In Auerbach v. Assessment Appeals Board No. 2 for the County of Los Angeles, the California Court of Appeal upheld the finding of the Superior Court in favor of the taxpayer in a case that addressed the correct value on which property tax should be imposed for a private airplane. The actual taxpayer was CKE Associates, which purchased a Gulfstream G-IV aircraft for $19,200,000. In determining the property tax assessment on the plane, the Los Angeles County Assessor included in the valuation base the theoretical amount of sales tax that would have been paid on the plane.
In actuality, the State Board of Equalization had determined that no sales tax was due because the aircraft qualified for the “common carrier exception.” CKE had entered into contractual arrangements with both Elite Aviation LLC and AVJet Corporation to charter the aircraft when CKE was not using it. Everyone who has purchased a private aircraft is familiar (or should be) with California Regulations Section 1593(c)(1)(B) which provides that you qualify for the common carrier exception to sales tax if, during the first twelve months following your purchase of the aircraft, more than half of the operational use is as a common carrier. CKE demonstrated to the State Board of Equalization that during such test period, 329 out of a total of 521.6 operational hours were charter hours which are considered common carrier use. Thus, the SBE determined that no sales tax was payable by CKE.
Despite this finding by the SBE, the Assessor nevertheless added hypothetical sales tax to the plane’s value for property tax purposes. You have to give Mr. Auerbach credit for being persistent. After losing the case before the Assessment Appeals Board, he appealed to the Superior Court and after losing there appealed to the Court of Appeal. The Court of Appeal, as had the Superior Court and Assessment Appeals Board, held that if sales tax was not payable on the aircraft, it should also not be a part of the assessed value for property tax purposes.
If you own an aircraft on which you did not have to pay sales tax, it is worth looking at your property tax assessment to determine whether your assessed value nevertheless includes a sales tax component. If it does and the amount is material, you may want to pursue an assessment appeal or at least get the assessed value corrected for the future by discussion with the assessor’s office.