According to AVWeb (free registration required), Maine will continue to levy a use tax (up to 6 percent of the aircraft’s value) on airplanes that fly into Maine and stay at least 20 days (the tax only applies during the first year of ownership and if the owner hasn’t paid a 6 percent tax elsewhere.

“Those 20 days can sneak up on you…Let’s say your aircraft gets weathered in during your weekend trip, but because of work obligations, you have to leave your airplane and drive or catch a train home. The clock is ticking the whole time the aircraft is stuck in the state…”

Privateairdaily.com has posted an article by Gary I. Horowitz, of the law firm Wiley Rein LLP where he covers the recent changes in tax law regarding personal use of the corporate jet.

Previously, a corporate executive using the company’s aircraft for personal-entertainment purposes would need to declare the use as income at SIFL or charter rates and the company could deduct all costs associated with these trips, including direct operating costs along with interest maintenance and insurance. Not any more.

Now, under the American Jobs Creation Act (don’t ask) of 2004, when executives, directors or certain part-owners of a company use their firm’s aircraft for entertainment purposes, the company can take a tax deduction on the costs relating to those trips in an amount no greater than the amount imputed as passenger income. So if an executive is imputed with $10,000 in income and the company previously wrote off $50,000 in related direct operating and fixed costs, the company just lost $40,000 in tax deductions.

Advocate Consulting provides a detailed PDF on this subject. Here’s an an excerpt:

Advocate Consulting serves the needs of owners and operators of aircraft with tax advice. Every week they provide a tax tip of the week for aircraft owners.

According to the NBAA Events Calendar, the 17th Annual NBAA Tax & Risk Management Conference is scheduled for October 4-5th.

October is a long way off, but I’d pencil in some space for learning about how to save yourself from various risks and tax snafus that can crop up with business jets.

They haven’t posted any more information about the event (other than the date) on their site that I can tell, BUT you can find some more tax and finance related information here.

The Isle of Man launched a private aircraft registry last year, and the number of registered aircraft has exceeded expectations. Most of the registrations are for business jets, especially since there are many benefits for private aircraft that get the Manx (or ‘M’) designation - mainly a corporate tax of zero. Only aircraft weighing more than 12,500 pounds are accepted.

Legal eagle Carol A Laham was written an informative article featured the December 2007 issue of Airworthy: Insights into Current Aviation Legal Issues regarding the use of private corporate aircraft by elected officials. There are new laws in place that make it much harder for members of the Senate or Congress to hitch a ride on your plane.

Gary I. Horowitz of Wiley Rein has authored an article in their Dec 2007 newsletter covering the new rules surrounding personal use of business aircraft. Horowitz also provides a nice overview of the IRS’ general position regarding what they view as deductible and what’s an “entertainment” use.

If a company allows its officers, directors and more-than-10% owners (a group defined by the IRS as “specified individuals”) to use the company’s aircraft for entertainment purposes, the company could lose a substantial amount of tax deductions relating to the aircraft and greatly increase the net cost of owning and operating the aircraft.

The IRS considers “entertainment” use of business aircraft to be any activity that is generally and objectively treated as entertainment, amusement or recreation. “Entertainment” does not include travel for the company’s business purposes and for reasons such as medical purposes, attending funerals, participating in charitable activities and attending to other business activity. The IRS would probably consider any other personal use of a business aircraft to be “entertainment” and the related aircraft expenses subject to disallowance (except to the extent included as compensation by a specified individual).

The new rules in a nutshell:

• Regulations now permit a taxpayer to depreciate an aircraft on a straight-line basis (instead of MACRS) over an aircraft’s class life when calculating disallowed entertainment-related deductions.
• Investment/basis in its aircraft is not reduced for tax purposes by any depreciation disallowed due to entertainment use by specified individuals.
• Expenses allocable to an aircraft’s charter or lease to an unrelated third party in a bona-fide business transaction for adequate and full consideration are not subject to disallowance.
• Deadheading is now treated as having the same number and character of passengers as the leg of the trip on which passengers are aboard for purposes of determining deduction disallowances.
• The fringe benefit “consistency rule” is relaxed and now allow a company to allocate more compensation to specified individuals on entertainment flights, thereby further reducing any deduction disallowances to the company.
• You are now allowed to choose one of three different methods to determine the amount of disallowed deductions. This gives you the opportunity to apply the method that gives you the best tax result.

