Registering Homebuilt / Bill of sale / Taxes

[Scott Aldrich]

A question for anyone who has recently registered a new kit in the US; did
you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration of"
value box? Did your state tax man come knocking as soon as you did this?
Any ideas or suggestions on how to avoid large tax (and not go to jail..)

Thanks,
Scott
Moose 174




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[Dick Shotwell]

Hi Scott,
My partner/son did all the paperwork on our Moose and can fill you in on all
your questions. Send him an e-mail with your questions
dshotwell@qwest.net.
Dick Shotwell
Moose 096
N235DS
Twin Falls, ID


----- Original Message -----
From: "Scott Aldrich" <sa@mwutah.com>
To: <rebel-builders@dcsol.com>
Sent: Monday, November 29, 2004 8:06 AM
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US; did
you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration of"
value box? Did your state tax man come knocking as soon as you did this?
Any ideas or suggestions on how to avoid large tax (and not go to jail..)

Thanks,
Scott
Moose 174




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[Mike Davis]

Hi Scott, I suppose if you're concerned about the tax man, you can forego
the bill of sale entirely. Of course this means that you will not
automatically meet the 51% rule, and will have to do the worksheet (forget
form number) showing that the work you did meets the 51% requirement. This
is a real easy worksheet... it just has 2 columns, one for done by
manufacturer, one for done by builder. It list a task like, put skin on
wings, and you put the check in the appropriate column. As long as there
are more checks in the done by builder column, you qualify. Then register
the aircraft as built from assorted parts and pieces... they all are aren't
they? When registering this way, instead of "from a kit", you don't have to
provide a bill of sale from the kit manufacturer... therefore, no dollar
sign to catch the tax man's eye. I registered my Quicksilver MX this way
with no problem.

Mike

----- Original Message -----
From: "Scott Aldrich" <sa@mwutah.com>
To: <rebel-builders@dcsol.com>
Sent: Monday, November 29, 2004 6:06 AM
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US; did
you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration of"
value box? Did your state tax man come knocking as soon as you did this?
Any ideas or suggestions on how to avoid large tax (and not go to jail..)

Thanks,
Scott
Moose 174




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[Reed Britt Civ OO-ALC/MAD]

Scott - It seems like you bought most of your stuff from the metal
supermarket and only used the stuff from Murphy as a template - Hence the
sales tax is already paid?? Britt

-----Original Message-----
From: mike.davis@dcsol.com [mailto:mike.davis@dcsol.com] On Behalf Of Scott
Aldrich
Sent: Monday, November 29, 2004 8:07 AM
To: rebel-builders@dcsol.com
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US; did
you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration of"
value box? Did your state tax man come knocking as soon as you did this?
Any ideas or suggestions on how to avoid large tax (and not go to jail..)

Thanks,
Scott
Moose 174




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[Don Boardman]

Hi Scott,

What state do you live in?

Quick story. I have a motorglider project from blue prints that is at the
"kit stage" with some assembly. It has been in storage for some years as I
"postponed" the project to build a CH701 on amphibs and now the Moose. While
working on the motorglider I decided to register it with the FAA and did.
Two years later (this was back in '89 and I assume they would be much faster
today) I get a letter from the NY taxman wanting the Tax AND PENALTIES on my
airplane. When I told them that it wasn't even an airplane yet they did not
care ... I eventually came up with receipts for building materials etc. and
sent them a check. I did not include any penalties. They went away.

When we registered the Moose N622D I sent in a recent (so as not to deal
with time penalties) "modest/realistic" Bill of Sale that Colleen provided
us. We sent in a check to the Taxman. We did not want him coming after us
looking for tax and penalties at some time in the future.

Good Luck,
Don B.

From: Scott Aldrich <sa@mwutah.com>
Reply-To: rebel-builders@dcsol.com
Date: Mon, 29 Nov 2004 08:06:32 -0700
To: rebel-builders@dcsol.com
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US; did
you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration of"
value box? Did your state tax man come knocking as soon as you did this?
Any ideas or suggestions on how to avoid large tax (and not go to jail..)

