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Indiana Department of Revenue Challenges Aircraft Sales Tax
Posted in Tax and Finance

With a sales and use tax rate of 7 percent in Indiana, the potential tax savings or cost of a purchase of tangible personal property can be significant, particularly in the case of an acquisition of corporate aircraft, which often cost millions of dollars. The Indiana Department of Revenue recently upheld an assessment of aircraft license tax, use tax, interest and penalties on an aircraft in a Letter of Finding (LOF). The taxpayer at issue in the LOF was a Delaware corporation owned by one member, an individual Indiana resident. When the corporation purchased the aircraft, sales tax was not paid and the corporation did not self-assess use tax on the aircraft. The corporation also did not register the aircraft with the Department or pay the aircraft license tax.

The Department of Revenue assessed aircraft license tax because it found that the nonresident corporation had based the aircraft in Indiana for more than sixty days. An aircraft’s base is the location where it is normally hangared, tied down, housed, parked or kept when not in use. Under law, an aircraft’s base is established by renting or leasing a hangar or tie down for at least 31 days.

The Department of Revenue also assessed use tax on the aircraft because the corporation stored or used the aircraft at Indiana airports. The Department of Revenue rejected the corporation’s position that because it was a Delaware corporation, it was not responsible for Indiana sales and use tax.

We have found that planning for sales and use tax when purchasing and selling high value, highly visible assets such as aircraft, as well as entire businesses, often benefits our clients. Planning has the potential to both produce tax savings and help establish defenses against tax assessments.



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