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| Persons contemplating
purchasing aircraft, boats, recreational vehicles and other assets
should acquaint themselves with sales and use tax law before subscribing
to tax avoidance programs that may subject them to serious sanctions.
Some advisors recommend incorporating and registering your intended
purchase in a state where there is no sales tax suggesting that by
doing so you can escape paying sales tax. While you may or may not
legitimately avoid sales tax, sponsors of these programs will not
explain that you likely remain responsible for use tax
in the same amount as the sales tax allegedly avoided. Use tax is
imposed in all states that have sales tax. Use tax is a sales tax
under a different name and is intended to deal with assets purchased
outside a state’s borders.
Assume you are a resident of Rhode Island intending to purchase an aircraft. You form a Delaware corporation to own the aircraft hoping to avoid sales tax because Delaware does not have sales tax. (There is nothing particularly beneficial about Delaware since there are other states that do not have sales tax.) Even if you bothered to actually transact the aircraft purchase outside Rhode Island to avoid sales tax, when you bring the aircraft into Rhode Island, you would owe Rhode Island use tax in the same amount as the Rhode Island sales tax you just circumnavigated. If you are found by the State of Rhode Island to have contrived to avoid paying tax, you are subject to civil and criminal sanctions. If you use Rhode Island air space without registering the aircraft in Rhode Island, the same sanctions apply including up to one year in prison. All states have serious civil and criminal penalties for failing to pay tax, and many have penalties similar to those of Rhode Island for failing to register aircraft. If hiding from tax authorities by registering your assets in states where they are not located is not for you, contact me to discuss possible ways to legally avoid sales and use tax. I have written books on tax planning for aircraft and boat owners, with the book purchase entitling you to a discussion with me regarding your issues. |
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