Thanks,
Scott
Moose 174




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[LisaFly99]

In a message dated 11/30/2004 1:04:28 AM Central Standard Time,
dboardm3@twcny.rr.com writes:


Quick story. I have a motorglider project from blue prints that is at the
"kit stage" with some assembly. It has been in storage for some years as I
"postponed" the project to build a CH701 on amphibs and now the Moose. While
working on the motorglider I decided to register it with the FAA and did.
Two years later (this was back in '89 and I assume they would be much faster
today) I get a letter from the NY taxman wanting the Tax AND PENALTIES


Basically the same story in the state of Illinois. Registered with the FAA
after completion, and the state tax authorities contacted me about sales tax
and penalties. They too settled on just the sales tax. But it's still adds to
the overall cost of the project.
PDSmith




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[Scott Aldrich]

Thanks guys, I have heard the same stories about the tax man wanting
penalties here in UT. Still waiting to hear from a couple of builders here
to see what they did.

Scott

-----Original Message-----
From: mike.davis@dcsol.com [mailto:mike.davis@dcsol.com] On Behalf Of Don
Boardman
Sent: Monday, November 29, 2004 9:27 PM
To: rebel-builders@dcsol.com
Subject: Re: Registering Homebuilt / Bill of sale / Taxes

Hi Scott,

What state do you live in?

Quick story. I have a motorglider project from blue prints that is at the
"kit stage" with some assembly. It has been in storage for some years as I
"postponed" the project to build a CH701 on amphibs and now the Moose.
While
working on the motorglider I decided to register it with the FAA and did.
Two years later (this was back in '89 and I assume they would be much
faster
today) I get a letter from the NY taxman wanting the Tax AND PENALTIES on
my
airplane. When I told them that it wasn't even an airplane yet they did
not
care ... I eventually came up with receipts for building materials etc.
and
sent them a check. I did not include any penalties. They went away.

When we registered the Moose N622D I sent in a recent (so as not to deal
with time penalties) "modest/realistic" Bill of Sale that Colleen provided
us. We sent in a check to the Taxman. We did not want him coming after us
looking for tax and penalties at some time in the future.

Good Luck,
Don B.

From: Scott Aldrich <sa@mwutah.com>
Reply-To: rebel-builders@dcsol.com
Date: Mon, 29 Nov 2004 08:06:32 -0700
To: rebel-builders@dcsol.com
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US;

did

you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration

of"

value box? Did your state tax man come knocking as soon as you did

this?

Any ideas or suggestions on how to avoid large tax (and not go to

jail..)

Thanks,
Scott
Moose 174




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[Reed Britt Civ OO-ALC/MAD]

Guys - I clipped the following from - http://www.sbw.org/tax/ -

Britt - SR194


Aircraft Tax Tips from Bob Fields
Property Tax? Sales Tax? Aircraft Owners Need Help!

Tax Expert Bob Fields Offers to Help
Aircraft owners often are not tax experts, and yet the purchase of an
aircraft is one of the largest investments any of us will ever make, and it
is fraught with tax implications.
Some of us just do a little research, try to comply, and hope for the best.

But wouldn't it be nice to find an tax expert who is also an aircraft owner,
and get the answers from an authoritative source?

Recently, members of the Grumman-Gang mailing list have asked questions
about sales tax and property tax, and how an aircraft owner may comply.
Fortunately, there is a tax expert in their midst!

Bob Fields of San Francisco founded the oldest sales tax consulting company
in the U.S., now part of Arthur Andersen. He has a wealth of very specific
information concerning these issues in all states, not just California. Bob
has agreed to write a series of articles to help aircraft owners understand
the tax issues involved in owning aircraft.

Bob's first bit of advice? Whatever you do, do not engage the services of a
consultant who claims they can help you for a fee. You will be wasting your
money. Nearly everything can be done by you at no special cost beyond
meeting your legal obligations.

