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Use tax in CA

Bavafa

Well Known Member
I was wondering if anyone has got a bill for use tax in CA and how they have handled it. My understanding was that any parts/goods purchased outside of State, if there is no local office/retailer for that organization, is not subject to tax.
Furthermore, how do we account for parts that we have purchased from local retailers which we have already paid tax to? Understandably, in the case of building an RV, those parts are of limited items/cost but keeping receipt for each item will be harder than building the plane itself.
 
Welcome to the world of taxes. It is illegal to charge sales tax on out of state purchases, so most states also have ?use taxes?. By coincidence, the use tax rate is the same as the sales tax, and if you pay sales tax there is no use tax. It?s just an end run around the constitutional prohibition on taxing interstate commerce. CA has a use tax.
As I purchased major kits, and engine, I sent in the tax owed (you can do this on your CA income tax return). When I registered the airplane, I got a letter from the state, asking for use tax as well as property tax. I told them I paid the use tax, gave them the years to check my returns. Heard nothing more. As to property tax, I pointed out that the A/W date was after Jan 1, so property tax was not due until the following year...
 
My understanding was that any parts/goods purchased outside of State, if there is no local office/retailer for that organization, is not subject to tax.

Furthermore, how do we account for parts that we have purchased from local retailers which we have already paid tax to? Understandably, in the case of building an RV, those parts are of limited items/cost but keeping receipt for each item will be harder than building the plane itself.

As an upstanding taxpayer...line 95 on the CA 540 tax form is where you get to write in and provide the "use" tax for everything you bought out of state you owe taxes on. it's all subject to tax.

For accounting on taxes already paid; three words...document, document, document. Keep your receipts. I scan them all and keep in a folder online.
 
Here is a twist. What if you bought a wing kit or or tail feathers second hand? Do you think I will have to pay use tax on those purchases? I didn't buy from a business, so private sale and it's not an aircraft yet so no property tax yet.. Will this be a stickler down the road when the thing gets finished?

I have a bill of sale for the wing kit, but it was not even close to new price, as I am still not sure of how complete it is. Will I pay on the sale price (which it should be) or on new value? Who knows how much that will be by the time I eventually finish this thing.

I guess I should just do the tax form ca 540 with the purchase price and tell them it is already paid like Mr. Turner did.:confused:
 
In CA there are no exceptions. All sales, new or used, business or private, are subject to sales/use tax. And get this: when they calculate the value subject to annual property tax, they?ll include the sales tax!
 
Welcome to the world of taxes. It is illegal to charge sales tax on out of state purchases, so most states also have ?use taxes?. By coincidence, the use tax rate is the same as the sales tax, and if you pay sales tax there is no use tax. It?s just an end run around the constitutional prohibition on taxing interstate commerce. CA has a use tax.
As I purchased major kits, and engine, I sent in the tax owed (you can do this on your CA income tax return). When I registered the airplane, I got a letter from the state, asking for use tax as well as property tax. I told them I paid the use tax, gave them the years to check my returns. Heard nothing more. As to property tax, I pointed out that the A/W date was after Jan 1, so property tax was not due until the following year...

I believe this is accurate. This is also what I did. Items purchased from CA businesses where sales tax had already been paid were documented. Items purchased from companies outside CA were subject to use tax, which I paid on my CA 540 each year. I never heard a word from the State Board of Equalization, so they are apparently content with this approach.
 
In CA ... And get this: when they calculate the value subject to annual property tax, they?ll include the sales tax!

I don't think this is accurate. There was a specific process for documenting the value subject to Property Tax. I recall that it came out a different number than the value subject to sales tax, but it was lower, not higher. They certainly did not try to assess a property tax on a value that included the payment of sales tax.
 
Here is a twist. What if you bought a wing kit or or tail feathers second hand? Do you think I will have to pay use tax on those purchases? I didn't buy from a business, so private sale and it's not an aircraft yet so no property tax yet.. Will this be a stickler down the road when the thing gets finished?

I have a bill of sale for the wing kit, but it was not even close to new price, as I am still not sure of how complete it is. Will I pay on the sale price (which it should be) or on new value? Who knows how much that will be by the time I eventually finish this thing.

I guess I should just do the tax form ca 540 with the purchase price and tell them it is already paid like Mr. Turner did.:confused:

As I understand it, the price you paid for incomplete components from 3rd parties is treated as if you were purchasing materials from which to build the airplane. So those would be subject to use tax/sales tax, AT THE PRICE YOU PAID, not on an equivalent "new" price.

For what it is worth, the same is true if you build a trailer, or a kit car, or a boat, or other vehicle subject to registration and use taxes. When I built a utility trailer from scratch, they charged me use tax on all the raw materials that were purchased out of state which did not already have sales tax paid on those materials. This amounted to an axle. Materials that I bought 'in state' and paid sales tax for, including about 600 lbs of steel, were not charged use tax.
 
