10 Tricky Ways Aircraft Avoid Tax Liability

We know all too well how much tax departments have on their plate. From staffing shortages and increased workloads to rapidly rising appeal rates, aircraft are only a blip on the radar. (Get it?) The sheer number of aircraft makes it difficult — the ways in which aircraft try to avoid detection efforts makes it near impossible.

We hear it from our clients every day:

"Unable to verify flights — they are blocked from public tracking!"

"Not reported on hangar lists. No information for billing”."

"Registration still pending."

We get it.

We’re pilots ourselves, which is how we know the ways aircraft get away with it. In this article, we’re sharing that information with you. Here are 10 tricky ways aircraft owners can make your jobs harder.

1. Register out of state

   Not every state taxes aircraft, so  owners often choose to register in those states. When an aircraft is actually flying to and from districts who do tax aircraft, however, they’re responsible for paying those taxes. Click here for a specific, real-life example.

2. Purchase a registration sticker out of state to claim they meet that state’s tax obligation

   This is a variation of registering out of state to avoid taxes. In this case, they’re paying the small, one-time registration fee hoping it will mitigate their true tax responsibility. Unfortunately for them, when an aircraft flies to and from multiple locations, they’re responsible for any tax liability that may be incurred in accordance with that community’s taxation rules.

3. Blocked tail numbers

   By blocking  the aircraft’s public flight tracking data, an aircraft becomes untrackable in systems like FlightAware. Intended as an FAA security measure, aircraft can misuse it for tax evasion.

4. Fly under a different call sign

   In addition to blocking the tail numbers, aircraft can change their call sign. This makes it nearly impossible for tax departments to see that a flight occurred. (Not for us, though.) 

   
   An aircraft can fly to one city, change their call sign and operate under a different identifier. This makes assigning the flights to the correct aircraft a huge challenge. The most difficult part of this process is identifying that a call sign was used in the first place. A task that’s best left to the professionals.

5. Claim personal use only

   Some states don’t tax personal-use aircraft, so naturally some owners claim their aircraft is only used for personal use. This is where advanced technology, manual research and analysis become crucial. We can see, for instance, exactly where an aircraft flies and match that against commercial locations. Click here for a recent example from Texas.

6. Personal registration hiding a 135 operator

   A slight variation of the personal use claim, this happens when someone registers their aircraft to an individual in a state that does not tax personal use. In this instance, however, the individual might lease their aircraft to a commercial charter company to recoup some operating expenses. The county sees the aircraft as registered to an individual. It’s only when we dig deeper do we find out the truth. Click here for that Texas example again.

7. Deceptive hangar receipts

   We see a lot of confusion when it comes to how hangar payments determine situs of a plane. In short, they don’t. 

   
   Ultimately, aircraft owners are using hangar receipts to mask their true location. We’ve found examples of aircraft that pay a monthly hangar lease in a state like Delaware, yet the aircraft hasn’t been to that hangar in years. 

   
   When an aircraft has blocked their tail number and presents an out-of-state hangar receipt, it’s nearly impossible for assessors to know the truth. 

8. Incomplete hangar lists

   In addition to deceptive hangar receipts, incomplete hangar lists present a problem. We’ve heard clients say things like: 

   “Not on hangar lists, requested more information. Not enough information to assess."

   "This aircraft isn't on my hangar list. They are not based here."

   "Not reported on hangar lists; I tried Googling it and couldn't find anything."

   Hangar lists are notoriously inaccurate, so unless someone is looking at each individual aircraft, they’ll get missed. 

9. Paperwork, paperwork, paperwork

   Often, aircraft owners will present landing fees, fuel receipts and registration fees as proof of residency or situs. There’s too much paperwork for assessors to sift through on top of their other responsibilities.

   An owner recently purchased a second out-of-state home in Florida, while the aircraft remained at the business location in our client's jurisdiction. The owner thought that a few fuel receipts from Florida, some landing fees and a new address would change the fact that the aircraft was operating 315 days a year in our client's jurisdiction.  

   
   It didn’t. Situs remained unchanged on that particular aircraft.