Obviously, before acting on the information presented here, you must take
care to understand your specific situation. If necessary, seek professional
advice from someone who can help you individually. But we hope that the
information presented here will allow you to have confidence in
understanding your legal obligations, and in avoiding unnecessary expense.


Now on to Bob Fields's tax tips:
Sales Tax and Aircraft Sales and Purchases
All of the states and localities that impose a sales tax either impose it on
the seller, the customer, or the transaction. The distinction, for purposes
of this discussion, is minor. Only five states do not impose a state sales
tax: Oregon, Alaska, New Hampshire, Montana, and Delaware. Many people, and
particularly large corporate aircraft owners, register their aircraft in one
of these states to avoid sales taxes. This is generally an effective
strategy, however, the proof is in the pudding. Most states will gather
information from local airports on what tail numbers are frequent or
permanent residents and trace the owner through the airport records. Each
state has its own rule specifying how long an aircraft must be out of state
prior to becoming taxable in its principle domicile.
The sales tax is generally collected, reported and remitted by the seller of
taxable property. However, most states have an "occasional sales" rule
stating that the registration to collect, report and remit tax requires at
least three transactions annually. Therefore, a private party making a sale
of an aircraft is not liable to collect any tax.

The states, in their infinite wisdom and greed, decided to cover this little
loophole by setting up a complimentary tax, uniformly called a use tax. That
tax is imposed on taxable purchases not subject to sales tax. Therefore, we
have a seller not obligated to collect the sales tax and a purchaser on the
hook to self-report and remit the use tax. The rates are the same. The
incidence of the tax is on the purchase, not the sale. The liability for the
tax is on the purchaser. Caveat One: I have not studied the details of the
laws in every last state though this principle is commonly recognized.

In addition to state sales and use taxes there are also local sales and use
taxes. The names and rates for these taxes vary by state. And, with few
exceptions, if you are in a state with local taxes and owe a state use tax,
you probably owe the local use tax as well.

When is the use tax due and how is it computed? The amount used to determine
the tax due is the purchase price in total. A good rule of thumb is to
compute the tax on everything that constituted value (money, an agreement to
pay in the future, an agreement to cut the seller's lawn for the next ten
years valued in dollars, etc.). Take the amount, multiply it by the
applicable rate, and write a check to the Department of Revenue, Board of
Equalization, Sales Tax Commission, or whatever your state calls the tax
collector. In about a half dozen states, you might have to make a separate
local tax payment to a city, county or so other locality.
What if you don't voluntarily pay your taxes? Eventually, the state taxing
authority will likely find you through one of several devious means. When
you have been identified, there will be tax, penalty and interest due.
Documentation of the purchase price determines the tax amount, or in its
absence, the state may make their own arbitrary determination. Penalties run
anywhere from 5% to 50%, or more for really nasty folks. Interest is
exorbitant, usually the IRS rate or worse.

What should you do if you didn't pay your taxes originally and now want to
"come clean?" There are a couple of choices. Find out if your state is about
to have an amnesty and make your voluntary payment during that period. If
that is not a possibility, be very humble and courteous to the tax person,
commit to lots of community service and show large amounts of contrition,
and ask very politely to have the penalty and interest waived. You have a
shot at no penalty, but the interest is harder to talk your way around. If
the failure to pay tax dates back to the Wright Brother's flight at Kitty
Hawk or more than three to seven years (depending on the state), you may be
in luck. Caveat Two: This is a generic discussion. Unlike the Federal Income
Tax, state sales taxes are not uniform in design, imposition, rate, or
character. There are few exemptions for general aviation short of keeping an
aircraft outside of a taxing state for a minimum period thereby escaping
tax. This is not a matter to ignore. A state can seize property in lieu of
tax.



