State Taxes Impacting Business Aviation – Could Your Aircraft Be Affected?

May 9, 2011

If you are buying an aircraft, you might want to take delivery in Montana or New Hampshire (no sales tax), but if the plane is based in Arizona or Indiana, be prepared to pay both property and registration taxes.

Washington and Iowa are two of the five “gotcha” states, where operators may have to pay taxes, even if all appropriate and proper taxes have been paid in the aircraft’s home state.

These nuggets of information were just a few of the many state-specific tax topics, as well as overall state tax issues, covered in an April 28 NBAA webinar entiled, “State Taxes Impacting Business Aviation.”

Moderated by Jeff Towers, chairman of the state tax working group of NBAA’s Tax Committee, the purpose of the webinar was to provide NBAA members with timely information relevant to proper state tax planning, prepare for upcoming tax issues, and to discuss the applicability of various state taxes to business aviation operations.

“NBAA members need to familiarize themselves with the issues and the pitfalls,” said Towers, “as states are tightening the rules in an attempt to increase revenue.”

Tax rules can be confusing even to tax attorneys or accountants, because rules vary among the states and because of the nature of business aircraft: they are operated in multiple states. Misconceptions abound regarding the applicability of taxes to aircraft operated for business, and there is no prohibition against “double taxation,” so states can impose multiple taxes on aircraft.

Webinar presenters attorney Phil Crowther and consultant Nel Stubbs discussed the types of taxes which business aviation operators might find themselves hit with, including sales tax; use tax; personal property tax and aircraft registration fees; income tax; and fuel tax. Depending on what state the aircraft is based and operated in, these taxes can apply to aircraft, aircraft parts and labor, and operating costs.

Crowther and Stubbs provided information on how to minimize use taxes, both in the aircraft’s home state as well as in other states, and how to avoid sales tax. Exemptions for various taxes in a variety of states were discussed, as well as what to expect in a tax audit. The webinar addressed current developments in state legislatures that would affect business aviation taxes, and NBAA members were encouraged to keep up-to-date on state actions, as well as learn more about tax issues, by visiting the NBAA State Aviation Tax Report.