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How To Respond To A Request For Re-Examination

by Greg Reigel 2. February 2018 09:41
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If you are involved in an accident or incident and the FAA finds out about it, which it usually does, it is quite possible that you may receive a letter from the FAA requesting that you submit to “reexamination.” This is also commonly referred to as a “709 Ride.” If you receive a letter like this, what are your options?

What Is The Request For Re-Examination?

The request for reexamination is based upon the FAA’s authority to re-examine an airman holding a certificate or rating (pilot, flight instructor, airframe and powerplant etc.) at any time pursuant to 49 U.S.C. 44709(a). When the FAA discovers evidence that leads it to question an airman’s qualifications to exercise the privileges of the applicable certificate or rating, the FAA issues the request requiring the airman to demonstrate that he or she does, in fact, still have the qualifications for the applicable certificate or rating. Incidents such as gear-up landings and uncontrolled departure from the runway are examples of situations involving circumstances that very well may lead the FAA to question an airman’s qualifications.

You may be wondering whether a request for reexamination is proper if the accident or incident was not the airman’s fault. For example, if the accident or incident was caused by a mechanical failure is that still enough for the FAA to request reexamination? Unfortunately, unless the mechanical failure is obvious to the FAA as the sole cause of the incident, a request for re-examination is likely to be considered reasonable. Why? Because the FAA only has have “sufficient reason to believe that an airman may not be qualified to exercise the privileges of a particular certificate or rating.” If it does, the re-examination request is considered reasonable, without regard to the likelihood that a lack of competence had actually played a role in the event.

According to FAA Order 8900.1, Volume 5, Chapter 7, “[t]here must be ample or probable cause for requesting the reexamination” including reliable reports, personal knowledge, or evidence obtained through an accident, incident, or enforcement investigation. Thus, the “lack of competence” has to be supported by the facts and circumstances in the case. However, as long as a basis for questioning an airman’s competence has been implicated, rather than actually demonstrated, the request is considered reasonable.

The Re-Examination Request

The procedures for the reexamination are set out in Order 8900.1. The Flight Standards District Office (“FSDO”) responsible for the area within which the accident or incident occurred will send the airman a letter requesting re-examination, via certified mail, return receipt requested. The letter will include (1) the reasons for the re-examination; (2) the specific certificate and/or rating for which the re-examination is necessary; (3) the type of re-examination (e.g. the tasks the airman will be required to perform); (4) the category and class of aircraft required (if applicable); (5) the location of the re-examination; and (6) a time limit for accomplishing the re-examination.

After the airman receives the letter, the airman usually has fifteen (15) days within which to complete the re-examination, although this is not always the case. If an airman was injured in an accident and his or her physical condition precludes completion of the re-examination or if the airman needs more than fifteen (15) days within which to practice/prepare for the ride, the re-examination may be postponed. Under these circumstances the FAA may require that the airman surrender his or her airman certificate and the FAA will issue a 30-day temporary certificate for the airman to operate under until the re-examination.

As a practical matter, it is not uncommon for a reexamination to actually be conducted after the fifteen (15) day period. This is especially true if the reexamination has to be conducted in an aircraft requiring a type certificate since the reexamination will need to be conducted by an FAA inspector who also holds a type certificate in the applicable aircraft. It is may also be possible to schedule the reexamination to be conducted in connection with an upcoming training event. As long as the airman is communicating with the FSDO and/or inspector, it is usually possible to get the reexamination scheduled without having to surrender the applicable certificate or rating.

However, if the FAA believes the airman will be operating commercially while carrying passengers, the FAA may demand that the re-examination occur within less than fifteen (15) days. In this situation, if the airman is unable or refuses to submit to the re-examination within the time specified, the airman may actually have to surrender his or her certificate or rating.

