Everyone who pays taxes, and especially those who own or operate a business, should know by now that the U.S. Tax Cuts and Jobs Act of 2017, enacted into law in December, represents the most significant reform of the U.S. tax code in more than 30 years. Helicopter owners and operators need to understand that many of the provisions of this law have a direct effect on them.
Like most changes, some are good and some are not. With taxes, it often can be difficult to know the effects of tax changes without the advice of experts. This is perhaps one of the most important messages from Monday’s Heli-Expo 2018 seminar titled, “Keys to Successful Transactions,” organized by members and advisors of the HAI Finance and Leasing Committee.
Jeffrey Towers, general counsel of TVPX, said, “It’s an exciting time to talk about taxes. But with the new tax, some things still need to be sorted out. We won’t know all the results for awhile.” One thing that has changed is the elimination of like-kind exchanges, which are now no longer available for sales and purchases of aircraft, and might not be available in some states.
However, bonus depreciation is available with the purchase of aircraft that qualify for the MACRS deduction, which offsets taxable gain on the federal level. It has been increased to 100 percent of the purchase price and now it includes the purchase of used aircraft. The downside is that bonus depreciation will be phased down after 2022 at 20 percent per year until it disappears.
The tax law also disallows deductions for all entertainment expenditures, regardless of whether they are related to a business goal. For example, this means that the cost of flying a helicopter in connection with entertainment is no longer deductible, even if it is directly related to one’s business.
Conklin & de Decker vice president Nel Stubbs said the application of state taxes can be more confusing than federal taxes, in part because there’s a lack of uniformity among the 50 U.S. states. “And the state laws change all the time,” she noted. “Unlike the federal government, states can pass a bill in two months, so you need to keep informed. And if you operate in several states, you could have tax exposure in all of them.”
Buyers and sellers of aircraft also need to be aware of state laws, so they can have the delivery of the aircraft take place in a state that does not collect sales tax on the transaction. “States pay a lot of attention to general aviation aircraft,” she said.
Stubbs also warned, “Just because your helicopter operation is exempt from the requirements of a Part 135 certificate does not automatically mean that it’s also exempt from all federal excise taxes.”