10. FAA delays

    Depending on the time of year and influx of registrations, the FAA can get behind. WAY behind. When a tax assessor looks at an FAA report, they’ll see a certification that may be months old. We see this a lot in the last quarter of the year. When an aircraft is worth tens of millions of dollars, a few weeks delay in recording and reporting could cost communities dearly. Click here to read about the perfect storm: end-of-year aircraft taxation.

Clearly, there are many ways aircraft get around paying their fair share of taxes.

Before hiring Specialized Tax Recovery, many of our clients were literally Googling for answers. A fruitless and frustrating experience. They have better ways to spend their time, and so do you. 

Contact us today.

The Perfect Storm: End-of-Year Aircraft Taxation

The end of the year is always tough for assessors when it comes to ensuring aircraft compliance. Sales transactions traditionally spike in Q4 for tax reasons. Sellers want to record their sale by year-end, and buyers want their purchase on the books come the first of the year. Throw in the phasing out of aircraft bonus depreciation, and you have the perfect storm. With so many aircraft changing hands, tax departments can’t possibly account for every instance of tax liability. 

(But we can.)

What Is Aircraft Bonus Depreciation?

The 2017 Tax Cuts and Jobs Act allowed aircraft owners to immediately deduct 100% of their aircraft’s depreciation, provided the aircraft met the requirements. 

Rather than wait each year for incremental depreciation, owners claimed it all upfront for aircraft bought and used between September 27, 2017, and January 1, 2027. That bonus depreciation started to phase out in 2022 and continues to reduce in rates through 2027. Depending on the aircraft, starting January 1, 2024, owners will only be able to leverage bonus depreciation at reduced 60–80% rates.

FAA Delays in Certification Causing Tax Revenue Losses

In addition to increased sales, we’re seeing delays in aircraft certification from the Federal Aviation Agency (FAA). With multiple aircraft changing owners in a short period of time, the FAA is simply overwhelmed. For example, even though an aircraft was bought and sold in December of 2023, the FAA may not record it until months later in May, June, or even August of 2024.

That’s a problem for compliance.

Most counties look for notification from the FAA as their trigger to issue a tax bill. Because those jurisdictions dictate tax liability on the lien date, or when the owner purchased the plane, the delayed FAA notification causes delayed noticing.

If someone purchases a $30 million plane, the tax revenue would be a significant loss.

To avoid this loss, someone needs to match the Bill of Sale with the application date, which will ensure years of liability are not lost to a simple recording delay. Confirming each date ensures the highest level of accuracy and compliance for all aircraft for each year. But it’s hard to do.

Tracking Aircraft Is Challenging

Current best practices are in need of new technologies and expert insight to increase their effectiveness. With nationwide staffing shortages and shrinking budgets, most offices struggle to find the time to focus on some of their most valuable (and challenging) taxable personal property.

We do.

We look at each individual aircraft. 

Through proprietary technology, expert analysis and experience, we alert our clients when a new aircraft establishes a home base in their jurisdiction. This allows that location to ensure compliance at a whole new level of accuracy. The exact goal of every tax office in the USA. Tax the taxable items at the correct value. Nothing more. Nothing less. 

Sound interesting to you? Let’s talk more. 
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Restoring Trust & Recovering Revenue

The Quick Trip

LOCATION: Southern US; Nearly 200,000 residents; Tourist Destination
MEDIAN HOME VALUE: $328,500
TAX AUDITOR: Elected
STR CLIENT SINCE: 2022
TAX REVENUE RECOVERED: $208,000
STR SERVICES: Discovery

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STR Helped This County Recover $208,000+ from One Aircraft

While the elected tax official was out of the office on sick leave, a new person had to learn how to manage aircraft taxation — fast. Even with Specialized Tax Recovery as a current, vetted partner, their approach was understandably cautious. We had to prove ourselves again. And we did.

The Law.

In this southern state, aircraft owned on January 1 of each year are subject to ad valorem property taxation by the county in which they establish situs or show habitual use. The tax rate varies by county, and each local tax office is responsible for monitoring and taxing their aircraft. The county tax offices are tasked with ensuring compliance across various aircraft ownership types including: non-residents, personal or business travel, commercial operations, air transportation, or flight instruction. 

The Challenges.

Numerous aircraft operating in this state choose to register their aircraft in another location in hopes of remaining undetected and untaxed. So far, it’s worked. 