If the airman is required to surrender his or her certificate or rating, the airman may then obtain dual instruction from a certificated flight instructor in preparation for the ride or, if the airman finds it necessary to conduct solo practice, the FAA may issue a temporary airman certificate, valid for thirty (30) days, rather than the one-hundred twenty (120) day period usually allowed with a temporary certificate. However, if a temporary certificate is issued, the certificate/ratings for which the airman is to be re-examined will have the limitation "For Student Pilot Purposes Only-Passenger Carrying Prohibited”.

If an airman wants to surrender his or her certificate, the airman should not simply show up at the FSDO and hand it over. The certificate should be delivered with a letter in which the airman confirms that the certificate is only be surrendered on a temporary basis and that the airman reserves all privileges, rights and remedies with respect to the certificate and any potential adverse action the FAA may decide to take. An aviation attorney can help to draft this letter and/or assist with the logistics of the surrender.

The reexamination does not necessarily have to be scheduled with the FSDO that issues the request. If the accident or incident occurred somewhere other than the airman’s home area, the airman can request that the re-examination be administered by the airman’s home FSDO. Or, if the inspector or FSDO issuing the request has a less favorable reputation, which some of them certainly do, then the airman will likely benefit from having the reexamination conducted by a different inspector or FSDO. In this situation, the airman’s home FSDO would contact the FSDO issuing the letter requesting the re-examination and coordinate with that FSDO on the tasks to be re-examined and if any further enforcement action is necessary after the actual ride.

If the airman fails or refuses to submit to a reexamination within a reasonable period of time, the FAA will initiate emergency enforcement action to suspend the airman's certificate. Although the airman has the ability to respond to or appeal the emergency suspension, if the FAA has a reasonable basis for the request and the airman has no other defenses, the airman will likely end up with a suspension of his or her airman certificate pending submission to and successful completion of the re-examination.

What Happens During The Re-examination?

The re-examination is similar to a check-ride, except that the airman is not typically subject to examination on all of the required tasks in the Airman Certification Standards (“ACS”) (or the practical test standards for those certificates/ratings for which the FAA has not yet issued ACS) for the certificate or rating upon which the airman is being re-examined. Rather, the re-examination involves the tasks that were called into question by the occurrence of the accident or incident and it is conducted in accordance with the ACS for the certificate or rating involved. The tasks may include components of the knowledge test, the skill or flight test, or both.

Since the re-examination is a check-ride, it is important to make sure that the tasks are reasonably related to circumstances that gave the FAA a reason to question the airman’s qualifications. For example, if an airman was merely taxiing an aircraft and departed the taxiway, a request for re-examination based upon that incident shouldn’t include instrument navigation or cross country flight planning. If the request for re-examination includes tasks that do not appear to be reasonably related to the circumstances, the airman should object and request that those items be removed from the request. Although such a request isn’t always granted, if the airman, or his or her aviation attorney, is able to convince the inspector that the tasks are beyond the reasonable scope permitted under the regulations, then it is often possible to have those tasks removed. The inspector can fail the airman for any maneuver, procedure or knowledge deficiency in which the airman is found to be unqualified. This includes any of the specific task upon which the airman is being re-examined (which is why it is best to limit the tasks as much as possible). Additionally, if the inspector observes any deficient areas other than those that are the subject of the re-examination at any time during the re-examination, those deficiencies could also be the basis for failure of the test.

If the airman successfully completes the re-examination, one of two things will happen: (1) if the airman's certificate was suspended pending completion of the re-examination, the inspector will issue a letter of results and may issue a temporary certificate that bears all ratings and limitations from the original certificate; or (2) if the airman's certificate was not suspended pending completion of the re-examination, the inspector will simply issue a letter of results and the airman may then continue to exercise the privileges of his or her certificate and/or ratings.

If the airman fails to successfully complete the re-examination, the inspector will inform the airman in detail of each deficiency. Additionally, if the airman's original certificate was surrendered in exchange for a temporary certificate and the term of the temporary certificate has time left on it, the inspector will decide whether to suspend the certificate or to extend the temporary certificate for an additional 30 days.

