| When Michael Thibodeau contacted the
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| | lead counsel for the BOE changed one of
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| California Board of Equalization (BOE) in
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| | the definitions of a legal concept that's
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| search of advice, he thought he was
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| | integral to that particular exemption,"
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| taking a prudent action, one that would
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| | says Alston. "I had dozens of cases that
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| ascertain whether he could bring a
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| | were based on the original definition, so
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| recently acquired aircraft into the
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| | I argued against the change of
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| Golden State before the 90-day waiting
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| | interpretation. But the BOE attorney
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| period was up--and still qualify for a
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| | declared that the definition had always
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| use tax exemption. Thibodeau never dreamt
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| | been that way."
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| that the advice he got would lead to a
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| | The definition used by the BOE attorney
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| ruinous tax bill.
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| | alluded to the notion that aircraft of
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| "Michael was a typical victim of a
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| | certain types are not designed to fly.
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| relationship that is often very
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| | "According to the attorney, we could not
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| adversarial," explains Tom Alston,
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| | support that the Citation was designed,
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| President of Aero & Marine Tax
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| | or designated, to fly was because Michael
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| Professionals, a Sacramento, CA-based
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| | did not fulfill the qualifications for
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| consultancy that specializes in advising
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| | 'first functional use' before the
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| purchasers of aircraft and marine vessels
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| | aircraft enters the state," explains
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| on state sales and use tax exemptions.
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| | Alston. "The BOE attorney was altering
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| "People like Michael, and even attorneys,
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| | the definition of 'first functional use,'
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| CPAs and financial planners, often learn
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| | which up to that moment has always meant
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| hard lessons when it comes to defending
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| | 'the purpose for which the aircraft was
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| themselves against the perspectives and
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| | designed.' Aircraft are designed to fly;
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| findings of the BOE--even though they are
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| | therefore, the minute that you flew one,
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| seeking legitimate exemptions that are
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| | you met the definition of first
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| designed as incentives to promote
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| | functional use. It's been that way for
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| California business."
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| | 30-40 years. But, with the stroke of his
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| Thibodeau, a 30-year veteran
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| | pen, the attorney decides, 'Nope, we've
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| pilot-for-hire and aviation management
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| | never done it that way.' What he said is
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| consultant, handled the acquisition of a
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| | that any aircraft that has jet engines or
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| 1981 Citation CE-550 for three
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| | turbine engines or more than 6 seats
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| California-based corporations in March of
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| | wasn't designed to fly, it was designed
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| 2000. Possession of the aircraft took
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| | to 'carry passengers.'
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| place in Reno, NV. In order to qualify
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| | So, Thibodeau found himself in a double
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| for the California state use tax
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| | bind where, not only did he get
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| exemption, which would amount to
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| | undocumented advice from the BOE, but the
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| $177,000, the aircraft was delivered in
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| | agency was altering the meaning of a
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| Reno, and would be based there.
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| | critical requirement. It seemed to him
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| Throughout the due diligence and
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| | that, even though exemptions were created
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| transaction processes, Thibodeau
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| | to foster business in California--an
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| addressed all questions concerning
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| | intention that was indeed being
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| California use tax, the exemption and
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| | served--the BOE was going for the throat.
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| other matters to the same official at the
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| | Fortunately, Thibodeau indeed had a
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| BOE's Consumer Use Section. "I thought it
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| | passenger on board when he flew the
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| would be advantageous to talk with the
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| | Citation into Sacramento, "officially
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| same person, that it would establish a
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| | making first functional use" as far as
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| relationship so that we wouldn't have to
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| | California was concerned. "This was a
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| start from scratch...," he explains. "Of
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| | very fortunate coincidence," Alston says.
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| course, I had read the BOE regulations
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| | "Lots of pilots, maybe most of them,
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| concerning the sale and exemption ... But
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| | might not have a passenger on a trip to a
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| it was my first transaction of this type,
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| | maintenance facility. But since there was
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| and I wanted to make sure that I verified
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| | a passenger on board, we were able to
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| all matters concerning the BOE--and that
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| | secure the exemption." Alston adds that,
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| I got it from the horse's mouth."
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| | as fortunate as the case turned, the
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| It was then that the nightmare began.
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| | Citation owners were lucky. He says that
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| After hearing from a friend that it might
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| | the time to get a tax specialist involved
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| be permissible to bring the Citation into
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| | is early in the deal, before the
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| California for the sole purpose of
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| | transaction is completed.
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| service--without disrupting the use tax
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| | "Hiring someone early means we can
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| exemption situation--Thibodeau decided to
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| | guarantee results, because we can control
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| call his usual contact at the BOE.
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| | the situation" Alston says. "However,
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| "My only intention was to get the service
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| | once the transaction is complete and some
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| work at the Sacramento facility over
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| | complication comes into play, we can't
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| with," he says. The three new owners, who
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| | always guarantee the results. And that
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| employed a "substantial number" of
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| | may very well cost more because there is
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| California workers, made frequent
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| | less control and more work. In short, our
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| business trips to western Canada, Mexico
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| | clients can save a lot on fees if they
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| and throughout the western U.S.
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| | get us involved at the very beginning,
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| The BOE official told Thibodeau that it
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| | and they may well save their skins if the
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| was permissible to bring the aircraft
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| | BOE is involved."
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| into California and still qualify for the
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| | Michael Thibodeau now realizes that there
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| exemption, as long as the trip was for
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| | is more to the tax exemption business
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| service only. However, after doing so,
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| | than he thought. "I went to the wrong
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| when he filed for the exemption at the
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| | source when I went to the BOE," he says.
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| end of 90 days, the sale was held to be
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| | "I did what the BOE expert told me to do,
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| taxable.
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| | but he was wrong,. The next time I will
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| "... I was told by my contact that he did
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| | talk to Tom Alston before I even get
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| not recall the conversation regarding the
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| | started on a deal.... I don't feel that
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| service trip to Sacramento. I eventually
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| | the BOE is the kinder, gentler group of
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| talked to his supervisor, who told me
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| | people to do business with. Fortunately,
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| that I had no proof of my conversations
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| | I now have the gorillas I need to go up
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| with the official, that I had nothing in
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| | against them."
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| writing. So here I am, trying to do the
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| | The next time could come soon. The owners
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| right thing, to go through the prescribed
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| | of the Citation are considering selling
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| process, and now I'm facing a tax bill
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| | it and buying a newer model. Yet,
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| for $177,000."
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| | Thibodeau says he is still smarting from
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| Thibodeau then contacted Tom Alston.
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| | the experience. "It was very tough on me.
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| Highly experienced in aircraft tax
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| | I faced a devastating tax bill. Also, I
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| matters concerning California's BOE,
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| | had to let the owners know about the
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| Alston felt sure that Thibodeau qualified
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| | situation, and it could have made me
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| for an exemption, but that it was a
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| | appear incompetent. These are companies
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| different one.
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| | that I've had business relationships with
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| "So, we eventually filed the tax return,
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| | since 1990. Which shows you that there
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| taking the alternate exemption. But in
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| | was even more than $177,000 at stake.
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| the middle of the filing process, the
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|
