March 1, 1996
By Alton K. Marsh
Except for pilots living in a very few states, we're all familiar with paying a sales tax on items purchased at a store. Fewer pilots realize, however, that all but five states have sales taxes on the purchase of an aircraft, as well. Since aircraft are big-ticket items, these one-time-only taxes can add thousands of dollars to the purchase price. Is there any way to escape them, short of moving to Bolivia?
A California pilot thought so. He formed a corporation in Delaware, one of the five states without aircraft sales taxes, and purchased the airplane under the corporation's name. But he based it at an airport near his home in California, and shortly the state demanded a $15,000 use tax. He hadn't realized that California has a use tax, which is similar to a sales tax but applies to use or storage of personal property in the state. It is generally assessed at the same rate as a sales tax. What did he do? He paid it.
Pilots benefiting the most from Delaware's tax law are those who buy the aircraft in the state and base it there. That is why at Summit Airport near Middletown, Delaware, you'll find aircraft that are owned by pilots from Pennsylvania and Maryland. (At the end of the year, pilots in Delaware, as well as in a few other states, also get back a 23-cents-per-gallon road tax on aviation fuel. For some pilots, that's $200 to $300 per year.)
Other states without sales or use taxes are Alaska, Montana, New Hampshire, and Oregon.
That doesn't mean that pilots living in taxing states pay the full sales or use tax on the purchase price of an aircraft. There are exemptions. Some states refer to a sale between two individuals as a "casual" sale and do not charge sales taxes. Buy from a dealer in such states, however, and the sale is no longer exempt.
What if you buy an aircraft in California and pay an eight percent sales tax (actual rates vary by county), and base it in another state that has the same or lower tax rate? Do you pay twice? No, you merely show the tax folks in the second state that you paid a sales tax in California. But what if your home state had, heaven forbid, a nine percent sales tax? You would then owe your home state the difference between the two rates, or one percent of the value of the sale.
How do the states find you? Some check FAA registration records or ask airport operators to report on based aircraft, and others literally send inspectors to comb the local airports for new tax revenue. Sometimes they make mistakes. A Missouri pilot flew to Disney World in Orlando, Florida, for a two-week vacation. When he returned to Missouri, he discovered Florida inspectors had assessed him $5,000 for owning an airplane that they thought was based in Florida. It wasn't, of course, and after he explained that, he did not have to pay the bill.
Another pilot purchased an airplane in Georgia, based it in New Jersey, but lived in Pennsylvania. Pennsylvania state officials saw the registration change in FAA records and assessed a use tax. Once he explained that the aircraft was based in New Jersey, Pennsylvania officials did not pursue the collection of taxes.
Sales and use taxes can offer headaches years after the purchase, too. Consider the aircraft owner who retires and wants to move to another state. No sale has occurred, but the use tax still applies and must be paid to the new home state.
Speaking of retirement, pilots would naturally want to locate in a place where aircraft ownership is least expensive. While five states have no sales or use tax, only one of those — Delaware — has no annual personal property tax or aircraft registration fee. (In some states, even if there is no sales/use tax or personal property tax, the registration fee for some single-engine aircraft can reach $700 per year.) The 20 states with yearly personal property taxes are: Alabama, Alaska, Arkansas, California, Georgia, Kansas, Kentucky, Louisiana, Missouri, Nebraska, Nevada, North Carolina, Oregon, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming. Rates generally amount to 0.5 to one percent of the aircraft's assessed value.
To find out what taxes are levied and the exemptions offered by each state, call your local sales tax agency. The National Business Aircraft Association also offers a booklet titled State Aviation Tax Report, which has state-by-state information about fuel taxes, personal property taxes, registration fees, and sales/use taxes. To request a copy, call 202/783-9000 and ask for the publications department. The cost to those who are not members of NBAA is $25 and includes shipping. Information in the booklet can change rapidly, however, so you'll still need to check directly with the state tax agency for the latest information. AOPA members may obtain addresses and telephone numbers for state sales tax agencies by calling 800/872-2672. Members also may request AOPA's free Sales and Use Tax Booklet. Both documents are also available through AOPA Online on CompuServe (library: Aircraft Ownership; filename: SALESUSE.TXT).
AOPA Pilot Senior Editor Alton Marsh has been a pilot since 1970 and has an airline transport pilot certificate and instrument and multiengine flight instructor certificates, aerobatic training, and a commercial seaplane certificate.
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