The entire article is here.

The December issue of a newsletter published by The Metropolitan Corporate Counsel (TMCC) features an article by Gary I. Horowitz regarding taxes and entertainment use of business aircraft.

A few choice quotes:

“Generally, a company can deduct all ordinary and necessary expenses paid or incurred during a tax year in carrying on any trade or business. However, no deduction is allowed for an activity generally considered to be entertainment. If a company allows its officers, directors and more-than-10% owners (a group defined by the IRS as “specified individuals”) to use the company’s aircraft for entertainment purposes, the company could lose a substantial amount of tax deductions relating to the aircraft and greatly increase the net cost of owning and operating the aircraft.”

“Generally, the cost of entertainment use of a business aircraft (in terms of disallowed tax deductions) can be much higher than an individual commercial flight’s cost. To determine aircraft entertainment use expenses, a company must take into account all of the operating costs of maintaining and operating the aircraft. According to the IRS, use of the term “operating costs” refers to all costs, fixed and variable, including fuel, crew salaries, take-off, landing and hangar fees, maintenance, management fees, insurance and depreciation claimed on the taxpayer’s tax return. Therefore, the IRS requires that all such variable and fixed costs be included when calculating aircraft entertainment use expenses.”

“In order to determine the amount of disallowed deductions caused by entertainment use of a business aircraft, the IRS Tax Regulations allow you to choose one of three different methods. Three different methods seems unduly complicated, but it gives you the opportunity to apply the method that gives you the best tax result because you can choose the preferred method after the tax year’s end.

In general, it appears that the “flight-by-flight” method will give the most accurate results. Under the “flight-by-flight” method, a company will first add up its total aircraft expenses for the year and divide that amount by the total number of flight hours or miles for the year to determine the “cost per hour” or “cost per mile.”

The July/August Issue of Business Jet Traveler Magazine (subscription required) dedicates several pages to tax planning for operators of business aircraft. In the article Taxing Situations reporter Jeff Wieand spends some time focusing on how state taxes work, and how to navigate around them if possible. Some highlights include:

If you close the sale and take possession of the plane in Connecticut, Delaware, Massachusetts, Montana, New Hampshire, Oregon or Rhode Island, you can avoid sales tax. BUT, if a key component is not installed at time of purchase (like an engine) that component could be taxed later.

If the aircraft is undergoing maintenance in a state with a sales tax and can’t be flown to a non-tax state at closing, you may be able to take advantage of a “fly-away” rule that exempts the transaction from sales tax.

If you buy a plane in a no-tax state, but keep it and use it primarily in a sales tax state, you’ll need to contend with a “use tax.” This tax will likely cost you as much as sales tax would.

One workaround is to structure things so you can take advantage of a commercial exemption. Operating an aircraft
under the FAA charter rules (Part 135) can help avoid use taxes.

Leasing is another approach:

A “casual sale” exemption, may also apply. If you can’t avoid use tax altogether, you may be able to significantly reduce it by means of a lease. That’s because, in many states, use tax on
the purchase of an aircraft for lease to another entity is levied on periodic lease payments as opposed to the purchase price.

All in all, it’s hard to escape state taxes:

The states have a tool chest full of other taxes that they can impose on business jets, including registration fees, property taxes and forms of income tax. A state might impose an annual tax on the value of corporate assets in the state, including any aircraft owned. Moreover, a state’s treatment of income tax (deductions, for example), may vary from the treatment imposed by the IRS.

According to AVweb, the IRS is looking to change rules regarding entertainment use of business aircraft. Earlier this month, a notice of proposed rulemaking was published targeting “taxpayers that deduct expenses for entertainment, amusement or recreation provided to specified individuals.” The IRS hopes to clarify the definition of entertainment, and is taking written comments until September 13.