State Tax Issues

There are several common areas of state tax law which generally affect owners and operators of business aircraft. Initially during an acquisition transaction the area of foremost concern is generally the sales or use tax for the state in question, if any.  However, given the high ad valorem rates in some states, the property tax imposed at the county level will over a normal ownership life cycle actually exceed the sales tax in aggregate magnitude.  The point is, careful planning for each of these forms of tax is important.

 

Although sales or use tax and property tax are to two most prominent forms of state tax on business aviation, there are several other areas of importance in this discussion.  Many states impose excise tax or fuels tax on aviation fuels.  These taxes are generally paid at the pump and in many states is dedicated aviation infrastructure.  Additionally sales and use tax may apply to repair parts and in some cases repair and installation labor.

 

Many states also impose income or franchise tax on aviation operations.  However not all states fully conform to federal income tax law thus creating federal versus state tax differences. For example in California, determining the amount of California tax due starts with the adjusted gross income of the individual or the taxable income of a business for federal income tax purpose.  California law does not conform to federal tax law in several thousand specific provisions.  Accordingly, taxpayers must be aware of the extent to which these differences may impact their state income tax liabilities.

 

The task of tracking state tax law impacting business aviation is a massive undertaking and we make no attempt in our firm to do so.  However we do attempt to provide some general information in this regard.  In this regard, we have provided two state tax maps of the fifty United States depicting information regarding sales and use tax and personal property tax as it applies to business aviation assets.