FLYING Finance's CFO on the unglamorous parts of an aircraft deal — ownership structuring, leasing, and sales tax — that decide how it actually goes.
One thing I learned in banking that persists today is how to catch up quickly. In banking, I had clients who would call me with an idea already baked the night before, and maybe even with a Letter of Intent (LOI) already struck. My job: get up to speed quickly and make sure that deal was structured to not just close, but benefit the owner for years to come.
Today, my job is similar. I receive an email that simply says +[me], and whether it is real estate, a business, or an aircraft, getting up to speed to see the deal through is one aspect that makes my job so enjoyable. When it comes to aircraft, the price is usually set, the pictures have been taken for friends and family, and the avionics and powerplant confirmed. My tasks are the less exciting aspects that go with finance and asset management — the things often overlooked or mismanaged: ownership structures that balance privacy and depreciation, dry or wet leases, sales tax and fly-away exemptions, and charter offset arrangements with management companies.
Before you yawn and scroll away, here's why these matter, without feeling like you just read a textbook.
One of the early decisions we start a conversation on is ownership. There is often a tendency to say, “Oh, this can go in the LLC with the other one.” But most attorneys would tell you that an accident or issue with one asset in an entity may quickly become an issue for all of the assets in that entity. The clearest example of this is a judgment lien: something happens with aircraft A, a lawsuit is filed, a summary judgment is awarded, and suddenly all of the assets in the entity are exposed. I saw this a lot during the years following the financial crisis. Working with our general counsel, we start by asking about the aircraft ownership entity.
While none of this is meant to be legal or tax advice, we at FLYING Finance talk with hundreds of pilots each quarter, and ownership is a common question. Remember the Taylor Swift airplane-tracking debacle from a few years ago? You may not be as famous as Taylor Swift, but privacy is still a valid aim. In the piston world, we usually see the debate come down to whether to own an aircraft in your personal name or in a limited liability company, and how that LLC should be owned. Those that own businesses or real estate, or have owned aircraft before, are often the ones who default to an LLC. It is what they know, what their general corporate attorney is most likely to recommend, and if they have the LLC registered through the attorney or another third-party agent, there are privacy benefits that simply do not exist if the aircraft is titled in a personal name.
Then add in the opportunity for bonus depreciation, now restored to 100 percent, and a clean LLC with a dry lease to the operating business and appropriate documentation of your flights and expense handling, and many pilots are ready to start a flight plan.
Then there are those that want to do it the aviation way. Ask many aviation advisors, and you are likely to hear a preference for aircraft owner trusts over LLCs. Owners receive privacy and bonus depreciation opportunities similar to an LLC, but avoid the arm's-length and self-dealing questions that can come with LLCs. In an aircraft owner trust, a third-party trustee registers and administers the trust for the beneficiary, which may be a business entity or an individual. Without getting too complicated with layers of trusts and LLCs, a trust set up with an operating company as the beneficiary passes the depreciation opportunity on to the operating company.
In either the LLC or the aircraft owner trust case, the bonus depreciation is only eligible if the aircraft is actually used primarily for business purposes, and the documentation shows the related expenses — fuel, pilot(s), and the like — are being paid by the operating company, not the aircraft ownership trust or LLC holding the aircraft. That's the tension: folks do not always want to keep up with the records, and the IRS may claim an illegal charter and disallow bonus depreciation if the paperwork doesn't hold up.
Once ownership is settled, the next question is how the aircraft gets used when you're not the one flying it. A dry lease hands over the aircraft alone — the lessee supplies the crew and operational control — and the FAA treats it very differently than putting someone else in the left seat under your own certificate. A wet lease includes the crew, which usually means you're operating under charter rules, with everything that brings: Part 135 oversight, insurance requirements, and a very different tax treatment on the transportation itself.
For owners who have businesses to run, jobs to do, and real estate projects to manage, a lease by any other name, to paraphrase Shakespeare, may sound as sweet — and lead the romance of flying straight into a tragedy.
One way we look at handling this, primarily for turboprops and jets, is through a management company, where the aircraft may be maintained and hangared with a management company and even placed under a Part 135 charter for the management company to coordinate, including supplying the pilot — making it a wet lease for any third party looking to charter the aircraft. The wet lease chartering activity may offset some of the fixed costs associated with the aircraft, but keep in mind that maintenance is going to come around faster than if you were the only one going up.
