In today’s technological environment, information about aircraft is easy to obtain, and government agencies use this data to enforce tax compliance among aircraft owners. We have discussed many types of notices or inquiries that we are seeing, but what do you do if taxes are assessed? This article will focus on tax assessment from state and local jurisdictions.
Far too often, we talk to aircraft owners who ignore notices or fail to respond promptly. Many mistake the inquiries for spam or phishing, while others do not understand what is being requested. If no response is sent, the states or local jurisdictions will often estimate the tax balance and send a notice of tax due. Once an amount has been assessed, the next steps are usually very time-sensitive and will depend on the state.
Some states will still allow an informal review or the provision of additional information to reverse the assessment. However, some states require a more formal lawsuit to be filed, which usually requires a tax attorney’s involvement.
If a tax assessment is left open and a timely response is not submitted, many states will finalize the assessment and enforce collection. Most often, any opportunity to fight the assessment will have passed, and the only remedy at this point will be to pay the tax due and then apply for a refund. The refund process will usually be similar to an appeal, in which evidence must be presented to show why the tax was not due. States are reluctant to refund money, so this can be a lengthy process.
Even if the assessment is correct, there are often opportunities to waive penalties or reduce the amount due. Many states are willing to waive penalties if we can reach a quick resolution or show that the non-payment was not intentional. Sometimes, if the law is unclear, we can reach a settlement agreement on a portion of the tax. Interest will rarely be waived and will likely accrue on the balance until paid. Many states will offer payment plans for large balances if the taxpayer can show that payment in full would cause hardship.
If you receive an inquiry or a notice asking about taxes on your aircraft, do not ignore it. The process to resolve the notice is much quicker and easier if addressed right away. If a balance is assessed, do not pay until you have consulted an aviation tax advisor. Even if tax is due, the first assessment is rarely correct and should be reviewed before payment is made. But as I have written many times before, the most important course of action is early tax planning to avoid surprise tax bills!