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When I registered the airplane, I got a letter from the state, asking for use tax as well as property tax. I told them I paid the use tax, gave them the years to check my returns. Heard nothing more. As to property tax, I pointed out that the A/W date was after Jan 1, so property tax was not due until the following year...

in CA, property taxes are assessed by the county, not the state BoE. You make the payments for property taxes to the county tax collector, use/sales taxes to the state BoE.
 
In CA there are no exceptions. All sales, new or used, business or private, are subject to sales/use tax. And get this: when they calculate the value subject to annual property tax, they?ll include the sales tax!

There may not be exceptions, but there are exemptions.
 
Yet, I prefer living in CA than any other State in the US hands down.
But I might just consider selling the plane if unhappy with the tax.
I wonder if I would still be liable for paying the tax if not owning it anymore?
 
Yet, I prefer living in CA than any other State in the US hands down.
But I might just consider selling the plane if unhappy with the tax.
I wonder if I would still be liable for paying the tax if not owning it anymore?

The instant you bought a part, or the whole airplane, you owe sales/use tax, even if you later sell it. As to property tax, if you owned the airplane on Jan 1, you?ll owe property tax, due on Aug 31, even if you sold the plane in March.
 
There may not be exceptions, but there are exemptions.

In fact, there is a 50 page document of exceptions:
https://www.cdtfa.ca.gov/formspubs/pub61.pdf

In my case I kept every receipt of everything I ever bought, so if the use tax man cometh, I am armed with paperwork. The big ticket things like engine, avionics, and kits would be where they would be most interested, I think.

I do get the privilege of paying property tax on the land and structure of the hangar I rent from the county, which they would otherwise not pay themselves. So that's fun. :confused:
 
Taxes

Here is a twist. What if you bought a wing kit or or tail feathers second hand? Do you think I will have to pay use tax on those purchases? I didn't buy from a business, so private sale and it's not an aircraft yet so no property tax yet.. Will this be a stickler down the road when the thing gets finished?

I have a bill of sale for the wing kit, but it was not even close to new price, as I am still not sure of how complete it is. Will I pay on the sale price (which it should be) or on new value? Who knows how much that will be by the time I eventually finish this thing.

I guess I should just do the tax form ca 540 with the purchase price and tell them it is already paid like Mr. Turner did.:confused:

The original buyer probably didn't pay use/sales tax on his purchase. I would use your bill of sale as your price when you put it together. And you are not going to pay any taxes on a lot of small items like nuts, bolt, etc. etc. Just roll it into the large item pieces.
 
As I purchased major kits, and engine, I sent in the tax owed (you can do this on your CA income tax return)

Keep your records.
I did the same thing regarding paying as I went. When I purchased my QB kits I payed my use tax (this was before Van's started collecting Ca sales tax) via the state income tax return. Six months later I get a nastygram in the mail from State Board of Equalization that says essentially We noticed on your 540 form you owe us use tax for a purchase. We don't have the money you said you owe so cough it up plus interest plus penalties for late payment.
Quick call to the folks at the Board of Equalization and they say they did not receive the money from the Franchise Tax Board.
Call the franchise tax board. They said Oops, sorry. They will send me a refund check for the orig amount. A week goes by and sure enough I get a check from the Franchise Tax Board. I write the Board of Equalization a letter that said I was including a check for the orig amount but there was no chance I was paying any penalties or interest explaining I did everything exactly they way I was supposed to per the instructions on their own website. It can't be my fault one govt agency can't get their act together and transfer funds. Received a return letter back informing me the matter was closed. I kept copies of everything.
I just looked again and the instructions still have payment through the Franchise Tax Board via your 540 income tax as the first option.
 
I

I do get the privilege of paying property tax on the land and structure of the hangar I rent from the county, which they would otherwise not pay themselves. So that's fun. :confused:

Yes, I just find that soooo strange. No doubt it has been questioned and tested before, but I fail to see the rationale for making the renter pay the property tax. If it is county property, they own it, it just escapes me how they can make someone else pay property tax on it.

BTW it is the same in Oregon.
 
I was told that as a manufacturer, the use tax isn't due until the date of manufacture i.e. when the aircraft is certified.

So I collected the receipts and paid online just before certification. That seemed to be acceptable to them.
 
Yes, I just find that soooo strange. No doubt it has been questioned and tested before, but I fail to see the rationale for making the renter pay the property tax. If it is county property, they own it, it just escapes me how they can make someone else pay property tax on it.

BTW it is the same in Oregon.

I don?t understand it either, but the bill says I have a ?Possessetory interest? - whatever that is.
 
I don’t understand it either, but the bill says I have a ‘Possessetory interest’ - whatever that is.

"A taxable possessory interest is created when real estate owned by a government agency is leased, rented, or used by a private individual or entity for their own exclusive use. The taxation of this interest is similar to the taxation of owners of privately owned property."

https://www.sfassessor.org/property-information/possessory_interest

In other words, they're charging you because they can.
 