Property, Ad Valorem, and other Value-based Taxes
My discussion of sales taxes should have given you the sense that sales
taxes are based on transactions, moments in time when something happens. The
event is typically a sale or purchase; however, the event could also be a
first use of property within a state. Property, ad valorem, and other
value-based taxes (to be referred to here as property taxes) are measured by
relative, and often, subjective values and are imposed on the owner of
property. I am sure there was once a king or feudal lord in some far of land
who conjured up this idea. Notwithstanding, let's take a look at property
taxes.
Property taxes are generally imposed on an assessed (best guess) value of
property on a date in time (on the property rolls for the jurisdiction) and
computed at a percentage of that value. In other words, a tax might be
computed as dollars due per thousand dollars of assessed valuation. The rate
of tax is set by the presiding legislative body authorized to impose the
tax, the value of property is set by an assessor empowered to value
property, and the tax is collected by, you guessed it, the tax collector.

How are tax rates determined? Simply, we elect those who set the rates in
order to fund the activities and services necessary to keep or society safe,
green, in balance (yeah, sure), flowing smoothly, etc. The process is
curiously circular. If a jurisdiction needs a pot of money to provide the
services of government and the approximate value of the property rolls upon
which tax will be computed is $X billion, then a rate of $Y/$1,000 of
assessed value fills the pot. In good times, the pot seems bigger, the
values are inflated, and the taxes collected seem to find places to go.
Conversely, in bad times, everyone thinks their values should be lower, the
pot doesn't get smaller and a rate increase can only solve the problem. So,
rates seem to either stay the same or inch up regardless of the economics of
the situation.

How are values set? The starting point is usually purchase cost.
Improvements are added. Value is eliminated by to age, reasonable
depreciation, etc. Value is also set by comparison in the marketplace. What
would an identical product cost if purchased in the same condition and at
the same location as what I am valuing? Let's consider an aircraft. TTAF,
SMOH, and other information about the currency of your aircraft's condition
are all pertinent to value. Consider avionics and extras as well. Do you
have a one, two or three axis autopilot? Is the aircraft IFR Cert for GPS?
Any special STC's? Stormscope? HSI? Flight Manager? Expensive avionics
instead of the original comm and VOR indicator.

The name of the game is comparison. The governmental assessor will
automatically increase your plane's value year to year unless you can
demonstrate that the increase is unjustified. Planes, unlike many assets,
can be recertified as almost new. Engine replacements, new avionics, and
added extras all add value. Old engines near TBO, minimal avionics (VFR
only), and no A/P suggest lower values. Old used originals of anything are
valued lower than new replacements. You will normally be asked to indicate
additions or deletions to the equipment list each year. Time on the airframe
and engine since you provided the government with your last statement of
ownership and value should also impact value. Standard maintenance and costs
related to preserving the life of the plane should not impact value. My new
paint and upholstery add no value for the assessor but I will raise the
price to a seller. Replacing a VOR head does not increase the value if there
was a VOR head in your place already. Therefore, when aircraft values are
compared, determine if your aircraft is being compared to a plane in similar
condition. This is a two-edged sword. Finally, remember, value is in the
eyes of the beholder. It is the assessor's task to set a value based on your
declaration of ownership and whatever the market seems to accept and
establish. It is your option to argue that, in the real world, your plane is
a piece of puke and should be valued accordingly.

How are taxes computed? The assessed value is multiplied by the tax rate,
and--voila--we have a tax bill. Some jurisdictions may also value the
tie-down or hangar rental as possessary interest. This is the value of your
right to use the airport's property as a parking place for your plane. This
has nothing to do with the value of your plane.

What if I disagree with the assessment and tax bill? Here is the fun part.
First, there is probably a form you must file with the governmental
organization. You will be requesting a hearing at which you will present
your arguments for a reduction in your plane's assessed value. Secondly, you
need to file a letter with the assessor explaining why the assessed value is
in error. The magic word is "comparables." Use any means at your disposal to
compare your plane, model, year built, specifically configured, with SMOH,
TTAF, TTSN, etc., to other planes with the same characteristics. The closer
the better. Remember, value is relative. What someone asks as a selling
price and what someone pays as a purchase price can vary greatly. However,
asking prices for comparable planes are a really good place to start. Use
information on Grumman-Gang, in the Star, in Trade-a-plane, etc. Also, when
valuing for property taxes, argue that your plane is in worse condition than
the one for sale. If that is not the case, explain that the physical
condition of the paint and interior have nothing to do with the underlying
value. That is simply window dressing, deferred maintenance. What counts is
everything else. The assessor will probably argue that your plane's value
has increased because a comparably equipped new aircraft tends to keep the
price of your plane growing. Ok, argue that since the Revitalization Act
costs of new planes is going down, albeit slowly. Technology is also having
some small effect. Use your imagination--just remember, you are dealing with
a professional and documentation is the key to your success.

