Preamble to NBAA State Aviation Tax Report

Welcome to the State Aviation Tax Report.  The NBAA is please to provide its membership with a resource designed to function as an introduction to the vast body of law which constitutes the rules and regulations governing the taxation of general aviation among the fifty states in the union.  This report is developed and maintained by the volunteer members of the NBAA Tax Committee’s State Tax Working Group.  We trust you will find useful information about taxes imposed on general aviation by the various states. The information is in summary format and includes references to state law and regulation under which such taxes are promulgated.  The information provided for each state also includes contact information for individuals within each state government who are responsible for a specific form of tax or function.

 

The State Aviation Tax Report (the “report”) attempts to provide summary level information about a wide range of tax issues affecting general aviation at the State level.  In addition to broad categories of sales/ use taxes and property taxes, each report attempts to summarize generalized data regarding fuel taxes (both Jet A and aviation gasoline) and aircraft registration requirements and fees.  Lastly the reports attempts to provide the user with some information regarding the applicability of sales and/or use tax regulations within a state to repair work performed on an aircraft in another state.  The report does not attempt to discuss or identify issues with regard to ability of any state to impose an income or franchise tax on aviation operations.  The following is an overview discussion of the factors involved in each of the aviation taxes covered by this report.

 

Most states, but not all – see Exhibit 1, impose some form of a sales tax or transaction privilege tax as it is sometimes called.  This is a tax occasioned by the event of a transaction within the state. The rates of sales taxes vary widely among the states but typically range between 4 and 6 percent.  Further within most all states the counties, districts, and some municipalities have the ability to impose a sales tax in addition to the tax imposed at the state level, commonly referred to as local taxes.  After the imposition of these local taxes, the combined rates may exceed 8 percent. Companies and individuals contemplating an aircraft purchase transaction should carefully consider the sales tax ramifications early during the planning process to avoid adverse consequences.

 

State law in most states also provides for a parallel taxing system imposed upon the consumption, use or storage of an aircraft within the state.  This tax is commonly known as the “use tax”.  The use tax rules in most states are designed to tax transactions that escape the sales tax rules; however, these taxes mutually exclusive. That is to say if the sales tax applies, the use tax does not apply.  But, if the sales tax does not apply, the use tax most likely will.

 

State law in some state provides various exemptions from sales and use taxes depending on the “use” to which the aircraft is put.  Since the sales and use tax is a transaction driven tax, the uses, conditions or circumstances which may qualify the transaction for an exemption must generally exist for a specified period of time or “test period”.  A brief description of several common forms of exemption is outlined below:

 

 

Exemptions in general are tedious to achieve and members should be extremely careful during the planning process should they decide to rely on any exemption as a strategy for avoiding tax. 

 

 

 

Most states, but not all – see Exhibit 1, assess a property tax on the value of general aircraft that have established situs or are habitually situated within their taxing jurisdiction.  Situs is the place where property is situated for tax purposes.    Generally, but not under all circumstances, the residence or domiciliary of the aircraft owner establishes the situs of the aircraft.  Generally the assessment is made to the owner of record as of the lien date (the “assessee”) regardless of whether or not the aircraft is subsequently sold.

Recently some states have become more aggressive in the determination of situs.  Aircraft, as personal property, are mobile and by their nature frequently have no single fixed location.  General aviation aircraft used in Part 91 operations usually establish situs at the home-base airport or hangar location where the aircraft is habitually returned at the conclusion of a trip.  However, for aircraft used in Part 135 operations, determination of situs may be significantly more complicated.  In 2007 Washington State undertook to impose property tax on charter operators that were based in neighboring states and which only occasionally landed in Washington.  Of course such actions are being contested in the courts on constitutional grounds and only time will tell whether such determinations of situs will be upheld.  In another version of expanding situs, Maine has recently undertaken to apply a “use tax” to aircraft that are situated in the state for more than twenty days per year.  Not to be outdone, California in 2007 passed a first in the nation law designed to assess property tax on the aircraft of the four major factional ownership programs.  Under this truly unique scheme, the tax is assessed on the program manager, not the fractional aircraft owner.   Each state has its own rules for the classification of aircraft and the determination of situs. As state continue to experience revenue pressure in their budget process, the boundaries of taxable situs will be explored and expanded in new and increasingly creative ways.

Once the assessee, situs and description of the property has been determined, the next major issue is to determine the taxable value.  Most states which impose a property tax do so based on some derivative of fair market value but some states begin the valuation with the aircraft’s costs.  Those states which base their assessment on fair market value, generally prescribe an appraisal process based on a recognized industry standard or valuation guide.  Determination of the proper “assessed value” of the aircraft may lead to disagreement between the taxing authority and the taxpayer, however, state law generally provides for an appeals process should the taxpayer strongly disagree.

An aircraft can be exempt from property tax by reason of its ownership, use and/or type of aircraft.  For example, aircraft held by a dealer as inventory is exempt by type.  Aircraft owned by State or Federal governments or the agencies thereof are exempt from property tax by ownership.

The fuel tax section of the report provides details of the state wide rate and in some instances a county rate.  In this section of the report, members should pay careful attention to any footnotes indicated and note the date on which the specific report was last updated.  State fuel tax rates are subject to frequent change.

In 200x, the NBAA contacted each of the fifty states and posed the following question:  Repair work is completed on a resident’s aircraft in another state.  Does your Sales/Use Tax apply to this work?  If so, does it apply to both parts and labor?  Not all states responded one way or the other to this question.  The response from those states which did respond is listed in the Notes section under the heading Use Tax Scenario.

Members should frequently refer to the State Taxes page of the NBAA website at www.nbaa.org/public/ops/taxes/state where the top portion of this page is devoted to current developments and recent news events affecting state taxes on general aviation.  Further down the same page under the heading of State Tax Resources is a link to the NBAA State Aviation Tax Report (members only) as well as links to a lengthy list of topical articles of interest.  Members interested in a more thorough legal discussion of state tax issues should refer to an article by Phil Crowther entitled State Aviation Taxes.   Other significant articles of general interest include Aircraft Use Tax and Substantial Nexus written by Payson R. Peabody and Navigating the State Tax Minefield: A Planning Guide for the Small Flight Department co-written by Joanne Barbera and Heidi Albers.  Many very informative and state specific articles round out this resource.

 

In conclusion, the NBAA Tax Committee’s State Tax Working Group hopes you find the information and references summarized in the State Aviation Tax Report to be useful. Members should be aware that all information supplied in the report is subject to verification.  Each state’s information will change periodically, so members should use the website and contact information provided to obtain the latest information.

 

The NBAA Tax Conference, NBAA Tax Forums, and NBAA reference publications such as the State Aviation Tax Report are intended to provide the membership with an introduction to the tax and federal aviation rules that impact business aviation as well as an introduction to the interrelationship of these rules.  Since the materials presented are necessarily general in nature, they are no substitute for the advice of your legal and tax advisor addressing a specific set of facts and circumstances that you may face.

 

The NBAA’s State Aviation Tax Report is maintained on a volunteer basis by members of the NBAA Tax Committee’s State Tax Working Group.  A list of the current members involved in maintaining each state’s report is included in Exhibit 2.  On behalf of the membership, the NBAA would like to thank these volunteers for their contributions.