April 25, 2019
Re: § 58.1-1821 Application: Aircraft Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the aircraft sales and use tax assessments issued to ***** (the “Taxpayer”) for the period January 2014 through December 2015. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is located in Virginia and provides air service to the aviation community. The Taxpayer provides a full range of services to the public, including aircraft rentals, fuel sales, flight instructions, hangar rentals, and aircraft sales. The Taxpayer possesses a Virginia commercial fleet aircraft license and is an approved aircraft dealer with the Federal Aviation Administration (FAA). The Taxpayer is also recognized by the FAA as a Part 141 flight school, Part 145 repair station, and Part 135 charter operator. The Taxpayer has owned at least five aircraft during each calendar year since they commenced business in 1992.
As a result of the Department’s audit, the auditor issued assessments on three aircraft owned by the Taxpayer that were subject to the 2% Virginia aircraft sales and use tax. The auditor advised the Taxpayer that based on the statutory and regulatory requirements, the Taxpayer was eligible for the aircraft tax “dealer exclusion” as set forth in Virginia Code § 58.1-1507 and Title 23 of the Virginia Administrative Code (VAC) 10-220-60 respectively. In this instance, however, the Taxpayer did not notify the Commissioner in writing of such election for the dealer exclusion at or before the time for filing a return as required by Virginia Code § 58.1-1506. Therefore, the Taxpayer, as owner of the aircraft, was assessed the tax on the purchase price of the aircraft.
The Taxpayer contests the aircraft sales and use tax assessed on the three aircraft and claims that it was unaware of the exclusion option. The Taxpayer seeks retroactive aircraft dealer exclusion status to the purchase date of the aircraft. The Taxpayer has included in its appeal a completed Form R-1 and is requesting permission from the Tax Commissioner for dealer exclusion status.
DETERMINATION
Virginia Code § 58.1-1502 levies a tax upon the retail sale of every aircraft sold in Virginia and upon the use in Virginia of any aircraft "required to be licensed" by the Department of Aviation pursuant to Code of Virginia § 5.1-5. The amount of the tax to be collected shall be determined by the application of the following rate to the sale price or gross receipts:
1. Two percent of the sale price of each aircraft sold in the Commonwealth.
2. Two percent of the sale price of each aircraft not sold in the Commonwealth but required to be licensed for use in the Commonwealth. However, if the aircraft is licensed in the Commonwealth six months or more after its acquisition, the tax shall be two percent of the market value of such aircraft at the time it is licensed or two percent of the purchase price thereof, whichever is lower.
3. Two percent of the monthly gross receipts from the lease, charter or other use of any aircraft licensed for commercial use pursuant to § 5.1-5 B and held for sale by a dealer who has elected to be taxed under this paragraph as provided in § 58.1-1507.
A transaction taxed under subdivision 1 shall not be taxed under subdivision 2, nor shall the same transaction be taxed more than once under either subdivision.
An aircraft subject to the tax under subdivision 3 shall be subject to the tax under subdivision 1 or 2 immediately upon the revocation of the commercial use license for such aircraft.
In this instance, the Taxpayer purchased the aircraft in 2014 and 2015 and placed the aircraft into service thereafter. The Taxpayer did not apply to the Department to obtain approval for the dealer exclusion under subsection 3 of Virginia Code § 58.1-1507 and elect to pay the tax on 2% of the gross proceeds of the lease or charter of the aircraft. As such, the Taxpayer has paid no tax on the gross receipts from the lease, charter or other use of the aircraft since the aircraft were placed into service. While the Taxpayer may have been a dealer in aircraft at the time of purchase, there is no provision in the statute or the regulation that provides the Tax Commissioner the authority to apply retroactive status to the beginning liability date for tax registration. Therefore, the Taxpayer, as owner of the aircraft, is subject to the 2% aircraft tax on the purchase price of the aircraft. Further, because the tax is assessed on the aircraft under subsection 2 of Virginia Code § 58.1-1502, the Taxpayer is not required to pay tax on the gross receipts of any subsequent lease or charter of the aircraft to Virginia customers. This determination is consistent with the decision in Public Document 09-38 (4/27/09).
Application for Dealer Exclusion
Virginia Code § 58.1-1507 addresses the dealer exclusion for aircraft tax and provides, in part, “[A]ny person holding a commercial dealer’s license issued by the Department of Aviation who desires to be subject to the tax imposed by subdivision 3 of § 58.1-1502 shall notify the Commissioner in writing of such election. The election may be made at or before the time of filing a return as required by § 58.1-1506.” Virginia Code § 58.1-1502 addresses the tax levied on aircraft and subsection 3 provides that the 2% aircraft sales tax shall be applied to “two percent of the monthly gross receipts from the lease, charter or other use of any aircraft licensed for commercial use pursuant to § 5.1-5 B and held for sale by a dealer who has elected to be taxed under this paragraph as provided in § 58.1-1507.”
The Taxpayer’s completed R-1 Registration Form will be forwarded to the Department’s Registration Unit for processing. Once the Taxpayer has obtained its dealer exclusion status, the Taxpayer will be required to register with the Department and file a monthly aircraft sales and use tax return, Form AST-2, and pay the 2% aircraft sales tax on the gross receipts from the sale, lease, rental, charter, and any other gross receipts generated from all future commercial aircraft operated by the Taxpayer. All future commercial aircraft purchased by the Taxpayer would be exempt from the 2% aircraft tax at the time of purchase; however, all gross receipts generated by the aircraft would be subject to the tax.
CONCLUSION
Based upon this determination, the assessments are correct as issued. The Taxpayer will receive updated bills with interest accrued to date. The bills should be paid within 30 days of the date of the bill to avoid accrual of additional interest.
The Code of Virginia sections, regulation and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you should have any questions concerning this determination, please contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1397.T