June 30, 2016

Business aircraft owners and operators in New Jersey and Nevada should join with NBAA in opposing potentially onerous proposed state tax changes.

“Based on industry opposition in both states, we appear to be making progress, but the industry needs to stay engaged, especially in New Jersey, where the state, NBAA and other stakeholders are monitoring the situation closely,” said Scott O’Brien, NBAA’s senior manager of tax and finance.

New Jersey: Proposed Hike on Jet Fuel

New Jersey already imposes a 2.75 percent tax on jet fuel (equal to 4 cents per gallon), with some exemptions for certain types of operations, and state legislators recently proposed a tax hike to 7 percent as part of a larger transportation infrastructure-funding overhaul. However, the proposal faced significant opposition from groups, including NBAA – which sent a letter to legislators detailing concerns over the bill – and an alternative bill that removes the tax increase on jet fuel and aviation gasoline recently passed the New Jersey Assembly. Negotiations between the Assembly and Senate on a final tax package are ongoing.

“The New Jersey infrastructure proposal also raised concerns about how the state hoped to use aviation fuel tax revenues,” said O’Brien. “It appeared that New Jersey planned to divert aviation fuel tax revenue for public works projects unrelated to aviation. This is contrary to FAA regulations, which require aviation fuel tax revenue be used for airport or aviation-related projects.”

Nevada: Proposed Change to Tax Exemption – Avoided

In Nevada, a draft tax bulletin proposed a significant change to current law and administrative decisions that would have negated a key tax exemption designed to encourage aircraft owners to locate in the state. Based on current state tax code, there is a presumption that aircraft acquired outside of Nevada will not be subject to use tax if certain conditions are met. Specifically, the aircraft must be first used in interstate or foreign commerce outside of the state, and second, for the 12 months following the first use, the aircraft must be used predominantly on flights between Nevada and other states.

The draft tax bulletin would have limited the exemption to “for hire” service only and would have required “continuous” use of the aircraft in intrastate commerce for at least 12 months, making the statute impossible to comply with and virtually meaningless. View the tax bulletin. (PDF)

“After hearing industry opposition, the Nevada state tax commission chose not to pursue the proposed changes to the interstate commerce exemption and released a revised bulletin,” said O’Brien. “The New Jersey and Nevada proposed state tax changes are strong evidence of why the industry needs to be aware of state issues and register opposition when onerous changes are proposed,” he added. View the revised bulletin. (PDF)

To learn about the current tax situation in the state where you conduct business, review NBAA’s state aviation tax report.