In the latter instance, if the inspector believes the airman could successfully complete another re-examination if he or she obtained additional instruction, another 30-day temporary certificate will be issued with a limitation against carrying passengers. The airman will then have to submit to an additional re-examination within that 30-day period. In the first instance, when the inspector determines the airman is not qualified to hold the certificate or rating, the airman can expect to be the subject of enforcement action seeking revocation of his or her certificate and/or ratings.

Conclusion

If you are involved in an accident or incident in which pilot error is a possible cause of the accident or incident and the FAA finds out, don’t be surprised if you receive a certified letter requesting that you submit to re-examination. The first thing you need to do is review the scope of the re-examination request and objectively determine whether the FAA has a reasonable basis for making the request. Often, it will.

Next, you need to decide how you want to respond. Although the request for re-examination can be intimidating and frustrating, especially if it follows an accident or incident in which your aircraft and/or your pride has been damaged, it is possible to treat it as a positive experience and use it as an opportunity to improve your skills as an aviator. This is especially true if you take the ride with an inspector who approaches the situation from a similar perspective.

However, if you find yourself facing a request for reexamination with an inspector who does not approach the ride from this perspective or if you have questions regarding the basis for the request or the procedures that should be followed, an aviation attorney can certainly assist you in the process. After all, you worked hard to obtain your certificate(s) and/or rating(s). Make sure you protect your ability to exercise those privileges and to fly safely.

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Greg Reigel

What Happens To An Aircraft’s Registration If The Corporation Or LLC Owner Is No Longer Qualified To Do Business?

by Greg Reigel 29. December 2017 14:47
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Many aircraft owners use a corporation or limited liability company to register and hold title to their aircraft. Oftentimes, the owners set up their legal entity and then forget about it. Unfortunately, many states require legal entities to file an annual renewal/registration or pay fees to stay “active.” If an entity does not perform the required filing, the entity could become “inactive”, “suspended”, “not in good standing”, or it could be “administratively dissolved.”

Fortunately, in most of those states the entity can be reactivated/reinstated, have the suspension removed, or be placed back in good standing by accomplishing the required filing (and usually paying an associated fee). But what happens to an aircraft’s registration if this happens to a business entity that holds title to that aircraft? Can the aircraft still be legally operated while the entity is “inactive” or “suspended”?

According to a recent Legal Interpretation issued by the FAA’s Office of the Chief Counsel, the short answer is “no.” But to understand why the answer is “no”, it is helpful to look at the regulations that govern registration of an aircraft by a business entity.

14 C.F.R. §47.3(a)(3) permits a corporation (or a limited liability company, which is also treated as a legal entity similar to a corporation) that otherwise meets the U.S. citizenship requirements, to register an aircraft with the FAA. 14 C.F.R. §47.43(a)(3) tells us that an aircraft’s registration is invalid if, at the time of that registration, the business entity applicant was not qualified to submit an application under 14 C.F.R. Part 47.

This means a business entity that did not have legal status at the time it submitted its registration application to the FAA would not have been qualified to submit the application. And by extension, according to the FAA, “a business entity that does not have or has lost legal status in the State in which it has been incorporated is neither eligible to register an aircraft nor operate that aircraft.”

However, whether a business entity has “lost legal status” will depend upon the facts of the situation and also the applicable state law. As a result, the applicable state law must be analyzed to determine the business entity’s true legal status if it is in this situation.

So, how does the FAA find out about an invalid registration? Well, since the FAA does not make determinations about the legal status of a business entity at the time of registration, or even while the aircraft is registered, this issue usually comes to light during an investigation or an enforcement action.

And if the FAA learns the business entity has lost its legal status and that the aircraft’s registration is therefore invalid, it could pursue enforcement action against anyone who operated the aircraft when the registration was invalid in violation of Section 47.3(b). It could also pursue the business entity owner for failing to return an invalid or ineffective registration certificate as required by Section 47.43(b).

