California-Based JetSuite Must Pay Full Local Tax on Aircraft

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By Joyce E. Cutler

JetSuite Inc. must pay the full local tax on planes flying to other states after the California Supreme Court refused to disturb an appellate ruling.

Justices during their weekly meeting Jan. 10 without comment declined to review last fall’s ruling that wheels touching down in another state is insufficient to avoid paying tax to Los Angeles County, where JetSuite is headquartered.

The decision, although not beneficial to in-state fractional or charter aircraft owners trying to pay taxes out of state, “is beneficial to people who are out of state and come into California,” Gregory Broege, a partner with Ajalat, Polley, Ayoob & Matarese in Glendale, Calif., said Jan. 11. Broege represented JetSuite.

Out-of-state entities will have a stronger argument that L.A. County can’t tax planes located in the state a few days, Broege told Bloomberg Tax.

JetSuite operates unscheduled air taxi service flying to 42 states from its Long Beach headquarters. L.A. County assessed taxes of $89,839 on the planes’ full value. JetSuite argued it was due a refund because the jets could’ve been taxed in other states, and appealed the L.A. County Board of Assessment Appeals Board’s ruling to the court.

Taxing Authority Win

The appellate ruling represents a win for counties: the court applied California Rev. & Tax Code Section 1161 only to fractionally owned aircraft, Richard E. Girgado, senior deputy county counsel, Office of the County Counsel, said Jan. 11.

“It’s good for the taxing authorities because JetSuite wanted the single landing rule to apply to other aircrafts and the court said ‘no.’ You have to show more than a single landing here and there to” only pay taxes to other states, Girgado told Bloomberg Tax.

The ruling makes clear that California maintains the 1976 standard for situs, or the jurisdiction with the legal authority to tax. That standard was established in a dispute that L.A. County had with Ice Capades Inc., Broege said, which held the tax must be apportioned if situs is established in two states.

Going forward, the Legislature can differentiate between classes of property for taxation purposes, Girgado said. What’s important if the decision had been the other way around, is that “other aircraft being able to take protection of this Section 1161 and saying one single landing is situs for enough elsewhere, then obviously L.A. County and other counties would have been really hurt” financially.

Broege, Richard J. Ayoob, and Sevanna Hartonians with Ajalat, Polley, Ayoob & Matarese represented JetSuite. Girgado and Michael Kevin Slattery with Lamb & Kawakami LLP represented L.A. County.

The case is JetSuite, Inc. v. County of Los Angeles, Cal., No. S245471, petition for review denied 1/10/18 .

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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