Do you own an aircraft? If so, you may be in jeopardy of being audited by the Florida Department of Revenue for Florida sales or use tax on the aircraft. Your overall exposure could be significantly more than the tax on your purchase amount. You must read this article to understand the trends, risks, and what you can do to fight back.
The Florida Department of Revenue has been purposefully targeting aircraft owners over the past several months. Notably, the Florida Department of Revenue has significantly increased the number of aircraft audits to an amount not seen before. What this means for you is that if you have not received an audit notice from the Florida Department of Revenue, it is very reasonable you could receive an audit notice in the near future. The question will be what have you done to prepare for such an impending audit? If nothing, then you will be significantly behind once the Florida sales and use tax audit starts. Therefore, now is the time to start preparing as best as you can.
How is the Florida Department of Revenue finding so many aircraft to audit? One way is via the Federal Aviation Administration’s Online Registry of aircraft showing the registration address of the aircraft. The Florida Department of Revenue’s position from other audits is any aircraft with a Florida address is subject to Florida sales or use tax. This position is irrespective of whether the aircraft ever entered Florida. Let that sink in for a moment. Auditors will assess aircraft never having been in Florida but solely because the aircraft had a Florida address via the Federal Aviation Administration. Such a position by the Florida Department of Revenue does not conform with the law but is something auditors still try to get away with. I often wonder how many aircraft owners simply accept such a determination because they do not know it is wrong.
Though not as common as it used to be, the Florida Department of Revenue will have people turn in aircraft owners for being in Florida. It could be people in the tower, fuel providers, or anyone else who happens to see the aircraft at the airport. Even if you are coming to Florida for an overnight trip, that still does not mean you are safe. The motivation for individuals to turn in aircraft owners is simple – money. If the Florida Department of Revenue collects something from the audit, the person turning in the aircraft owner could receive a cut of the assessment.
In some cases, aircraft owners get caught via an audit of someone else. For example, a fuel provider could undergo a Florida Department of Revenue audit. As part of the audit, the Florida Department of Revenue might see the same tail number of an aircraft come up frequently. At this point, the auditor may put together this information and send it to have an inquiry performed. As a result of the internal inquiry, the Florida Department of Revenue may decide to send an audit notice to the aircraft owner. Such begins the woes of the aircraft owner.
In other circumstances, the Florida Department of Revenue will obtain flight information from FlightAware or the Department of Homeland Security. If the Florida Department of Revenue sees flight activity into Florida, then an audit could be initiated. The Florida Department of Revenue does not care the “why” behind the flights or how long you were in Florida. What the Florida Department of Revenue does care about is how to make a tax assessment and move on to the next owner to assess. It is as plain as that.
Keep in mind one simple principle as it relates to how all of these audits come about – the Florida Department of Revenue considers aircraft owners to be guilty until proven innocent. If you cannot prove you do not owe Florida sales or use tax on the aircraft, the Florida Department of Revenue will make the Florida sales or use tax assessment. The tax assessment assembly line will continue to churn out Florida sales or use tax assessments claiming countless victims, which will slowly creep toward assessing your aircraft.
What does all this information boil down to? It means the audits of aircraft owners are reaching new heights. This is something we are seeing on a daily basis. There are more aircraft owners than ever hiring us to defend against audits for various reasons. It is important to get ahead of the curve with an audit notice from the Florida Department of Revenue. If you do not timely respond to the audit notice, you could finding yourself staring down the barrel of a large, estimated assessment of tax, plus fifty percent (50%) penalties, and a huge amount of interest. In some instances, auditors will only remove the penalties if you provide everything the auditor has requested. There are other reasons for penalties to be removed, but these other reasons are often ignored by Florida Department of Revenue auditors.
If you do get audited by the Florida Department of Revenue, what might you need to expect for an assessment? One potential outcome could certainly be the Florida Department of Revenue making a tax assessment on your aircraft. The valuation of the aircraft could be based upon information you provide to the auditor or an estimated valuation. Estimated valuations are usually significantly higher than the actual valuation. This may be to force individuals to turn over information in hopes of a reduction of the assessment. Another aspect of assessments could be taxing payments made from a third party (e.g., charter operator) to the aircraft owner. The theory under this scenario is the aircraft owner is leasing the aircraft via a dry lease to the third party. Still, another possibility is the auditor assesses both – the aircraft and the payments to the aircraft owners from the third party. As you can see, Florida Department of Revenue sales and use tax audit assessments can very quickly get out of hand. It takes careful analysis and planning to have a fighting chance against the Florida Department of Revenue. But what can you do when you are audited or even before you are audited by the Florida Department of Revenue?
You need to hire competent counsel. If you think the Florida Department of Revenue is messing around or will not assess you for one reason or the other, you need to think again. When looking for competent counsel, you should inquire about the individual’s experience with the Florida Department of Revenue. You also should expect for the auditors to make an assessment “because they can.” If you do not believe me about the possibility of that existing, you should read about the “case study” in the link below concerning how a certain supervisor did not want to let go of the audit assessment in the face of overwhelming evidence showing Florida sales or use tax was not due. This type of overaggressive behavior by the Florida Department of Revenue should make anyone concerned. Also understand that the appeals area of the Florida Department of Revenue might just rubber stamp whatever the auditors say. Litigation is the usual means to getting to the right outcome in a case. The unfortunate side effect of this is it requires aircraft owners to pay to defend an erroneous assessment. Thus, it makes it expensive to be innocent.
About the author: David Brennan is partner with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistate tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctor in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. While working for the Florida Department of Revenue as a Senior Attorney, David focused on various sales and use tax issues, including those relating to aircraft. You can read his BIO HERE.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Contact us for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
AUTHORITY
Rule 12A-1.007 – Aircraft, Boats, Mobile Homes, and Motor Vehicles.
ADDITIONAL RESOURCES
FLORIDA SALES TAX - A CASE STUDY OF AGGRESSIVE SALES TAX AUDITS, published October 9, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AUDITS PROCESS AND TRAPS, published March 4, 2023, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX AIRCRAFT AUDIT PLAYBOOK, published February 4, 2023, by David J. Brennan, Jr., Esq.
PHONE CALL FROM FLORIDA DEPARTMENT OF REVENUE: SALES TAX, published October 15, 2022, by Jeanette Moffa, Esq.
AIRCRAFT USE TAX IN FLORIDA, published May 2, 2019, by David J. Brennan, Jr., Esq.
FL SALES TAX: AIRCRAFT 1% OF 6% RULE, published December 7, 2018, by David J. Brennan, Jr., Esq.
FLORIDA SALES TAX INFORMAL WRITTEN PROTEST, published November 17, 2018, by James Sutton, C.P.A., Esq.
FLORIDA SALES TAX - VOLUNTARY DISCLOSURE PROGRAM, published April 9, 2018, by Jeanette Moffa, Esq.
SALES TAX ON AIRCRAFT PARTS AND REPAIRS IN FLORIDA, published December 10, 2017, by David J. Brennan, Jr., Esq.
SALES TAX ON AIRCRAFT LEASING IN FLORIDA, published March 31, 2017, by David J. Brennan, Jr., Esq.
NO FLORIDA SALES TAX ON AIRCRAFT PURCHASED BY NON-RESIDENT?, published November 6, 2016, by David J. Brennan, Jr., Esq.