The Moral of the Story: If you are going to use a corporation or limited liability company to own an aircraft, don't create the entity and forget it. Make sure you keep up with the required formalities and filings, including payment of fees etc., to ensure your business entity remains active and in good standing.

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Greg Reigel

What Do You Do When The FAA Denies Your Medical Application Because Your Doctor Made The Wrong Diagnosis?

by Greg Reigel 28. November 2017 15:09
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I was recently asked this question by an airman in this very difficult situation. When the airman was younger, the airman was diagnosed as having bipolar disorder. More recently the airman was evaluated by a new doctor who told the airman that, in the doctor’s opinion, the previous diagnosis was wrong and the airman did not, in fact, have bipolar disorder.

Based upon the current doctor’s opinion, the airman applied for a medical certificate. However, despite submitting all of the airman’s medical records, including the earlier bipolar diagnosis as well as the current doctor’s opinion and evaluation, the FAA denied the airman’s application.

So, what are the airman’s options? Well, an airman may appeal the FAA's denial of a medical certificate by filing a petition with the NTSB requesting a hearing before an administrative law judge ("ALJ"). But an airman may only appeal the denial of an unrestricted medical certificate. Since the decision to grant a special issuance is at the discretion of the FAA, the NTSB will not entertain an appeal of the denial of a special issuance.

A hearing is then held at which both the airman and the FAA present evidence through documents and testimony from doctors, medical experts, the FAA and the airman. Oftentimes the airman's treating physician(s), who usually don't have aviation medicine training or experience, will testify that the symptoms and/or condition do not pose a threat to aviation safety and that the airman should be able to fly safely. However, when this type of opinion is presented at the hearing in contradiction to the FAA's expert witnesses, the Board will usually give greater weight to the FAA's expert witnesses based upon the Board’s perception that they have "superior" qualifications in aviation medical standards.

Also, depending upon the condition, an actual diagnosis of a disqualifying medical condition may not be required for the FAA to deny a medical application. Simply presenting with the disqualifying symptoms or condition, or having experienced the symptoms or condition in the past, regardless of whether the airman currently has the symptoms or condition, may be sufficient justification for the FAA to deny the medical certificate.

In order for the ALJ to reverse the FAA's denial, the airman must prove by substantial, reliable and probative evidence that the airman is qualified for the medical certificate for which he or she applied, without limitations. In light of the NTSB's deference to the FAA's medical experts, this can be a very difficult burden to meet. Additionally, an appeal is expensive: Expert medical testimony and attorney fees required for the appeal process can be quite costly.

In this airman's situation, bipolar disorder is a disqualifying condition that prevents the FAA from issuing an unrestricted medical certificate. While the FAA may consider the airman for a special issuance, that decision is solely up to the FAA and may not be appealed. So, the airman would have to fight the FAA's determination that the airman has bipolar disorder.

In order to have the FAA’s denial reversed, the airman has to convince the ALJ. This means the airman would need to have the current doctor testify not only that the airman does not suffer from bipolar disorder, but also that the airman’s current condition, to extent the airman has other disclosed medical conditions, still meets the standards for issuance of an unrestricted medical certificate. It may also be beneficial to have an independent doctor evaluate the airman and provide an opinion that athe airman does not have bipolar disorder.

Additionally, the current doctor would need to explain why the earlier bipolar diagnosis was incorrect. Depending upon the circumstances, this can be a very tough battle for the airman to win.

Unfortunately, at a time when more and more doctors are “diagnosing” kids with ADD, ADHD and other such conditions, this situation is becoming more and more common. And as we have seen, a misdiagnosis as a youth may come back to haunt an adult who wants to become a pilot and needs a medical certificate.

If you find yourself in this situation or have a medical condition that may disqualify you from obtaining a medical certificate, get help BEFORE you apply for a medical certificate. Talk to an aviation attorney or the medical certification professionals at AOPA or NBAA.