In fact, there is a 50 page document of exceptions:
https://www.cdtfa.ca.gov/formspubs/pub61.pdf

In my case I kept every receipt of everything I ever bought, so if the use tax man cometh, I am armed with paperwork. The big ticket things like engine, avionics, and kits would be where they would be most interested, I think.

I do get the privilege of paying property tax on the land and structure of the hangar I rent from the county, which they would otherwise not pay themselves. So that's fun. :confused:

Wait... you pay property taxes on something you rent? What does California NOT have bassackwards?
 
My rental agreement in Florida said I was responsible for real estate taxes on the hangar. It's not just CA that does that.
 
TAXES. TENANT shall be responsible for all real estate taxes, if any, and for
assessments and special assessments charged by any governmental authority against the PREMISES (as
to the land and/or the improvements contained thereon from time to time) during the TERM, if any. In
the event any taxes are required to be paid by applicable law in lieu of real estate taxes, then TENANT
shall be responsible for paying same to LANDLORD in the same manner as provided herein as to real
estate taxes. Such real estate taxes and assessments shall be due and payable by TENANT toLANDLORD within 10 days after written demand by LANDLORD, which demand will include a copy
of the then current real estate tax bill or assessment. The amount of taxes payable by TENANT shall be
prorated as to the first and last years of this Lease based upon the number of days during the respective
calendar years in which this Lease is in effect. To the extent that this Lease terminates or expires prior to
the time that the tax bill has been issued for that applicable calendar year, the parties will prorate the
taxes as of the expiration or termination date based upon the prior year's tax bill, which will be subject to
re-proration upon receipt of the actual tax bill for such year. This paragraph will survive the expiration
or termination of this Lease.


How I read that section was that if the tax authority ever wanted to reassess the property while I was a tenant, I would be responsible for my share of the increased tax. It sucks, and I don't think a renter should be directly charged for landlord expenses, but I think you would be hard pressed to find a hangar to rent without these kinds of stipulations. I also had to carry a million dollar umbrella policy with the landlord as a named beneficiary, even though the lease releases the landlord from all responsibility from any damage thier building may cause to my property. It's all very one sided, but I don't get to write the contract.
 
I don't think this is accurate. There was a specific process for documenting the value subject to Property Tax. I recall that it came out a different number than the value subject to sales tax, but it was lower, not higher. They certainly did not try to assess a property tax on a value that included the payment of sales tax.

At least in El Dorado County they do add the use tax to the valuation.
 
Am I wrong in thinking it sounds goofy as **** to pay property taxes on something you don't own?

IANAA (I am not an accountant :)), but I believe it's pretty common in a lot of states/counties. Same sort of taxation occurs, at least in CA, on boat slips in county-owned marinas.
 
Outdated notions of nexus

The notion that a state cannot impose upon a seller the chore of collecting sales tax because they are out-of-state is long outdated.

The notion that you do not have to remit to your state a sales tax (a.k.a. use tax) on a purchase from an out-of-state supplier who did not collect a sales tax was never true.

These notions represent a simplified conception of economic nexus that states have long nibbled around the edges. For example, if you so much as sent a salesman into CA with literature and that literature was left behind, CA claimed nexus. The rules in Texas are such that if you're standing in OK and so much as shout across the state line into TX (perhaps a very slight exaggeration), then TX claimed nexus.

All this was in 2018, turned upside down by one of the stranger things the supreme court has done. Google this: South Dakota v. Wayfair. Yes that Wayfair. You can see where this is going. As a result, I wouldn't be surprised if Van's started collecting sales tax on just about every sale.

My purchasing department was utterly baffled last year when an unusual influx of suppliers, as in practically all of them, wanted to update our sales tax exemption certificate. I told them to Google: South...

California has long found it so profitable to harass out-of-state would be scofflaws, that they maintain an office and employees in Illinois expressly for that purpose.
 
I bought my plane at a substantially unreasonably low price from a person who just wanted it gone. I?ve fought with the county which decides the worth of the plane when in completed flying stage. First year it was the proof of the bill of sale along with taxes paid and the tax amount was $. The following year they searched the internet to decide it?s worth by what they call true value, not what you have vested into your plane. Increased to $$$. Mind you the was plane was near the completion stage and everything need to be airworthy was included.
They don?t care if your plane looks like a train wreck or should be in a pedestal for all to appreciate. I appeared before the the county auditor every year since 2013 and won a little but now they say they already giving me a 20% break this year on what?s on the Internet and whatever is considered the Kelly blue book for aircraft.:eek::eek:
 
I have a friend who fought a similar battle with San Bernardino County. They were assessing planes on asking prices in ads, not selling prices, and had no concept of things like engine time, total time, damage history, overall condition, and whether or not the plane was painted. Fortunately, he was successful on appeal.
 
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