Stuart Smith named as Partner at Paramount Law Group, PLLC

On April 1, 2016 Stuart Smith joined James Waldon and Brent Nourse as a partner at Paramount Law Group, PLLC.  Stuart originally joined Paramount January 1, 2015.  "Stuart has been a great addition to our practice" said Managing Partner, Jim Waldon.  "Stuart's years as an aviation attorney has complimented our aviation law practice very well"

 Stuart W. Smith specializes in aviation law with an emphasis on air crash litigation, insurance coverage issues and administrative law.  Stuart defends airlines, pilots, aircraft owners, mechanics, repair stations, aerial applicators and Part 135 operators from claims arising from aircraft accidents, environmental claims and FAA enforcement actions.  Before he became a lawyer, Stuart worked as a financial consultant for a well-known international investment firm where he developed an offshore facility for international investors to trade in the U.S. securities markets.  Stuart is an adjunct professor of law at Lewis and Clark Law School in Portland, Oregon where he teaches Aviation Law.  Stuart is an instrument rated private pilot with over 1500 hours. 

"I am excited about what we are doing at Paramount" said Stuart, "we are establishing ourselves as a national boutique aviation law firm.  I am glad I can contribute."

Paramount Law Group is a national aviation law firm located in Seattle, Washington and Portland, Oregon.  Paramount was founded six years ago.  The attorneys at Paramount focus on litigation, aircraft transactions and regulatory matters.  For more information please contact Jim Waldon at 206.612.7938 or at paramountlawgroup.com.

New “Tax Avoidance” Rules Significantly Affect Aircraft Owners

On April 2, 2015 the Washington Department of Revenue issued its final “tax avoidance” rules explaining the implications of RCW 82.32.655, a statute enacted in 2010. Collectively, the rules (WAC 458-20-280, WAC 458-20-28001, WAC 458-20-28002, and WAC 458-20-28003) address whether, in the Department of Revenue’s view, a transaction or arrangement is designed to unfairly avoid taxes contrary to RCW 82.32.655.

Background:  

Many Washington aircraft owners over the years have acquired aircraft in a stand-alone company, typically a limited liability company formed for the specific purpose of owning the aircraft, which then leased the aircraft to another party, typically the owner of the limited liability company, to use for business or personal flights.   This leasing structure for aircraft ownership was often necessary to comply with the Federal Aviation Regulations and additionally permitted aircraft owners to avail themselves of a “sale-for-resale” exemption to either sales tax due on the purchase price of an aircraft at the time of its acquisition in Washington or use tax due upon the aircraft’s first use in the state.  Instead, the aircraft owner was permitted to collect from the lessee sales tax on fair market value lease payments throughout the lease term, which were then remitted to the State.

In the midst of a 2010 budget deficit the Washington State Legislature passed a tax bill targeting, among other things, certain “sale-for-resale” aircraft lease arrangements constituting “unfair tax avoidance.”  “Unfair tax avoidance” was deemed to include any transaction or arrangement by which a taxpayer vested legal title or ownership of tangible personal property in another entity controlled by the taxpayer in order to avoid Washington sales or use tax.

Implications of New Rules:  

As construed by the Department of Revenue in the new rules, the 2010 statute potentially exposes aircraft owners to up to 9.5% sales or use tax on the purchase price of their aircraft together with “tax avoidance” penalties of 35% of the unpaid tax, plus any other generally applicable penalties and interest, for engaging in unfair tax avoidance.

Not all sale-for-resale leasing structures will be deemed invalid under the Department of Revenue’s new rules.  Significantly, the rules include a “safe harbor” in WAC 458-20-28003(2)(i) applicable when “substantially all use” (95%) of the aircraft is under a lease (i) for a reasonable rental value, (ii) by a substantive operating business, (iii) for bona fide business purposes.

Even if otherwise applicable, the tax avoidance penalty may be waived by the Department of Revenue if the taxpayer discloses its participation in an affected arrangement or transaction to the Department in writing before the Department provides notice of an investigation or audit or otherwise discovers the taxpayer’s participation.

The new rules take effect May 3, 2015 and will be applied retroactively by the Department of Revenue through 2011, potentially ensnaring aircraft owners who entered into structures they legitimately believed were valid at the time.

While Washington is among the first states to target aircraft sale-for-resale exemptions, other states seeking to meet spending goals will likely be looking at sales and use tax exemptions applicable to aircraft as a potential revenue-generating source.  

Chris is an aviation attorney at Paramount Law Group, PLLC in Seattle, Washington.  His practice focuses on aviation transactional matters.  Chris can be reached at cjacob@paramountcounsel.com or at 206.979.0516