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AeroMarineTaxPros.com: Transfer of Tangible Personal Property - Regulation 1595, Part 2

By transferring ownership of an aircraft from one entity or individual to another, a sales/use tax liability can be created. There are different types of transfers of ownership. In our previous article, we covered transfer or ownership into and out of a corporation, LLC and partnership. This article will cover:

1. Revocable Trusts
2. Involuntary transfers
3. Statutory mergers
4. Family transfers
5. Received as a gift

1. TRANSFER INTO REVOCABLE TRUST
A transfer of property into a revocable trust is exempt from tax provided the only consideration given, if any, is the assumption of the loan and sole collateral is property being transferred in exchange for the property and 1.the seller has unrestricted power to revoke the trust; 2.the transfer does not result in any change in the beneficial ownership of the property; 3.upon revocation of the trust the property reverts back to the beneficial seller.

2. INVOLUNTARY TRANSFERS
Use tax normally does not apply if title to the property changes due to circumstances beyond the recipient's control. Some examples are repossession by a legal owner, inheritance from a decedent's estate, recovery of stolen property after settlement from an insurance company, and court settlements such as divorce decrees. Confirming documentation is required, depending on the nature of the transaction.

3. STATUTORY MERGER
A transfer pursuant to a statutory merger is not a sale but is instead a transfer by operation of law. Thus, tax does not apply to a transfer of property of a constituent corporation to a surviving corporation or new corporation pursuant to a statutory merger under Sections 6010-6022, 1100-1305, or 15678.1-15678.9 of the California Corporations Code or similar laws of this state or other states. The surviving corporation stands in the place of each constituent corporation (including the disappearing corporation(s)). As a result, if property acquired by the surviving corporation in the merger had been purchased and held by the constituent corporation for resale, then the surviving corporation must report and pay use tax on the constituent corporation’s purchase price if it makes any use of such resale property, just as the constituent corporation would have owed such tax if it had used the property. Similarly, if the constituent corporation had avoided paying tax measured by the purchase price of mobile transportation equipment by making a timely election to report tax on the fair rental value, the surviving corporation must continue to report tax measured by the fair rental value on its leases of the mobile transportation equipment; if the surviving corporation makes any use of that mobile transportation equipment other than leasing it to another person, the surviving corporation must report tax on the purchase price paid by the constituent corporation.

4. TRANSFER OF OWNERSHIP TO A FAMILY MEMBER
The Sales and Use Tax Law provides an exemption from the use tax when the person selling a vehicle, vessel, or aircraft is related to the purchaser as either: parent, grandparent, grandchild, child, spouse, brother or sister, if both are under age of 18 and related by blood or adoption.
This exemption does not apply if the seller is engaged in the business of selling similar property (for example, a car or boat dealer.) Additionally, the exemption does not extend to sales to stepparents or stepchildren if a natural parent or child is not involved in the sale nor does it apply to transactions between ex-spouses after a decree of divorce.
To qualify for the exemption, the relationship between buyer and seller must be verified by marriage license, birth or adoption certificate, or any other documentation that is official or verifiable and confirms the qualifying relationship.
5. RECEIVED AS GIFT
Changing the ownership of a vehicle, vessel, or aircraft does not cause a taxable sale or purchase if there is no consideration given to obtain the property. Consideration can take many forms such as cash, a loan, a trade, or assumption or cancellation of a debt. In order to qualify under this provision, it must be established that the property was transferred from the donor to the recipient with no requirement on the recipient's part to compensate the donor in any way. A signed, notarized statement from the donor is usually required. Please note: The donor must have the legal authority to transfer the vehicle, vessel or aircraft.

By providing adequate documentation, the transfer can be exempt from tax. Give us a call if you have any questions regarding a transfer or if you are considering a purchase of an aircraft and would like more information on supporting a claim for exemption.

Article Source: http://www.dummiesguideto.com

Thomas A. Alston is the president of Aero & Marine Tax Professionals (www.aeromarinetaxpros.com). He has successfully filed hundreds of tax returns with the California State Board of Equalization. Mr. Alston is California's premier specialist in legitimate tax avoidance on aircraft, vessels and vehicles, having published many articles on sales and use tax.

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