May 27, 2016

Following more than two years of concerted efforts by business aviation proponents and close collaboration between industry stakeholders and elected officials, Arizona Gov. Doug Ducey recently signed House Bill 2533 into law, exempting aircraft used for on-demand passenger flights from the state’s transaction privilege tax (TPT) and use tax.

Previously, state officials interpreted Arizona law in such a way that only aircraft used in scheduled Part 121 operations were exempt from these taxes, a position affirmed last year by the Arizona Court of Appeals.

Efforts to restore the exemption for on-demand operators stemmed from recent TPT audits of Arizona charter operators by the state’s Department of Revenue. In response to these audits, tax attorney Otto Shill of Mesa, AZ, spearheaded efforts to correct an unfair situation dating back to deregulation of the nation’s airlines.

“Prior to deregulation, any operator carrying people for hire required a certificate of public convenience and necessity (CPCN) demonstrating they had the financial wherewithal to meet demand,” explained Shill. “Arizona law exempted from tax any carrier holding a CPCN. But once the government drew the distinction between scheduled and unscheduled air carriers, the latter were no longer required to meet that level of scrutiny. Unfortunately, that also meant commercial operators automatically lost their exemption from Arizona tax liability.”

State lawmakers overwhelmingly passed a similar measure during the 2015 legislative session, but Ducey vetoed that proposal over concerns about a possible economic hit to the state’s general fund. Despite that setback, the Aviation Coalition of Arizona – a group of Part 135 operators in the state, led by Shill and public-policy experts Tom Dorn and Eric Emmert of Dorn Policy Group – worked with legislators to reintroduce the bill in 2016.

Shill commended the governor’s office for listening to the industry’s concerns following the 2015 veto. “The governor and the state legislature clearly expressed that they wanted business aviation in the state,” he noted. “Through this cooperative effort we were able to protect both the general fund and an industry that adds approximately $25 billion per year in economic impact to our state’s economy.”

NBAA Western Regional Representative Stacy Howard praised the bill’s sponsor, Representative Thomas “T.J.” Shope (R-Coolidge), as well as efforts by Falcon Executive Aviation Vice President Nancy Severt and other members of the coalition who worked with lawmakers to promote HB2533.

“This is a victory for business aviation in Arizona,” said Howard. “Those who are engaged in using aircraft for hire now have the exemption they were intended to have all along.”

Emmert further acknowledged the support of several key legislators in getting the measure passed, including Senate President Andy Biggs and state senators John Kavanagh (sponsor of the 2015 bill), Debbie Lesko, Don Shooter and Bob Worsley, as well as representatives Rusty Bowers, Eddie Farnsworth and Justin Olson.

“Passage of this legislation signals to the industry that Arizona is friendly to aviation businesses,” said Emmert. “We’ve already been approached about the possibility of additional changes to the state’s aviation laws for next year.”