If you are lucky, the assessor will accept your position (ask for a 10%
reduction as a minimum starting point) and give you a revised assessed
value. That should trigger a new tax bill and cancellation of the requested
hearing. If not, you will go before some Board or Commission and plead your
case. Good luck. And, remember to pay your tax bill on time, even if you are
paying under protest.

Final comment: Follow the administrative remedies provided under the tax law
and make sure you do follow them on time and in order. Lateness, even in
hours, will usually result in the loss of rights.


Last updated Sunday, August 30, 1998.
Send email.
(c) Copyright 1997-2002 Steve Williams
-----Original Message-----
From: mike.davis@dcsol.com [mailto:mike.davis@dcsol.com] On Behalf Of Scott
Aldrich
Sent: Tuesday, November 30, 2004 6:13 AM
To: rebel-builders@dcsol.com
Subject: RE: Registering Homebuilt / Bill of sale / Taxes

Thanks guys, I have heard the same stories about the tax man wanting
penalties here in UT. Still waiting to hear from a couple of builders here
to see what they did.

Scott

-----Original Message-----
From: mike.davis@dcsol.com [mailto:mike.davis@dcsol.com] On Behalf Of Don
Boardman
Sent: Monday, November 29, 2004 9:27 PM
To: rebel-builders@dcsol.com
Subject: Re: Registering Homebuilt / Bill of sale / Taxes

Hi Scott,

What state do you live in?

Quick story. I have a motorglider project from blue prints that is at the
"kit stage" with some assembly. It has been in storage for some years as I
"postponed" the project to build a CH701 on amphibs and now the Moose.
While
working on the motorglider I decided to register it with the FAA and did.
Two years later (this was back in '89 and I assume they would be much
faster
today) I get a letter from the NY taxman wanting the Tax AND PENALTIES on
my
airplane. When I told them that it wasn't even an airplane yet they did
not
care ... I eventually came up with receipts for building materials etc.
and
sent them a check. I did not include any penalties. They went away.

When we registered the Moose N622D I sent in a recent (so as not to deal
with time penalties) "modest/realistic" Bill of Sale that Colleen provided
us. We sent in a check to the Taxman. We did not want him coming after us
looking for tax and penalties at some time in the future.

Good Luck,
Don B.

From: Scott Aldrich <sa@mwutah.com>
Reply-To: rebel-builders@dcsol.com
Date: Mon, 29 Nov 2004 08:06:32 -0700
To: rebel-builders@dcsol.com
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US;

did

you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration

of"

value box? Did your state tax man come knocking as soon as you did

this?

Any ideas or suggestions on how to avoid large tax (and not go to

jail..)

Thanks,
Scott
Moose 174




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[bosdes]

Just a minor correection to Reed's article: Massachusetts recently exempted aircraft from the state sales tax. Ted Hauri

-------------- Original message from Reed Britt Civ OO-ALC/MADE <Britt.REED@HILL.af.mil>: --------------

Guys - I clipped the following from - http://www.sbw.org/tax/ -

Britt - SR194


Aircraft Tax Tips from Bob Fields
Property Tax? Sales Tax? Aircraft Owners Need Help!

Tax Expert Bob Fields Offers to Help
Aircraft owners often are not tax experts, and yet the purchase of an
aircraft is one of the largest investments any of us will ever make, and it
is fraught with tax implications.
Some of us just do a little research, try to comply, and hope for the best.

But wouldn't it be nice to find an tax expert who is also an aircraft owner,
and get the answers from an authoritative source?

