Did you buy a new aircraft, change your business structure or just realize the aircraft’s primary use is more personal than business? Are you sure you’ve considered the tax, regulatory and risk impacts of those changes?
The first step in considering a new aircraft or change in aircraft use is to assemble a team of tax, regulatory and risk-management professionals to examine the potential impacts of such a move. Joanne Barbera, past chair of NBAA’s Tax Committee and founding partner of the law firm Barbera & Watkins, LLC, advises aircraft owners to look to their business advisors; flight department; financiers; risk management team, including the insurance company; regulatory advisors, including your attorneys; tax and accounting advisors; and administrative team.
“When you’re considering a change – whether a change to the aircraft’s operations or buying a new aircraft – you need to think of the same things you considered when acquiring your first aircraft,” Barbera said. “The pandemic saw a lot of businesses change what they do or how they operate,” she noted, adding that aircraft owners also need to be alert to changes in business structures, including key personnel changes, mergers and acquisitions, or entities changing from private ownership to public, or vice versa.
Leadership changes, mergers or acquisitions can result in the aircraft changing home airport, which can have a considerable impact on state income, sales and use, and property taxes.
“When you’re considering a change – whether a change to the aircraft’s operations or buying a new aircraft – you need to think of the same things you considered when acquiring your first aircraft. ”
JOANNE BARBERA Founding Partner, Barbera & Watkins, LLC
For example, aircraft based near state borders, such as in the New York/New Jersey/Connecticut/Pennsylvania area, can move only a few dozen miles away and face a considerably different tax picture.
Mergers and acquisitions can also raise questions about U.S. citizenship for purposes of aircraft ownership, operation and FAA registration.
Changes in aircraft ownership and use also can have a profound impact on income tax planning, including the availability of bonus depreciation, ability to preserve past bonus depreciation benefits and deductibility of expenses.
Aircraft owners also face different risk exposures for different types of operations. For example, if an aircraft was previously conducting Part 135 charter operations with a management company and now is doing strictly in-house Part 91 flying, the risk profile changes. Have you considered this risk exposure in addition to your regulatory and tax planning?
“The past year has seen significant demand for business aviation, with many new entrants in the market and different utilization patterns, including more charter and fractional activity,” said Scott O’Brien, NBAA’s senior director of public policy and advocacy. “We’re seeing different tax planning considerations due to remote work and commuting flights. All of these scenarios present different tax and regulatory challenges.”
Many of these subjects and related topics will be examined at the 2022 NBAA Tax, Regulatory and Risk Management Conference, Oct. 16-17 in Orlando, FL. For example, one session will focus on requirements for exporting aircraft. Other sessions will consider structuring dry leases, federal excise tax calculations for charter operators and details on upcoming federal tax changes, such as the planned phasedown of bonus depreciation.
Learn more and register for the Tax Conference at nbaa.org/insider/tax2022.