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Aircraft Maintenance; Big Dollars Mean Big Tax Headaches

author photo of Guy Nevers

Whether you fly a single engine aircraft like the Cessna Skyhawk or one of the most comfortable private jets ever produced like the Bombardier Global 6000, the most significant expense you’ll incur is related to maintenance. Regardless of if you fly under the Federal Aviation Administration (“FAA”) part 91 general aviation rules, or the more stringent part 135 rules, the FAA has fairly strict maintenance requirements, which you must comply with to maintain the airworthiness of the aircraft. In some instances, these requirements are over and above the manufacturer’s required maintenance schedules.

Scheduled Versus Unscheduled Maintenance:

There are two general categories of maintenance “events” aircraft generally fall into. The events I described above are considered “scheduled” maintenance. Scheduled maintenance follows the manufacturers or FAA “scheduled” timeline for specific repairs and replacement of engine parts, airframe or landing gear assemblies. These events are done under mandatory time frames to ensure the aircraft meets minimum airworthiness standards; to prevent accidents and keep the skies safe for all.

Of course just as your car can break down unexpectedly, aircraft can also break down unexpectedly as well; even though proper maintenance events have been performed. These sudden malfunctions are called “unscheduled” maintenance events. Mechanical breakdowns can occur while the aircraft is on the ground or in the air; the cause can be anything from force of nature to a simple part breakdown. The important part of these events is that they must be addressed promptly to prevent a major disaster.

Taxability:

The maintenance of aircraft involves the purchase and installation of parts to the aircraft. This involves tangible personal property; and as we all know tangible personal property is always considered subject to sales tax, unless an exemption applies. For aircraft owners, this can be a significant expense over and above the cost of the maintenance event itself. For example a $200,000 maintenance event in a state with a 6% state tax rate means an additional $12,000 in state sales tax. Of course any local add-on or piggybacked tax would serve to increase that costs.

Clearly the amount of this additional cost requires the aircraft owner to understand state sales tax rules relative to aircraft maintenance; and carefully plan maintenance events to take advantage of state sales tax rules that minimize this additional cost. Obviously it will be difficult if not impossible to mitigate the cost when an unscheduled event occurs; however it should be fairly easy to plan scheduled maintenance events to take place in “aviation friendly” jurisdictions.

Aviation-Friendly States:

Relative to aircraft maintenance, states can be broken down into 4 basic categories; those with no sales tax, those with a sales tax but no exemption for aircraft maintenance, those which exempt some maintenance, and those exempting all maintenance. An aviation friendly jurisdiction is one which has enacted sales tax rules that serve to make owning an aircraft easier in that state. Aviation friendly states have either no sales tax at all, or completely exempt sales of aircraft and maintenance performed in the state from their sales tax.

a) States With No Sales Tax: Alaska, Delaware, New Hampshire, and Oregon are states with no state sales tax. These states are obviously aviation friendly in that maintenance events performed there incur no state sales tax. Care should be observed in Delaware and Oregon. Delaware has a form of gross receipts tax, and Oregon has some local sales taxes which could serve to add to the cost of the maintenance event.

b) States Which Do Not Exempt Repairs: Mississippi is an example of a state which taxes aircraft repair parts and labor at its standard sales tax rate of 7%. As such, that $200,000 maintenance event referred to earlier would tack on an additional $14,000 in tax. North Dakota is another example of a state that taxes repair of aircraft at their general sales tax rate. To the extent possible scheduled maintenance should avoid using these states.

c) States Which Exempt Some Maintenance: Some states provide exemption for aircraft maintenance in some limited capacity. For example, my home state of Ohio exempts maintenance performed on aircraft, where the maximum takeoff weight of the aircraft exceed 6000 pounds; Illinois does not exempt the repair of aircraft engines, and permits only certified repair stations in Illinois to take advantage of the exemption. Others only permit the exemption if the aircraft is primarily used in the interstate carriage of persons and property for hire; thus excluding part 91 general aviation operators from the exemption. In these states, the aircraft owner is cautioned to consider his or her situation; i.e. size of their aircraft, the flight rules they operate under and how they use the aircraft to determine if maintenance will be exempt.

d) States Which Exempt All Maintenance: New York and Massachusetts are examples of states which exempt all repair parts affixed to the aircraft from sales tax. These states are considered the most aviation friendly states along with those states with no sales tax. Scheduled maintenance events should look at these states to take advantage of this exemption whenever possible.

Exemption Certificates:

Regardless of what state you choose to have maintenance events performed, if that state has a sales tax, and any or all aircraft maintenance is exempt, you must properly execute that states exemption certificate to properly claim the exemption on aircraft maintenance. As noted previously, repairs of aircraft involves tangible personal property, which is always considered taxable. Without a properly executed exemption certificate, the vendor is required to charge you sales tax even though the sale is exempt under the law.

Have a comment or question? Is there a topic you’d like to see discussed? Submit your question or comment below and we’ll be sure to get in touch!

Guy J. Nevers CPA MT is the founding member of Nevers Consulting Group, LLC; a firm that offers a full spectrum of sales and use tax services as well as other federal and state tax services. You can learn more about him on his bio page as well as his Firm Profile.

Other recent “Aviation Tax” posts by Guy Nevers, CPA, MT:

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