Recently, members of the Grumman-Gang mailing list have asked questions
about sales tax and property tax, and how an aircraft owner may comply.
Fortunately, there is a tax expert in their midst!

Bob Fields of San Francisco founded the oldest sales tax consulting company
in the U.S., now part of Arthur Andersen. He has a wealth of very specific
information concerning these issues in all states, not just California. Bob
has agreed to write a series of articles to help aircraft owners understand
the tax issues involved in owning aircraft.

Bob's first bit of advice? Whatever you do, do not engage the services of a
consultant who claims they can help you for a fee. You will be wasting your
money. Nearly everything can be done by you at no special cost beyond
meeting your legal obligations.

Obviously, before acting on the information presented here, you must take
care to understand your specific situation. If necessary, seek professional
advice from someone who can help you individually. But we hope that the
information presented here will allow you to have confidence in
understanding your legal obligations, and in avoiding unnecessary expense.


Now on to Bob Fields's tax tips:
Sales Tax and Aircraft Sales and Purchases
All of the states and localities that impose a sales tax either impose it on
the seller, the customer, or the transaction. The distinction, for purposes
of this discussion, is minor. Only five states do not impose a state sales
tax: Oregon, Alaska, New Hampshire, Montana, and Delaware. Many people, and
particularly large corporate aircraft owners, register their aircraft in one
of these states to avoid sales taxes. This is generally an effective
strategy, however, the proof is in the pudding. Most states will gather
information from local airports on what tail numbers are frequent or
permanent residents and trace the owner through the airport records. Each
state has its own rule specifying how long an aircraft must be out of state
prior to becoming taxable in its principle domicile.
The sales tax is generally collected, reported and remitted by the seller of
taxable property. However, most states have an "occasional sales" rule
stating that the registration to collect, report and remit tax requires at
least three transactions annually. Therefore, a private party making a sale
of an aircraft is not liable to collect any tax.

The states, in their infinite wisdom and greed, decided to cover this little
loophole by setting up a complimentary tax, uniformly called a use tax. That
tax is imposed on taxable purchases not subject to sales tax. Therefore, we
have a seller not obligated to collect the sales tax and a purchaser on the
hook to self-report and remit the use tax. The rates are the same. The
incidence of the tax is on the purchase, not the sale. The liability for the
tax is on the purchaser. Caveat One: I have not studied the details of the
laws in every last state though this principle is commonly recognized.

In addition to state sales and use taxes there are also local sales and use
taxes. The names and rates for these taxes vary by state. And, with few
exceptions, if you are in a state with local taxes and owe a state use tax,
you probably owe the local use tax as well.

When is the use tax due and how is it computed? The amount used to determine
the tax due is the purchase price in total. A good rule of thumb is to
compute the tax on everything that constituted value (money, an agreement to
pay in the future, an agreement to cut the seller's lawn for the next ten
years valued in dollars, etc.). Take the amount, multiply it by the
applicable rate, and write a check to the Department of Revenue, Board of
Equalization, Sales Tax Commission, or whatever your state calls the tax
collector. In about a half dozen states, you might have to make a separate
local tax payment to a city, county or so other locality.
What if you don't voluntarily pay your taxes? Eventually, the state taxing
authority will likely find you through one of several devious means. When
you have been identified, there will be tax, penalty and interest due.
Documentation of the purchase price determines the tax amount, or in its
absence, the state may make their own arbitrary determination. Penalties run
anywhere from 5% to 50%, or more for really nasty folks. Interest is
exorbitant, usually the IRS rate or worse.

What should you do if you didn't pay your taxes originally and now want to
"come clean?" There are a couple of choices. Find out if your state is about
to have an amnesty and make your voluntary payment during that period. If
that is not a possibility, be very humble and courteous to the tax person,
commit to lots of community service and show large amounts of contrition,
and ask very politely to have the penalty and interest waived. You have a
shot at no penalty, but the interest is harder to talk your way around. If
the failure to pay tax dates back to the Wright Brother's flight at Kitty
Hawk or more than three to seven years (depending on the state), you may be
in luck. Caveat Two: This is a generic discussion. Unlike the Federal Income
Tax, state sales taxes are not uniform in design, imposition, rate, or
character. There are few exemptions for general aviation short of keeping an
aircraft outside of a taxing state for a minimum period thereby escaping
tax. This is not a matter to ignore. A state can seize property in lieu of
tax.



Property, Ad Valorem, and other Value-based Taxes
My discussion of sales taxes should have given you the sense that sales
taxes are based on transactions, moments in time when something happens. The
event is typically a sale or purchase; however, the event could also be a
first use of property within a state. Property, ad valorem, and other
value-based taxes (to be referred to here as property taxes) are measured by
relative, and often, subjective values and are imposed on the owner of
property. I am sure there was once a king or feudal lord in some far of land
who conjured up this idea. Notwithstanding, let's take a look at property
taxes.
Property taxes are generally imposed on an assessed (best guess) value of
property on a date in time (on the property rolls for the jurisdiction) and
computed at a percentage of that value. In other words, a tax might be
computed as dollars due per thousand dollars of assessed valuation. The rate
of tax is set by the presiding legislative body authorized to impose the
tax, the value of property is set by an assessor empowered to value
property, and the tax is collected by, you guessed it, the tax collector.

How are tax rates determined? Simply, we elect those who set the rates in
order to fund the activities and services necessary to keep or society safe,
green, in balance (yeah, sure), flowing smoothly, etc. The process is
curiously circular. If a jurisdiction needs a pot of money to provide the
services of government and the approximate value of the property rolls upon
which tax will be computed is $X billion, then a rate of $Y/$1,000 of
assessed value fills the pot. In good times, the pot seems bigger, the
values are inflated, and the taxes collected seem to find places to go.
Conversely, in bad times, everyone thinks their values should be lower, the
pot doesn't get smaller and a rate increase can only solve the problem. So,
rates seem to either stay the same or inch up regardless of the economics of
the situation.

How are values set? The starting point is usually purchase cost.
Improvements are added. Value is eliminated by to age, reasonable
depreciation, etc. Value is also set by comparison in the marketplace. What
would an identical product cost if purchased in the same condition and at
the same location as what I am valuing? Let's consider an aircraft. TTAF,
SMOH, and other information about the currency of your aircraft's condition
are all pertinent to value. Consider avionics and extras as well. Do you
have a one, two or three axis autopilot? Is the aircraft IFR Cert for GPS?
Any special STC's? Stormscope? HSI? Flight Manager? Expensive avionics
instead of the original comm and VOR indicator.

The name of the game is comparison. The governmental assessor will
automatically increase your plane's value year to year unless you can
demonstrate that the increase is unjustified. Planes, unlike many assets,
can be recertified as almost new. Engine replacements, new avionics, and
added extras all add value. Old engines near TBO, minimal avionics (VFR
only), and no A/P suggest lower values. Old used originals of anything are
valued lower than new replacements. You will normally be asked to indicate
additions or deletions to the equipment list each year. Time on the airframe
and engine since you provided the government with your last statement of
ownership and value should also impact value. Standard maintenance and costs
related to preserving the life of the plane should not impact value. My new
paint and upholstery add no value for the assessor but I will raise the
price to a seller. Replacing a VOR head does not increase the value if there
was a VOR head in your place already. Therefore, when aircraft values are
compared, determine if your aircraft is being compared to a plane in similar
condition. This is a two-edged sword. Finally, remember, value is in the
eyes of the beholder. It is the assessor's task to set a value based on your
declaration of ownership and whatever the market seems to accept and
establish. It is your option to argue that, in the real world, your plane is
a piece of puke and should be valued accordingly.

How are taxes computed? The assessed value is multiplied by the tax rate,
and--voila--we have a tax bill. Some jurisdictions may also value the
tie-down or hangar rental as possessary interest. This is the value of your
right to use the airport's property as a parking place for your plane. This
has nothing to do with the value of your plane.

What if I disagree with the assessment and tax bill? Here is the fun part.
First, there is probably a form you must file with the governmental
organization. You will be requesting a hearing at which you will present
your arguments for a reduction in your plane's assessed value. Secondly, you
need to file a letter with the assessor explaining why the assessed value is
in error. The magic word is "comparables." Use any means at your disposal to
compare your plane, model, year built, specifically configured, with SMOH,
TTAF, TTSN, etc., to other planes with the same characteristics. The closer
the better. Remember, value is relative. What someone asks as a selling
price and what someone pays as a purchase price can vary greatly. However,
asking prices for comparable planes are a really good place to start. Use
information on Grumman-Gang, in the Star, in Trade-a-plane, etc. Also, when
valuing for property taxes, argue that your plane is in worse condition than
the one for sale. If that is not the case, explain that the physical
condition of the paint and interior have nothing to do with the underlying
value. That is simply window dressing, deferred maintenance. What counts is
everything else. The assessor will probably argue that your plane's value
has increased because a comparably equipped new aircraft tends to keep the
price of your plane growing. Ok, argue that since the Revitalization Act
costs of new planes is going down, albeit slowly. Technology is also having
some small effect. Use your imagination--just remember, you are dealing with
a professional and documentation is the key to your success.

If you are lucky, the assessor will accept your position (ask for a 10%
reduction as a minimum starting point) and give you a revised assessed
value. That should trigger a new tax bill and cancellation of the requested
hearing. If not, you will go before some Board or Commission and plead your
case. Good luck. And, remember to pay your tax bill on time, even if you are
paying under protest.

Final comment: Follow the administrative remedies provided under the tax law
and make sure you do follow them on time and in order. Lateness, even in
hours, will usually result in the loss of rights.


Last updated Sunday, August 30, 1998.
Send email.
(c) Copyright 1997-2002 Steve Williams
-----Original Message-----
From: mike.davis@dcsol.com [mailto:mike.davis@dcsol.com] On Behalf Of Scott
Aldrich
Sent: Tuesday, November 30, 2004 6:13 AM
To: rebel-builders@dcsol.com
Subject: RE: Registering Homebuilt / Bill of sale / Taxes

Thanks guys, I have heard the same stories about the tax man wanting
penalties here in UT. Still waiting to hear from a couple of builders here
to see what they did.

Scott

-----Original Message-----
From: mike.davis@dcsol.com [mailto:mike.davis@dcsol.com] On Behalf Of Don
Boardman
Sent: Monday, November 29, 2004 9:27 PM
To: rebel-builders@dcsol.com
Subject: Re: Registering Homebuilt / Bill of sale / Taxes

Hi Scott,

What state do you live in?

Quick story. I have a motorglider project from blue prints that is at the
"kit stage" with some assembly. It has been in storage for some years as I
"postponed" the project to build a CH701 on amphibs and now the Moose.
While
working on the motorglider I decided to register it with the FAA and did.
Two years later (this was back in '89 and I assume they would be much
faster
today) I get a letter from the NY taxman wanting the Tax AND PENALTIES on
my
airplane. When I told them that it wasn't even an airplane yet they did
not
care ... I eventually came up with receipts for building materials etc.
and
sent them a check. I did not include any penalties. They went away.

When we registered the Moose N622D I sent in a recent (so as not to deal
with time penalties) "modest/realistic" Bill of Sale that Colleen provided
us. We sent in a check to the Taxman. We did not want him coming after us
looking for tax and penalties at some time in the future.

Good Luck,
Don B.

From: Scott Aldrich
Reply-To: rebel-builders@dcsol.com
Date: Mon, 29 Nov 2004 08:06:32 -0700
To: rebel-builders@dcsol.com
Subject: Registering Homebuilt / Bill of sale / Taxes

A question for anyone who has recently registered a new kit in the US;

did

you send a FAA Form 8050-2 Bill of Sale to Murphy and have them sign and
return? Did you put the full kit price in the "For and consideration

of"

value box? Did your state tax man come knocking as soon as you did

this?

Any ideas or suggestions on how to avoid large tax (and not go to

jail..)

Thanks,
Scott
Moose 174




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