A recent case demonstrated how taxpayers can be at a disadvantage when it comes to understanding how to legally avoid sales/use tax. The taxpayer purchased his aircraft outside the State of California and intended to support a claim for exemption based on commercial use in his own business.

Since the aircraft was registered to taxpayer’s California address, the Department asked him to submit records to determine if the aircraft was purchased for use in California. California Code of Regulations, title 18, section (Regulation) 1620, subdivision (b)(4), provides that where an aircraft is purchased from a retailer outside California, first functionally used outside California, and brought into California within 90 days after its purchase, it will be presumed that the aircraft was purchased for use here, unless during the six-month period immediately following California entry, the aircraft is used or stored outside California one-half or more of the time, or one- half or more of the flight time traveled by the aircraft is commercial flight time traveled in interstate commerce. It defines the term "commercial" as applying to business use and excluding personal use.

To show the use of the aircraft after taking delivery out-of-state, taxpayer submitted aircraft flight logs, a credit card statement, receipts for fuel purchases, hotel stays and rental cars and letters from clients outside California that taxpayer visited for business purposes. Taxpayer operates a store doing business in California.

The records indicate that, after taxpayer took delivery of the aircraft, it was flown to another state where taxpayer visited a potential customer, to provide an estimate for installation of a system. Thus, the aircraft was first functionally used outside California for commercial purposes. The aircraft was then flown to Arizona and entered California on August 3, 2005, within 90 days of the purchase date.

During these flights, taxpayer also received flight training from a certified instructor. For the next six months after California entry (between August 3, 2005, and February 3, 2006), the aircraft was flown a total of 100 hours. Of this total, 47 were commercial flight time in interstate. The remaining 53 hours were flight time in California, which included 8 hours of additional flight instruction that taxpayer received from a certified instructor. Thus, since the California flight time at 53 percent exceeded the commercial flight time in interstate commerce at 47 percent, the use of the aircraft did not meet the requirement in subdivision (b)(4)(B)3. of the regulation, that one-half or more of the flight time must be commercial flight time in interstate commerce.

Taxpayer disagreed that the hours of flight instruction in California should be included in the hourly calculations for purposes of determining whether the requirements of the exemption are met. In substance, taxpayer argued that if those hours are removed, then total flight time would be hours less.

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