One of the ways that a business can use to avoid bankruptcy is to go through liquidation and sell off company assets to pay off their creditors. It is becoming more and more common now, due to the declining U.S. Economy and the changing of bankruptcy laws. When a company goes through liquidation, it does not mean that it is out of business for good but for the time that its assets are being liquidated, it will have to temporarily stop doing business.

There are three different types of liquidation procedures that are used and the first one is called “members voluntary liquidation.” With this liquidation process, all of the shareholders or partners unanimously agree on the liquidation and the value of the assets to be sold off exceeds the amount of debt that is owed. The second common liquidation procedure is referred to as “creditors voluntary liquidation” and it also is agreed upon by the partners or shareholders.     Read the rest of this entry »

The article written last month titled Proper Delivery Outside of California Begins the Use Tax Exemption Process explained the importance of, and how to, properly take delivery of an aircraft outside the state, which is the first step in the California sales and use tax exemption process.  If you didn’t get a chance to read that article you can contact Aero-tax Compliance Experts, LLC (ACE) for a copy or visit www.aero-tax.com.

Many aircraft owners and potential owners have contacted us for an explanation on California’s first functional use requirement. We have learned that there is a lot of mis-information and confusion on this issue.  Our attempt is to clarify some of the confusion that exists and eliminate the mis-information with the first functional use requirement for the California use tax exemption process.

First functional use is a critical component of the California use tax exemption process.  California Sales and Use Tax Regulation 1620 defines first functional use as use for which the property was designed.  An aircraft is defined in Law section 6274 as any contrivance designed for powered navigation in the air except a rocket or missile.  Logically, one would conclude that first functional use of an aircraft is flight because aircraft are designed to fly; right?  Not necessarily.  In my experience with the sales and use tax law, one can not rely upon logic.

The California State Board of Equalization (BOE) has effectively confused the term for which the property was designed withhow big it is, or how is it configured. I’ll explain; in May of 2002 a staff member of the BOE’s tax counsel (writer) drafted a memorandum to another staff member explaining to them the writer’s interpretation of first functional use.  Somehow, the writer deduced a formula, or justification, to distinguish between aircraft designed for personal purposes and aircraft designed for commercial purposes.  Simply put, the writer concluded in the memorandum that an aircraft with 6 or fewer seats was an aircraft designed for personal purposes, and an aircraft with 7 or more seats was designed for commercial purposes.        Read the rest of this entry »