Tax Type
Aircraft Sales and Use Tax
Corporation Income Tax
Description
Domestic and Foreign Corporations; Aircraft Based in Virginia; Taxable Nexus
Topic
Taxpayers' Remedies
Date Issued
01-11-1991
January 11, 1991
Re: §58.1-1821 Application; Aircraft Sales & Use
Dear********
This will reply to your recent correspondence regarding the aircraft sales and use tax liability of your client.
FACTS
A Delaware business*************** (Taxpayer), acquired an aircraft in August 1987. The Taxpayer arranged for a Virginia business to supply a pilot as needed. Hangar space at a Virginia airport was leased for the plane on November 14, 1987, but it appears that the plane was not based at the Virginia airport until sometime in 1988.
In response to an inquiry from the Virginia Department of Aviation, the Taxpayer applied for a license. At that time the presence of the plane came to the attention of the Department of Taxation, which resulted in an aircraft use tax assessment. Upon learning of the aircraft tax liability, the Taxpayer surrendered its Virginia license, claiming that it would remove the plane from Virginia.
AIRCRAFT TAX LIABILITY
The aircraft sales and use tax consists of a sales tax on aircraft sold in Virginia, and a complementary use tax on aircraft brought into Virginia after being purchased elsewhere. The aircraft use tax is due as soon as a plane "is required to be licensed by the Department of Aviation under §5.1-5." (§58.1-1502, emphasis added) Note that the imposition of tax depends on whether a license is required, not whether a license is issued. Under §5.1-5, a Virginia license is required for every "nonresident owning a civil aircraft based in this Commonwealth over sixty days during any twelve-month period." The tax is supposed to be paid before applying for the license (§58.1-1506), but in practice is often assessed shortly after the license application as a result of the department's compliance programs. once the plane has been based in Virginia for 60 days the tax is owed whether or not a license is ever issued. The tax may not be avoided by refusing to obtain a required license, nor by removing the plane from Virginia after it has been based here for 60 days or more.
The assessment is based on the best information we could obtain as to the date that the aircraft first became based in Virginia. The date used for the assessment is about 10 months after hangar space was leased for the aircraft and 13 months after the aircraft was acquired. This appears to be very reasonable under the circumstances.
Although the Taxpayer clearly owes Virginia aircraft use tax, the amount assessed is incorrect. The tax is limited to 2% of the cost, plus penalty and interest. At the time of the assessment our personnel did not have the acquisition cost, so current market value was used. Based on the copy of the purchase order you provided it appears that the aircraft has appreciated substantially. Therefore, the assessment will be revised as shown on the enclosed sheet to reflect the acquisition cost. Your client will shortly receive a revised assessment reflecting the correct tax, penalty and accrued interest, which should be paid within 30 days to avoid the accrual of additional interest.
CORPORATE INCOME TAX
An additional issue is presented by the facts of this case. The corporation income tax regulations tie income tax nexus to the presence of property, payroll and sales in Virginia sufficient to make one or more Virginia apportionment factors positive (VR 630-3-402, "Income and deductions from Virginia sources," copy enclosed). Because the plane is owned by the Taxpayer, used in its business, and present in Virginia, the Taxpayer is subject to an apportioned income tax in Virginia even though there may be no other contacts with Virginia, and none of its "business" would be considered derived from Virginia sources under generally accepted accounting principles.
Accordingly, the Taxpayer is subject to Virginia income tax for 1988, 1989, and 1990 and should prepare and file Virginia corporation income tax returns for those years. If the plane was based in Virginia on or before December 31, 1987, income tax would also be owed for 1987. Enclosed are forms 500, 500A and instructions for the convenience of your client.
I hope that this answers the questions you asked about your client's Virginia tax liability arising from the aircraft based in Virginia. If you have any additional questions, please do not hesitate to contact me.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner