April 2, 2015
Since the financial crisis of 2008 put pressure on government budgets, many states have sought to raise revenue by stepping up audit enforcement and tightening tax policy. In Texas, many audits over the last several years have, in effect, imposed new standards for aircraft leasing structures.
“These new requirements that leasing structures were held to in audits are not part of the tax code in Texas,” said David Norton, head of aviation law for Shackelford, Melton, McKinley & Norton. “In fact, we believe they clearly contradicted the plain meaning of the statute and overlooked the FAA regulatory and risk management reasons why aircraft owners enter into leases.”
In October 2014, the Texas state comptroller’s office published a proposed rule that would have codified the new standards for aircraft leases. “Among other changes,” explained NBAA’s Scott O’Brien, senior manager for tax policy, “the rule would impose significant new burdens for aircraft operators to qualify for the ‘sale for resale’ exemption through aircraft leasing.”
NBAA filed comments on the proposed rule in November, urging the comptroller not to implement it, but rather work with industry groups to adopt standards more aligned with how aircraft leasing structures work in every state.
Many Texas-based operators also filed comments, and the out-going comptroller held off on implementing the rule before leaving office at the end of December.
In January, a new comptroller, Glenn Hegar, took office, and signaled he was willing to revisit the issue in consultation with industry. At the same time, state senators introduced a bill, S. 1396, which would make into law many of the provisions from the comptroller’s proposed rule.
Earlier this year, a coalition of operators led by NBAA began advocating for legislation to preserve the long-accepted “sale for resale” exemption for aircraft leasing, and other exemptions. Several other industry coalitions supported additional bills, setting the stage for negotiations between the comptroller’s office, the state legislature and the aviation community.
“Right now, we really need clarification of the statute,” said Norton. “NBAA has spearheaded this effort to advocate for legislation that will do that.”
The 2015 session of the Texas legislature ends this summer. Over the next several months, NBAA, business aircraft operators in Texas, Norton’s law firm and another firm, K&L Gates, will work with lawmakers, hoping to finalize the legislation before the session ends.
“We’re negotiating with legislators and the comptroller’s office,” said Norton. “There are some provisions in the bill backed by the comptroller’s office that we think are appropriate. We want to take the best parts of that bill, the best parts of other bills and preserve the ‘sale for resale’ exemption for aircraft leases.”
While the Association advocates for beneficial legislation in Texas, the NBAA Business Aviation Taxes Seminar will be held in Dallas on May 8, and focus heavily on leasing structures.
Two dedicated presentations will cover state and federal tax issues specific to aircraft leases. Using Texas as an example, the sessions will help attendees prepare for additional scrutiny of lease structures.