-in allowance
under Aircraft Use Tax. The tax due is based on the fair market value
of the aircraft or share of the aircraft.


I like the words "which ever is greater"

I got a written response from the State of TX: No tax is due because this
falls under the "occasional sale" exemption. Second hand kit, both of us
individuals, neither engaged in the business of selling stuff.

QUOTE:
The purchase of an aircraft kit and/or aircraft parts and materials may be
exempt as an occasional sale under Tax Code Section 151.304(b)(1) provided:

1) the seller has not made more than two sales of taxable items (not just
parts for an aircraft) subject to sales tax within a 12-month period, and
the seller is not engaged in the business of selling taxable items (not just
aircraft parts) and 2) neither the seller nor the buyer has been issued a
sales tax permit or the equivalent by Texas or any other state.

In other words the purchase, in one or two transactions in a 12-month
period, of parts and materials to build an aircraft by an individual who
does not hold a sales tax permit from another individual who also does not
hold a sales tax permit, is exempt from Texas sales and use tax as an
occasional sale. However, the subsequent purchase of such parts and
materials by the same purchaser from the same seller will be subject to
Texas use tax if brought or delivered into Texas. See Rule 3.316 on
occasional sales.

END QUOTE

1) the seller has not made more than two sales of taxable items (not
just
parts for an aircraft) subject to sales tax within a 12-month period,
and
the seller is not engaged in the business of selling taxable items (not
just
aircraft parts) and 2) neither the seller nor the buyer has been issued
a
sales tax permit or the equivalent by Texas or any other state.

Right... That first one gets you into the "occasional Sale" arena.
The second is that little nasty that I referred to, where anyone
holding a valid sales tax permit is presumed to be making a business
transaction, no matter what or why the purchase was made. There is a
little additional wording in there somewhere (used to be subsection h)
that says if it's an airplane, the it *IS* purchased for business use.

But, as is true for most folks, if you can get by #1 and #2, then no
tax is due. [First plane I ever bought, they sent me the request for
Use Tax a good 5 years after the purchase. To agree that it was
Occasional Sale (second part of the rules hadn't been written in back
then) they wanted to seller to sign this notarized affidavit. Well, he
was elderly then, and selling due to ill health, and moving...
Probably cost me almost as much to track him down and get it signed as
the tax would have been. G