Proper Planning for Aircraft Acquisition
By: Lapayowker Jet Counsel
When considering the purchase or lease of an aircraft for personal or business travel needs, companies need to carefully examine their proposed expectations in aircraft use. This is essential because they will need to accurately estimate the anticipated tax and regulatory costs and will wish to determine how to best structure the ownership of the aircraft for its desired use.
Many prospective aircraft owners do not properly appreciate the regulatory dilemma they are entering into with the purchase and subsequent use of an aircraft. Potential purchasers must consider all of the involved parties, acknowledging that the Internal Revenue Code and federal tax issues, state tax laws, and the Federal Aviation Administration all impose rules that impact the potential use of the aircraft. It can be difficult to balance the uncoordinated and often competing requirements of taxing authorities, which exists at both the federal and state levels. In addition, the FAA complicates both the tax analysis and the structuring of private aircraft transactions.
Companies considering purchasing corporate aircraft should consider the following issues before proceeding with the acquisition:
Companies looking to require an aircraft should document why the company needs to purchase its own aircraft. To help decide what class of aircraft the company should buy, a travel profile should be developed that includes the number of passengers, average trip length and amount of baggage. This will help companies decide just what type of aircraft to purchase, so that their travel needs can be met.
Another critical decision that should be made is whether to set up a separate entity to acquire the aircraft. If this is a decision you decide to make, you should be careful not to violate the FAA rules that carrying company officials on a company aircraft must be incidental to the entity’s business.
Each state has its own sales and use taxes for aircraft. Companies should carefully research the relevant taxes and not depend solely on the seller’s advice. In fact, companies may wish to hire an aircraft tax specialist to do this research for them.
If corporate aircraft owners don’t address these important issues, it could lead to lost tax deductions, penalties and interest. This, though, may be the least of their problems. If an accident or other incident occurs involving the aircraft, job losses and unnecessary liability could result from the failure to follow aircraft regulations.
Lapayowker Jet Counsel, P.A.. is an aviation transaction lawyer focusing on airplane and jet transactions. To learn more, visit https://www.businessaviationcounsel.com.