Having the aircraft with a management company that provides limited charter operations does not disallow us from also using a dry lease between related parties, where the aircraft entity is only receiving payment for direct use of the aircraft, and any pilot, fuel, or other expenses are paid directly — including directly to a management company where the invoice is solely for those related expenses.
It all depends on the mission, or missions, for the aircraft, and how we need to come around the structuring to ensure all objectives, at closing and in the future, are set up. For anyone considering this Part 91-with-limited-charter route, it is important to understand and document the expectation for how much charter activity you are allowing, how the scheduling will work, and what fee the management company is going to assess on the charter revenue for making sure all passengers fly safely and enjoyably.
Once the ownership and mission are understood, the management company is engaged, and expectations are set, we can begin thinking about how and where the closing and delivery will take place. If the closing requires financing, FLYING Finance is engaged to effectively communicate the mission(s), secure the loan structuring, and coordinate with the insurance carriers and the escrow and title agencies the team speaks with every day.
For closing, one of the most often overlooked or underappreciated aspects is sales and use tax. Some states charge sales tax, some charge use tax, some have fly-away exemptions, and some may try to charge you six months later when you visit. Understanding sales and use tax by state is why the Daher TBM team that recently took our own Jonathan Welsh up in the TBM 980 seems to always be coming from a delivery somewhere. Sales and use tax on an aircraft purchase can run into the hundreds of thousands of dollars, and it's entirely a function of where you take delivery, where you base the aircraft, and how quickly you move it out of the taxing state. This last point is what's called a fly-away exemption, where a state may not charge sales tax on an aircraft purchased in the state, as long as the aircraft departs for its out-of-state home within a certain timeframe.
While this focus can sometimes turn into a countrywide cross-country flight plan, take, for example, a current transaction with a Tennessee resident purchasing a new aircraft from North Carolina. North Carolina caps its aircraft sales tax at $2,500, while Tennessee's 7 percent state sales tax applies to the full price — its local-option and single-article tax only reach the first $3,200 of that price, so they add up to roughly $88 regardless of how expensive the aircraft is. On a $1 million purchase, the total Tennessee tax bill runs around $70,000. If the transaction ran in reverse — a North Carolina buyer purchasing an aircraft in Tennessee — the buyer could fly it out of Tennessee within 30 days under Tennessee's fly-away exemption and return home to North Carolina with a total tax bill of $2,500.
For those who live along a state border, understanding ad valorem taxes may also sway where the aircraft is hangared. Georgia charges an ad valorem tax on personal property, but personal aircraft in Tennessee carry no annual tax. You may not be willing to move your residence just to save on sales and use tax, but an extra few minutes' drive to the hangar may be worth tens of thousands of tax dollars each year.
As with the paperwork for documenting flight use for bonus depreciation and the dry lease, keeping clean records may also help you stave off states like California and Florida that watch for aircraft visiting shortly after an out-of-state purchase — and by shortly, I mean within twelve months. That family trip to Universal or Disney is expensive enough without adding a use tax on top of it.
Pick a state of purchase, a state where the aircraft will be based, and a purchase price. We'll estimate the purchase-state sales/use tax, flag whether a fly-away exemption could apply, and note the ongoing property tax picture at the base state. Covers all 50 states — see the full state-by-state guide for detailed sourcing on each.
Illustrative only, not tax advice. Estimates use the midpoint of published rate ranges and the general rules described on our state pages; actual liability depends on jurisdiction-level rates, business-use status, timing, and documentation. Rates and thresholds change — confirm your specific transaction with a state aviation tax advisor before closing. See our full state-by-state guide for sourcing and detail on every state above.
Whether it is an aircraft, real estate, or a new or expanding business venture, proper paperwork is like a preflight: never to be overlooked. We all know the value a complete set of logbooks provides for an aircraft, and the implications when pages go missing. The same level of attention applies to how and where you buy an aircraft.
If you are debating between a Cirrus or a Diamond, an Epic E1000 or a Pilatus PC-12, or a CubCrafters and a Bearhawk, let us know. Send us the listing or spec sheet to + Flying Finance. We will get up to speed quickly, and you can focus on sharing those pictures and planning for that first rotation off the runway.
