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I have one airplane which I own through an LLC set up to own the
airplane. The airplane is used by my family and for rental and
training through a local FBO/flight schools.We are buying another airplane which will be used by my family as
well as made available to a small group of qualified pilots who wish
to buy flight hours in the airplane.The hull value on the first airplane is about $250,000. The hull
value on the second is about $450,000. Both aircraft are protected
by liability policies for $1,000,000. The first has an open pilot
warranty. The second will list the group of approved pilots.My question is do we need to set up a separate LLC to own the second
airplane or should the existing LLC own both airplanes? There are,
of course, some extra costs and administrative time to having a
second LLC.Todd
-- Todd Ramming, November 5, 2010
The main advantage to having the second airplane in its own LLC is to shield it from liability should the operator of the first airplane be found negligent in an accident. Since the LLC isn't responsible for anything other than making sure that the plane gets appropriate maintenance (i.e., the LLC is not a charter operator), it is highly improbable that the LLC would be found liable following an accident by a rental pilot. So it probably isn't worth the extra cost.[One angle I have not considered is whether it is possible to escape sales tax on an airplane by selling the LLC rather than the plane. That's not an issue in Massachusetts right now because aircraft have been tax exempt since 2002 (a Republican legislator somehow got this passed in order to boost aviation jobs in Massachusetts; she subsequently retired... to New Hampshire).]
-- Philip Greenspun, November 5, 2010
I would think that having two LLCs might have some tax benefits when it comes time to sell one of the aircraft. Instead of selling an asset, you're selling stock in a company. Also, claims against one company (aircraft) shouldn't affect the other.
-- Joe Moreno, November 5, 2010
Good point about the sales tax. I would think that selling shares in a corporation, if it's been run properly, should only generate short or long term capital gains.
-- Joe Moreno, November 5, 2010
Thanks for your replies. I will try to find out about the sales tax, although it really helps only someone buying the airplane from me in the future, if I understand your point correctly.I live in California. Aircraft are not exempt from sales tax here. It's 9.25% right now, so on $450,000, it's $41,625. (You can see what a difference it makes to have the law like that in Massachusetts!)
I realize there are some ways to avoid sales tax, but when I researched it for my first airplane, I found it simpler (and in the long run sometimes cheaper) to just pay the sales tax and never hear from the state again.
Todd
-- Todd Ramming, November 5, 2010
One other item to consider is that the rental or use with compensation of either aircraft is going to be considered taxable by the state (at least it's that way in Texas and most other states). Assuming you plan to sell hours on either aircraft to multiple pilots this could exempt the aircraft from sales tax when purchased because it would be considered a sale for business use. The state would then be collecting the sales tax on the proceeds from each hours use just like a flight school charges. Of course this means that when you fly your own aircraft you are paying sales tax as well, but that lends credibility to the llc. anyway.The gotcha in Texas with this idea is that they charge a yearly property tax on all aircraft in addition to hourly sales tax for any aircraft not registered in an individuals name.
-- Alex Baker, November 7, 2010