The Common Carrier Exemption: Why It Is Important to Use If You Plan on Putting Your Jet on a Charter Certificate

Navigating the complexities of tax exemptions, particularly in California, can often feel overwhelming. One of the most misunderstood areas is the common carrier exemption, especially for those planning to put their jets on a charter certificate. This blog post dives deep into what makes this exemption crucial, the criteria that defines "common carrier" in California, and how it specifically applies to Part 135 operations. Additionally, we'll shine a light on some successful—and not-so-successful—exemption claims.

We invite you to join our complimentary webinar on April 15th at 10:00 AM California time, where experts will break this down for you. If you’re interested, please register here.

What Qualifies as “Common Carrier” in California?

The common carrier exemption is a vital aspect of California's sales and use tax law. But what exactly qualifies as common carrier?

1. Definition: Common carrier is an entity that transports goods or people for the general public under the authority of a regulatory body. In the context of aviation, this typically refers to businesses that operate aircraft with the primary purpose of getting passengers or goods from point A to point B for a fee.

   
   

2. Licensing: To be recognized as common carrier, operators must have the appropriate licenses, certifications, and permits. For air operations, this usually means being certified under Part 135 by the Federal Aviation Administration (FAA).

   
   

3. Flexibility of Operations: Common carriers must also demonstrate the capability and willingness to serve the public indiscriminately, rather than selectively. This means accepting passengers or freight without favoritism, thus ensuring compliance with regulations governing common carriers.

   
   

Understanding the criteria for what constitutes a common carrier can significantly impact your tax obligations.

Common carrier jet ready for takeoff

How the Common Carrier Rule Applies to Part 135 Operations

Part 135 operations are one of the most popular forms of charter services in the aviation industry. However, to leverage the common carrier exemption, operators must adhere to specific guidelines.

1. Regulatory Compliance: To qualify for the exemption, operators need to ensure they are compliant with all Part 135 regulations. This includes not only the aircraft's maintenance requirements but also having qualified crew members who can fulfill the regulatory obligations.

   
   

2. Fare Structures: Another critical factor is how fares are structured. Common carriers must have transparent pricing and fare structures clearly defined. The exemption can be jeopardized if the pricing is non-competitive or if the carrier engages in practices that appear to be circumventing the regulations.

   
   

By operating within these guidelines, jet owners can successfully use the common carrier exemption to minimize their sales and use tax obligations.

Maintenance of Part 135 certified aircraft

Case Studies of Successful (and Failed) Exemption Claims

Understanding real-world applications of the common carrier exemption helps to draw clear lines between successful and unsuccessful claims.

Successful Claim Example

One operator successfully claimed the common carrier exemption by maintaining compliance with all FAA Part 135 regulations. The operator engaged in transparent fare structuring and demonstrated a commitment to serving the public. Their records showcased diversified clientele and flight routes, ensuring they were positioned as a common carrier.

This resulted in substantial tax savings—an estimated $130,000 saved in use tax.

Failed Claim Example

Conversely, another operator sought the exemption but failed due to improper fare categorization. Choosing to not hire us to help them through this process, they provided deeply discounted flights to a select clientele, which led the tax authority to classify them as a private operator. Their claim was denied, costing them thousands in tax liabilities.

This highlights the importance of adhering strictly to the guidelines for common carriers.

Expert Insights on Navigating this Complex Requirement

Navigating the common carrier exemption doesn't have to be a daunting task. Here are some expert tips for ensuring compliance:

1. Documentation is Key: Always maintain thorough records of your operations, including fare charts, flight logs, and maintenance records. Proper documentation can help prove that you are indeed operating under common carrier.

   
   

2. Consult Professionals: The nuances of California’s sales and use tax exemptions can be intricate. It’s advised to consult experts like Aero & Marine Tax Professionals, who specialize in aviation sales and use tax exemptions. They can help tailor solutions specific to your operational needs. Contact us today for your free assessment of your sales tax liability.

   
   

3. Stay Informed: Regularly review updates or changes to regulations that involve common carrier exemptions. Keeping yourself informed can help you anticipate adjustments in compliance requirements.

   
   

4. Consider Your Business Model: Assess whether your current business model aligns with common carrier regulations. If you find discrepancies, consult with tax professionals to rectify issues before they lead to costly mistakes.

   
   

Taking these steps can help ensure that you use the common carrier exemption effectively, safeguarding your tax liabilities.

Charter operation documentation for common carrier exemption

Join Our Webinar for More In-Depth Insights

If you want to learn more about the common carrier exemption and how it can benefit your jet charter operations, join us on April 15th at 10:00 AM California time. Our team of experts will be available to break down the complexities surrounding this tax exemption in detail.

This is an invaluable opportunity to understand the nuances that come with operating a charter service, including practical examples and case studies. Register here if you're interested in attending! Don't miss out on expert insights that can help you navigate these complexities successfully.

By leveraging the common carrier exemption, you can maximize your tax savings and operate more efficiently in the competitive charter industry. Don’t underestimate the importance of this exemption, and ensure you have the right strategies in place.