By taking a pro-active approach and getting help, you will be able to "pick your battles" wisely to maximize your chances of being able to earn your wings and/or successfully obtaining a medical certificate if necessary.

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Greg Reigel

Are You Using A Limited Liability Company To Own An Aircraft And Fly The Company’s Members/Guests? Be Careful.

by Greg Reigel 27. October 2017 08:16
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Aircraft owners regularly use limited liability companies (an “LLC”) to hold legal title to an aircraft. An LLC can help limit an owner’s personal liability, and it may also assist an owner with his or her tax planning. But using an LLC to hold title to an aircraft may also create problems for the aircraft owner if he or she does not structure the ownership appropriately.

In order to understand the potential risks of using an LLC to own an aircraft, a brief explanation of how an LLC is viewed and organized under the law is in order. First, an LLC is a type of business entity that has distinct legal personality from its owners/members and managers. An LLC is treated as a separate “person” in the eyes of the law with an independent existence from its members. Thus, if the owner/member of an LLC dies, the entity continues to exist (although an LLC needs to specifically elect to have this continuity of existence).

Next, LLC members each hold a membership interest in the LLC that is represented by the members’ capital accounts. The LLC members have full ownership and control of, and sole possessory interest in, their membership interests of the LLC, and not the individual assets owned by the LLC. Similar to a corporation, the LLC has managers to handle the day-to-day business of the LLC who are oftentimes also the members of the LLC. Additionally, the laws governing LLC’s require that certain formalities be observed (e.g. annual meetings, separate checking accounts, maintaining corporate/company books and records etc.). LLCs should not be construed to be alter egos of their members, even when they are structured as closely held companies.

Thus, when an LLC owns an aircraft, the LLC’s members do not actually own an interest in the aircraft. Rather, the aircraft is an asset of the LLC and is managed by the managers of the LLC, on behalf and in the best interest of the LLC. So, while the LLC members may own the LLC, they do not have a direct interest in the aircraft that is owned by the LLC. This is an important distinction that is often misunderstood by LLC members.

You might be wondering then whether an LLC may be operated under 14 C.F.R. § 91.501(b)(4) for the personal transportation of its members and their guests. Under Section 14 C.F.R. § 91.501(b)(4), the operator of an aircraft may conduct flights “for his personal transportation, or the transportation of his guests when no charge, assessment, or fee is made for the transportation.”

However, in the context of this regulation the FAA views the term “operator” as applying to the personal use of an individual or his or her guests, the term “operator” would not apply to an LLC that is a business entity existing for “business purposes” rather than “personal purposes.” Additionally, even if the LLC does not directly charge the members or guests for the flight(s), if the members make capital contributions to the LLC to pay the cost of ownership and operation of the aircraft, that would constitute “compensation” (in the FAA’s broad interpretation of that word) for the personal transportation of the member and its guests. As a result, Section 14 C.F.R. § 91.501(b)(4) would not be available to the members of the LLC.

Rather, in these situations the FAA takes the position that the LLC is the actual operator of the aircraft. The FAA would consider the LLC to be a “flight-department company” that is conducting commercial operations requiring an air carrier certificate under 14 C.F.R. Part 119. As such, any operation of the aircraft by the LLC on behalf of the members or their guests without an air carrier certificate could subject the pilot(s) actually flying the aircraft to an FAA enforcement action and subject the LLC that owns and operates the aircraft to a civil penalty action. The Internal Revenue Service could also view the LLC’s operation of the aircraft as a commercial operation requiring the collection and payment of Federal Excise Tax on any flights performed on behalf of the LLC’s members or guests.

Does this mean you can’t use an LLC to own your aircraft? No, not at all. However, each situation is unique and must be analyzed to confirm that the aircraft owner will actually receive the benefits expected and that the ownership arrangement will comply with the regulatory requirements anticipated by the aircraft buyer for operations under 14 C.F.R. Part 91.