This office hired STR because they were struggling with these aircraft. On top of aircraft owners looking to avoid their county tax liability, the tax official had to take a medical leave of absence, thrusting a replacement into a difficult position. Aircraft in the past had been an issue, and the office needed better data. 

Issuing a tax bill, especially a large one that’s overdue, can be a daunting task. Plus, the tax office wants to avoid the headaches of a lengthy appeal process. STR was brought in to assure the new leadership they could completely trust our process to achieve uniform and accurate taxation.

STR Solutions.

As an extension of their tax assessment capabilities, everyone at STR viewed the relationship as a partnership. We understand the complexities of aircraft taxation. In this case, we took our time helping our new colleague get to know our systems and processes. The tax office learned to see our data was accurate and efficient, and it helped them make informed decisions.

Through our proprietary discovery process, we found an aircraft they needed to tax. It was registered out of state in Delaware in an attempt to avoid taxation, yet situs was clearly in their jurisdiction. We also knew it had skirted its tax responsibility for 4 years.

The Result.

Because we gained the trust of our new colleagues, they issued the tax bill. No questions, no headaches. Not only did the county recover the approximately $208,000 owed to them, but they’ll also receive their annual taxes on this aircraft moving forward.

This is money rightfully owed to the community, to the schools. We got it back, and there’s more coming. This is just one example of many that helped this county recover omitted accounts.

Get to Know the Aircraft Guys

We did it for them, and we can do it for you. Let’s talk about how we can enrich your compliance rate and complement your assessment and collection strategy for all aircraft.

How 2 Counties Recovered Taxes from 1 Aircraft

Ensuring every single aircraft in a jurisdiction is taxed correctly is a significant task. Across the country, every tax department faces many challenges: differing state laws, owners looking to mitigate their tax responsibility, and the ability of owners to block their tail numbers from public tracking. In fact, this screen is probably a familiar sight to many. It’s what FlightAware shows and (It’s also what leaves tax departments at a dead end. More on this in a minute.)

On top of these challenges lies another complexity. Tracking when an aircraft moves from one jurisdiction and establishes situs in another is nearly impossible. Keeping up with a single aircraft’s flight patterns is one of the most daunting aspects of aircraft taxation. In addition to keeping up, someone needs to notice when those aircraft patterns change. We recently experienced this occurrence with one of our clients. 

The original client is a metropolitan county of a major US city. Performing our audit from 2016–2023, we found an omitted aircraft based in the county from 2016–2019. Situs in this state is determined “where flights normally originate,”so our records provided clearcut tax liability and the failure to file. This $4 million dollar aircraft was liable for 4 years, and the client recovered approximately $298,000. Remember that FlightAware screen? This particular aircraft had hidden its tail number from our client. They couldn’t hide from us because our proprietary process uncovers all aircraft.

Let’s not forget about 2020-2023. Because our experts review each aircraft individually, we spotted it. The aircraft had relocated in 2020.

In 2021, our flight records showed it had ceased flying in this southern county and relocated to establish situs in a second, northern county. The second county wasn’t a Specialized Tax Recovery client, but we sent them the information anyway. (That’s how much we believe in equitable taxation. Plus, we’re nice guys.)  They determined it met their tax code and recovered — and continue to collect — the taxes owed. An additional $156,000 was collected.

Blending Technology + Human Analysis

We often talk about our proprietary process here at STR. Technology is only one side of the process. We never recommend taxing an aircraft unless we’ve analyzed it ourselves. It’s not solely a computer-generated recommendation. Our aviation experts start with factual data to analyze the aircraft in question, and then build an ownership timeline to view the aircraft holistically. Nothing is missed or left out. 

It’s this combination of computer data and expert human analysis that makes our findings accurate and reliable. It’s also what makes it impossible for state and local tax departments to locate all aircraft within their jurisdiction without some help. There are just too many aircraft. We get it. We’re here to help.

Recover Aircraft Taxes, Empower Communities

Specialized Tax Recovery (STR) ensures communities and schools are fairly funded by helping officials discover and collect the taxes owed to them on aircraft transactions and ownership. Integrity guides everything we do. We use superior insights and advanced technology to help ensure fair and equitable taxation.