April 25, 2013

Arguing that Nevada’s aviation industry is losing business to neighboring states that offer more favorable tax policies, the Nevada Business Aviation Association (NVBAA) is pushing state lawmakers to approve a bill that would reduce taxes on a variety of aviation companies, including manufacturers, retailers, aircraft owners and operators, and FBOs.

Under a complex formula that proponents admit only partially addresses the problem, the measure, SB 385, would limit the partial personal tax abatement to 50 percent of the full tax. The partial abatement of sales and use taxes for businesses that purchase parts or components for aircraft maintenance, repair or overhaul or for manufacturing operations would be reduced to 2.25 percent.

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Currently, sales and use taxes vary across the state, based on how much tax is added to the state minimum, but can run as high as 8.1 percent in Nevada, said attorney Justine Harrison of Justine Harrison, CHTD, who also is a lobbyist for NVBAA and multiple aviation companies.

However, there are a number of restrictions, and businesses would have to obtain Nevada Office of Economic Development approval based on the following requirements:

  • New businesses would need to have five or more employees in Nevada within one year of receiving any abatement. Existing businesses would need to increase employment by 3 percent or three employees, whichever is greater, within one year of receiving any abatement.
  • A company would have to be in continuous operation in Nevada for five years. Any property tax abatement could be set for a period of up to 10 years.

Qualifying businesses also would need to meet one of the following requirements:

  • Make a new capital investment of $250,000 within one year of receiving any abatement.
  • Hold tangible personal property of not less than $5 million during the period of the abatements.
  • Offer an average hourly wage for the employees equal to the average statewide hourly wage.
  • The business must develop, refine or own a patent or other intellectual property or have been issued a supplemental type certificate.

A study compiled for NVBAA by Elliott D. Pollack & Company says that of Nevada’s neighboring states, only California taxes aviation businesses at a higher rate. While SB 385 won’t completely alleviate the anti-competitiveness tax issue, the study said SB 385, “is a step in the right direction and provides Nevada with the ability to provide an incentive to aircraft companies looking to expand in the state.”

Sponsored by a bipartisan group of Nevada senators, the bill was introduced on March 18. It was approved in early April by the Senate Committee on Revenue & Economic Development. NVBAA now is conducting a financial impact study that aims to counter projections by the Nevada Department of Taxation that the bill would cost the state about $7.4 million in lost tax revenue in 2014 and 2015.

NVBAA President Reza Karamooz said the projection ignores the positive economic impact the bill would have on the state, the addition of new jobs and resulting positive gain in overall tax revenues.

“People have to understand there will be a positive economic impact to the state from the positive revenue flows that would come from extra increased fuel sales, hangar construction and rentals, and additional jobs that will need to be added across the state to support increased aviation activity,” Karamooz said. “Nevada also would be getting a 50 percent upside on personal property taxes, since the lower taxes will incent companies and individuals to purchase and base their aircraft in Nevada versus other states that offer, in some cases, a complete exemption of personal property taxes.”

A number of state aviation businesses have filed remarks with the state supporting the measure, including El Aero Services Inc., in Carson, NV.

“The personal property tax abatement in SB 385 will serve to attract additional aircraft to base in Nevada, and would trigger a chain of economic benefit in both private and public sectors,” said El Aero President Ginna Reyes in a letter filed with the state. “This will lead to growth in airport-related activity including more fuel sales, oxygen and lavatory servicing, catering, car rentals, aircraft repairs and maintenance.”

NBAA Members in Nevada and surrounding states are encouraged to share information about the legislation’s potential impact with NVBAA. Harrison, the association’s lobbyist, may be reached at Harrison@harrisoncounsel.com, and NVBAA may be reached through its website at www.nvbaa.com.