With the appropriate use of a dry lease or use agreement, and pilot agency and service agreement, it is possible to structure the ownership and operation of your aircraft to comply with the regulations, and to also satisfy the FAA’s operational control and other concerns. If you want to use an LLC to own and hold title to an aircraft, contact us and we will work with you to ensure that the transaction is structured appropriately to meet the regulatory requirements applicable to your particular situation.

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Greg Reigel

Tax Considerations When Buying An Aircraft

by Greg Reigel 29. September 2017 11:01
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Among the many factors aircraft buyers need to evaluate when they are considering purchasing an aircraft, one of the most important may be tax. Frequently aircraft buyers tell me they want to purchase an aircraft BUT they don’t want to pay any tax on the purchase. Unfortunately, while it certainly may be possible to reduce an aircraft buyer’s tax liability, it isn’t always possible to completely avoid all tax liability associated with the purchase of an aircraft.

Sales Tax

As you may know, most states charge sales tax on the purchase of tangible property, including aircraft. Ordinarily the seller is required to collect and remit sales tax to the taxing authority. So, one of the first tax issues an aircraft buyer must address is whether the state in which the buyer intends to take delivery of the aircraft has any applicable exemptions from that state’s sales tax. In the absence of an exemption, sales tax would otherwise be due on the purchase/sale with either the seller collecting and remitting the sales tax or the buyer paying the sales tax directly. And since a seller does not want to be responsible for the sales tax, the seller will require the buyer to provide satisfactory proof of an applicable exemption, usually in the form of a signed exemption certificate.

But keep in mind that in some states, such as South Carolina, the sales tax assessed on an aircraft transaction may be so minimal that it may not make sense to relocate the aircraft for delivery in another state with an acceptable exemption. Rather, it may be more economical and convenient to simply pay the sales tax on the transaction.

However, that is not the case, here are a few examples of sales tax exemptions an aircraft buyer may be able to use to avoid paying sales tax in the delivery state. But be aware that all states do not allow for all of these exemptions. So, an aircraft buyer will need to evaluate the tax laws for each state to determine what exemptions may be available.

Fly Away Exemption. One example of an exemption from sales tax on an aircraft purchase is the “fly away exemption.” If the purchased aircraft is sold/delivered in one state for use and registration in another state before any use of the aircraft is made in the delivery state then the purchase is exempt from sales tax. Some states with a fly away exemption will permit limited post-closing use of the aircraft in the delivery state for the purposes of (i) training, (ii) maintenance, repairs, completion etc., or (iii) to fly the aircraft out of the delivery state. However, each state has its own unique requirements to take advantage of the fly away exemption, including the acceptable documentation to support the exemption (which a savvy seller will require).

Sale for Resale Exemption. Many states also allow for a “sale for resale” or “purchase for resale” exemption from sales tax. This exemption applies to a buyer’s purchase of an aircraft for the purpose of leasing, rental, or reselling the aircraft to another person. Here again, states applying this exemption may have specific requirements in terms of what is considered a “sale” or “leasing”, as well as the qualifications of the buyer (e.g. requiring the buyer to have a valid sales and use tax permit). Additionally, although the buyer may avoid paying sales tax on the purchase price of the aircraft, the buyer would then be required to collect and remit sales tax on either the lease or rental price, or the sale price of the aircraft to another person (unless an exemption applies to that transaction).

Commercial Use Exemption. Other states provide an exemption from sales to air carriers that purchase an aircraft. This would include persons certificated by the FAA under 14 C.F.R. Parts 121, 125, 133 and/or 135 to operate an aircraft to transport persons or property. The exemption may also apply to the air carrier’s leasing of the aircraft as a lessee. In order to qualify for the exemption, and to satisfy the seller, the air carrier needs to issue an applicable tax exemption certificate detailing its status and tax-exempt use of the aircraft at the time of the transaction.

