Got a company jet ready to fly you anywhere at a moment’s notice? The benefits of such a perk are significant. But did you know that leasing or owning a company jet could increase your state taxes? While there is plenty of guidance on the most tax efficient way to acquire or initiate the lease of a jet, the potential state tax consequences of operating a company jet are equally important and demand foresight and planning. Use of the company jet by affiliated or related company employees may expand the potential state tax issues to entities beyond the one that owns or leases the company jet.
The leasing or ownership of a company jet may create sales and/or income tax nexus in remote states for the company, its affiliates and/or its owners. Where a company hangars its jet may cause the entity that owns or leases the jet to establish sales tax and possibly income tax nexus in one or more states. In addition, if the company jet is owned or leased by a single member limited liability company that is disregarded for Federal and state income tax purposes, the owner of the SMLLC may have income tax nexus in additional states arising from the lease or ownership of the company jet.
Nexus turbulence may worsen if the company, in its attempt to defray some of the jet’s costs, leased the jet to third parties. The third party usage of the jet may result in the jet’s presence in numerous states in which the company does not currently have nexus. This may have disastrous sales tax nexus consequences especially in states that have adopted aggressive long arm sales tax nexus provisions. In addition, the unexpected use and presence of a company asset in states in which the company may have carefully limited its activities to those protected under Public Law 86-272 may result in the company having activities beyond those protected by the law in numerous states.
Equally important, private plane flight plan information may be requested by state taxing authorities to help state tax authorities with nexus and residency exams.
A Company Jet Requires A Careful Tax Flight Plan
As part of any pre-flight checklist, a careful and thorough flight plan is a prerequisite to takeoff. So, too, should a comprehensive tax flight plan that addresses the myriad state tax consequences be prepared prior to owning or leasing a company jet.