By Nel Stubbs
Aircraft buyers face Many issues. One of them, state tax planning, is often left to the last minute—when it should be one of the first things buyers look at when purchasing an aircraft. It is necessary to understand not only all the taxes affecting aircraft ownership and operations in your home state, but also the tax situations in other states where you may fly or have business interests. Each state has its own way of interpreting its rules, as well as those of neighboring states.
These taxes should include, but are not limited to, sales tax, use tax, registration fees, ad valorem taxes, property taxes, licenses fees/taxes, operating fees, and fuel taxes.
A sales tax is imposed on the sales price of tangible personal property by the state in which the sale occurs. In most cases the sales tax is paid by the purchaser and collected and remitted to the state by the seller.
Alaska, Montana, New Hampshire, and Oregon do not have a state sales tax. Delaware does not have a state sales tax, but it does have a gross receipts tax that is imposed on the total consideration received by a wholesaler for goods physically delivered within the state. However, aircraft with takeoff weights of 12,500 pounds or more are exempt. Massachusetts, New York, and Rhode Island do not impose a tax on aircraft, and Connecticut does not impose a sales tax on aircraft weighing more than 6,000 pounds. Mississippi, Oklahoma, North Dakota, South Dakota, Illinois, and Virginia impose a special tax on aircraft in lieu of the general sales tax. This tax may be lower than the state sales tax. South Carolina and North Carolina limit the tax on aircraft to $300 and $2,500, respectively.
Several states have exemptions to the aircraft sales tax. Some common exemptions/exceptions to the state sales tax are “common carrier,” “fly away,” occasional sale, sale for resale, and related entity transfers. In addition, several states have a trade-in credit that reduces the basis upon which the tax is applied.
As with all exemptions and exceptions, they can be narrowly applied. In addition, the criteria for the exemption will vary greatly from state to state. The common carrier exemption is a good example. Some states require that the aircraft be operated exclusively under a commercial operating certificate, as is the case with Kentucky. In Colorado, only an aircraft used by a commercial airline, an airline carrying freight or passengers on a regularly scheduled flight, is exempt.
Sales taxes also apply to aircraft maintenance parts and labor. However, some states offer exemptions for the sale of certain parts and labor. Florida, Tennessee, and Arkansas have exemptions for aircraft that fit a weight category or are removed from the state within a certain period of time. Generally if there is a labor cost that is applied to aircraft repairs and maintenance and it is separately stated on the invoice, it is exempt from the state sales tax. However,
fabrication labor is usually still subject to sales tax.
Aircraft are usually subject to the tax laws of the state in which the aircraft is domiciled. A lot is said about avoiding the sales tax by taking delivery of an aircraft either in a tax-free state or a state with a fly-away exemption. However, even though you may have avoided the state sales tax, the use-tax laws of the state where the aircraft is hangared become the main concern.
A use tax normally applies to the use, storage, or consumption of tangible personal property in a particular state. A use tax could be imposed on almost everything that might be brought into the state. Because the enforcement of such a tax is extremely difficult, most states choose to focus their efforts on big-ticket items, such as aircraft. More than 90 percent of states have a compensating use tax as a backstop to the sales tax. So how does a state know if an aircraft is in the state? While many states require an entity to register its aircraft in the state, other states obtain information from the FAA regarding registry. Sometimes it is as simple as having a tax collector sit at the airport and take down N numbers so they can be cross-checked with state records. States are becoming more aggressive in collecting taxes on aircraft.
AIRCRAFT REGISTRATION FEES
Aircraft registration fees are assessed at the state level and are usually an annual or biennial fee. The method of valuation—and the amount—vary greatly from state to state. Some states use the aircraft registration fee merely to track new aircraft registered in the state and the fee is relatively low. In most cases the aircraft registration fee is dedicated to the aviation/transportation fund, while other states use this fee to fund aviation programs within the state.
PERSONAL PROPERTY (‘AD VALOREM’ TAXES)
Personal property taxes are usually assessed at the local level, usually in the county where the aircraft is hangared, and are always an annual tax. Unlike aircraft registration fees, these personal property taxes are usually significant. In most states either the aircraft registration fee or the personal property tax applies; only Virginia, Alaska, and Utah apply both. However, Colorado, Delaware, Florida, Maryland, New Jersey, New York, Pennsylvania, and Vermont do not impose either. Unlike the aircraft registration fee, no personal property taxes are dedicated to an aviation/transportation fund.
Most purchasers are aware of state and local sales taxes, but it can be easy to overlook aircraft registration fees and personal property taxes. Since these taxes and fees are imposed annually and can be significant, understand how and when they are applied.
Aviation fuel taxes are levied in 47 states, in the form of an excise tax, sales tax, or both. This is in addition to the federal fuel tax. Texas, Connecticut, and Rhode Island do not impose any tax on aviation fuel. There are some exemptions from these fuel taxes, but they are usually limited to commercial operations, federal and state governments, and agricultural operations. It is wise to check into any tax exemptions that may be available. More than 30 states dedicate all or a portion of the revenue collected from fuel taxes to an aviation/transportation fund to support general aviation and non-federally funded projects within the state.
OTHER TAXES AND FEES
Some of the taxes and fees imposed on aircraft do not fall under the heading of a registration fee or property tax. Instead, they are referred to as a license tax, uniform fee, operating fee, or excise tax. These taxes and fees can be significant, as in the case of Arizona’s license tax, which is 0.5 percent of the fair market value of the aircraft. AOPA
Nel Stubbs is the vice president and co-owner of the aviation consulting firm Conklin & de Decker.