Casual/Occasional/Isolated Sale Exemption. This exemption applies to transactions in which the seller’s sale of the aircraft is a “casual” or “occasional” sale. A common form of “occasional sale” with respect to an aircraft is one made by a person who does not habitually engage in the business of selling taxable items (of any kind, not just aircraft) and who sells no more than two such taxable items during the preceding twelve-month period.

To document an exemption of this type, a purchaser should ask the seller to provide a signed statement that the transaction qualifies for the occasional sale exemption as defined by the delivery state’s statutes or regulations. However, buyers need to be careful. Oftentimes this exemption applies to sellers who habitually engage in business of selling taxable items of any kind, NOT just aircraft. So a seller that doesn’t habitually engage in the sale of aircraft but does sell other taxable items would likely not qualify for this exemption.

Use Tax

Use tax, which is different from sales tax (although often assessed at the same rate), is imposed by a state for use of any material, including aircraft, in that state. The tax applies to out-of-state purchases in transactions where sales tax is not collected, or is collected but is underpaid compared to the sales tax that would be paid in-state. In the aircraft scenario, use tax is assessed by a state into which the aircraft is relocated post-delivery when sales tax was either not paid, or under paid, in the delivery state.

When an aircraft is brought into a state and a nexus is established by basing the aircraft in that state or otherwise operating the aircraft within the state for a minimum amount of time or trips/departures, then use tax is imposed. For example, some states require that the aircraft be operated within the state for a minimum amount of time. Other states look to the percentage of operation within the state. The specific rules in each state must be analyzed to determine the state’s requirements for establishing that nexus.

Practical Application

So, how does an aircraft buyer take advantage of these exemptions to minimize or avoid paying tax on the purchase of an aircraft? Well, the buyer will need to consider a number of factors including where the aircraft’s pre-purchase inspection will be performed, where the buyer may want to take delivery, where the aircraft will be operated post-delivery, by whom it will be operated and in what manner. Based upon the answers to those questions, the buyer will then need to review the tax laws for the relevant states to determine what exemptions may be available. Let’s look at a couple of examples using Texas law:

Example 1 - An aircraft buyer takes delivery of an aircraft in a state with a fly-away exemption (so no sales tax is collected or remitted) and then relocates the aircraft to Texas. If the buyer can show that in the following 12 months the aircraft’s non-Texas (out-of-state) departures are more than 50% of the total departures, then no use tax would be assessed against the aircraft. (In this scenario it is wise for the buyer to add an extra stop on trips outside the state to meet the 50% requirement on an ongoing basis in order to prevent getting stuck at the end of year if the aircraft is down for maintenance and unable to “catch-up” on out-of-state departures.)

Example 2 - An aircraft buyer takes delivery of an aircraft in a state using a Texas sale for resale exemption (again, no sales tax is collected or remitted) and then relocates the aircraft to Texas. If the buyer leases the aircraft to one or more lessees, no use tax would be assessed against the aircraft. However, the buyer would need to collect and remit sales tax on the lease/rental rate, unless the leasing was exempt from sales tax (e.g. a lease to a Part 135 air carrier).

One other tax issue an aircraft buyer will also want to consider is whether the state in which the aircraft is to be located or operated will assess personal property or ad valorum tax on the aircraft. In some states this tax is assessed and paid on annual basis. It may be separately assessed by the state or county, or it may be included along with an aircraft’s annual registration. However, as with sales and use tax, some states also provide exemptions from personal property tax depending upon location and use of the aircraft.

Conclusion

Although taxes are a fact of life, in aircraft transactions they can be a very significant fact when a buyer is spending millions of dollars on an aircraft. Aircraft buyers need to analyze their situations to identify the strategies and exemptions that may allow them to minimize or avoid assessment of tax on their aircraft acquisitions. Buyers should also work with their aviation and tax counsel to properly structure their transactions in a way that accomplishes their goals and complies with applicable laws and regulations.


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Greg Reigel



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