$26,000 tax bill: Maine's state of confusion

January 31, 2008

$26,000 tax bill: Maine’s state of confusion

By Alyssa J. Miller

In a disappointing setback last week in AOPA’s fight to protect out-of-state aircraft owners from Maine’s unfair tax policy, senior state officials failed to rescind onerous tax bills. This despite encouraging discussions AOPA staff had with officials at the state capitol last week.

Now the association is working with AOPA member Steve Kahn of Boston who filed a notice of appeal in court last week regarding a $26,000 bill he received in the mail in May. Kahn, who frequently flies his Cirrus SR22 to his summer home in the state, is being charged because of flights he made in 2002 and 2003. Kahn has exhausted his administrative appeals and was forced to go to court to keep his case alive.

“There is a fundamental fairness issue here. Maine Revenue Services (MRS) is misapplying the law,” said AOPA Vice President of Regional Affairs Greg Pecoraro. Pecoraro has emphasized this during discussions and meetings with senior state officials, most recently on Jan. 10.

“We’re disappointed that the administration didn’t take action to fix the problem before Kahn had to file his notice of appeal. Senior administrative officials seemed to agree action needed to be taken. Sympathy is nice, but we want this problem fixed, and we’ll continue to fight on our members’ behalf.”

During the meeting, AOPA told state officials that they should have MRS temporarily withdraw the decisions it has made demanding payments from pilots. AOPA ultimately wants the assessments to be canceled.

A taxing problem

Under a law that went into effect Jan. 1, 2007, MRS can charge a use tax to nonresident aircraft owners whose airplanes weigh less than 6,000 pounds and were purchased in a state without a sales tax, or a sales tax less than Maine’s 5 percent. Now this doesn’t apply to every out-of-state aircraft owner. It applies only to those who purchased their aircraft within the previous 12 months of their visits to Maine. Time spent in the state for maintenance and repair is excluded—but not time spent for business trips or weather delays.

Sound confusing? So many pilots have been outraged by how it is being applied to out-of-state aircraft owners, that MRS issued a document at the end of 2007 explaining the tax in detail.

AOPA member shares his story

Kahn’s $26,000 bill has captured nationwide attention from the aviation and nonaviation news media. He took time out of his schedule on Jan. 30 to share his story with fellow AOPA members.

Kahn purchased his SR22 from Cirrus Design in 2002, but did not pay a sales tax because his home state of Massachusetts had an exemption in place for aircraft purchases. Like any pilot, Kahn started using the aircraft to fly from Laurence G. Hanscom Field in Bedford, where the aircraft is based, to Knox County Regional in Rockland, Maine, near his summer home. He could make the trip in less than an hour by flying, whereas a drive could take four or more hours depending on traffic. Kahn also makes Angel Flights into the state, but the number of trips did not bring the aircraft’s total time in the state below the 20-day threshold.

In May 2007, Kahn received a bill for 5 percent of the SR22’s purchase price. That came to about $17,500. But, adding insult to injury, Kahn said he was also charged interest for the four years he didn’t pay the use tax, which he did not know about or receive a bill. Interest brought the total to about $26,000—and it’s still accruing because he’s fighting the bill.

“Maine Revenue Services is...arbitrarily combining statutes in the Maine tax code to suit their purposes,” Kahn told AOPA. “The result is to blindside pilots with huge tax bills—knowing full well that they will be caught by surprise!”

Kahn said that if he had known about the laws he would have altered his travel behavior to avoid the huge bill.

A tricky combination

MRS began researching IFR flight plans and collecting aircraft N numbers in 2007 after the new law went into effect. But MRS went back years to charge aircraft owners, even though the law isn’t retroactive. How is the office justifying it?

According to the document MRS released at the end of last year, “Prior to January 1, 2007, Maine tax law imposed a use tax on any aircraft on which the owner had not paid equivalent sales tax to another state and that was not purchased and used for more than 12 months before it became physically present in Maine.”

This also excluded time in the state for maintenance, but it would have allowed MRS to impose the use tax on aircraft that were in the state less than 20 days. The aircraft only needed to be on the ground in the state “more than a de minimus level,” according to MRS.

Resolution in the works

AOPA still hopes to strike a deal with Maine Gov. John Baldacci’s office to alleviate the impact on affected aircraft owners. But the association is also pursuing other routes to help prevent this problem from recurring in the future.

“We’re working with a coalition to support a new bill that would grant a sales and use tax exemption to all out-of-state aircraft, regardless of where they are used, where they were purchased outside of the state, or how much they weigh,” said Pecoraro.

The bill, sponsored by Senate President Beth Edmonds, would also provide a sales tax exemption for parts that are used exclusively for aircraft repair or overhaul.

Meanwhile, Kahn wants the state to post signs about the use tax at airports in Maine so that out-of-state aircraft owners who could be affected by the new law at least have fair warning.

January 31, 2008