April 24, 2015

To promote the state as a center of aviation and aerospace manufacturing, Arkansas’ legislature on April 7 passed a sales and use-tax exemption for aircraft maintenance, as well as a flyaway exemption for aircraft sales. The bill, which was signed into law by Gov. Asa Hutchinson, was sponsored by Rep. Joe Jett, himself a pilot and the co-chair of the Aviation Caucus in the state’s General Assembly.

“There’s an aerospace industry here in Arkansas that is first-class, but needs to be promoted beyond the state,” said Jett. “We’ve got to do anything we can to make Arkansas more friendly to business aviation.”

While Arkansas is home to several nationally known manufacturing and service facilities for business aircraft, such as Rose Aircraft Services and Dassault Falcon Jet’s completion center in Little Rock, the existence of the state’s sales and use tax resulted in some business going to neighboring states. Kansas and Tennessee have flyaway exemptions and, until recently, many buyers of aircraft refurbished or completed in Arkansas would take delivery in those states.

“Those airplanes never were based in Arkansas and they never will be based in Arkansas, so we shouldn’t be collecting sales tax on them,” said Jett. “It was a hardship because a lot operators were afraid to bring their airplanes here to do a pre-buy inspection or refurbishment.”

With 45 repair stations and 80 FBOs in the state, general aviation supports 5,400 jobs in Arkansas. From discussions with industry leaders, Jett learned that the lack of clarity on sales and use tax – parts were exempt but labor was not – was hampering the growth of the aviation maintenance industry in the state. Jett’s bill makes explicit that maintenance on aircraft over 12,500 is also tax exempt.

“This bill helps companies in Arkansas that maintain and service business aircraft,” said Steve Hadley, NBAA’s regional representative for the Southwest. “Passing this bill shows how Arkansas recognizes the importance of aviation to its citizens in terms of jobs and economic activity.”

The sales and use tax, as well as fuel taxes, are an important source of revenue for the Arkansas Department of Aeronautics, which funds public airports throughout the state. As a former chairman of the department, Jett was conscious of not disrupting the integrity of its funding.

“I got together with aviation industry leaders and said we needed to think outside the box,” said Jett, “to find ways to bring more business airplanes into the state without hurting the revenue stream for public airports.”

With the support of the Arkansas Aerospace & Defense Alliance, Jett was able to demonstrate to his fellow lawmakers that the maintenance and flyaway tax exemptions would benefit the airports in their districts by attracting new business and creating jobs.

“If we can have more airplanes serviced, bought and sold in Arkansas,” said Jett, then operators “will buy more fuel, and with the fuel tax, we can keep revenue at the same or even higher level.”

Review the Arkansas exemption legislation. (PDF)