Welcome to the new Aviation Tax Blog! In these posts, I look forward to discussing the tax issues you can expect when owning a private aircraft. I may select topics that are particularly timely or challenging – or simply an item that I find particularly fascinating (I think a lot in aviation tax is fascinating!). However in some cases – I’ll also write on topics suggested by readers – so please let me know if there are particular aviation tax issues that you’d like addressed.
With an upfront cost of anywhere from a few hundred thousand dollars to tens of millions of dollars, a private aircraft is a very expensive asset to own. There are other ways to enjoy the benefits of private aviation...be it charter, jet card or fractional ownership. However each carries with it subtle variations on the tax costs of those benefits.
An aircraft is tangible personal property. That means there is the opportunity for every state with sales or use tax to tax that aircraft. Items such as the purchase of the aircraft, use of the aircraft, fuel, or by far the largest cost of owning the aircraft - maintenance - are all items subject to sales or use type tax. An unscheduled maintenance stop can bring with it a nasty tax surprise in addition to the repair bill.
Not only does an aircraft provide states the opportunity to subject the aircraft to sales and use tax, but also subjects your Company to an income or franchise tax. An aircraft is a nexus creator. (Simply put, nexus means connection) By virtue of it being tangible personal property, once it lands in a state, your Company has a physical presence in the state and thus nexus. Unless you qualify for the Federal protection from the state income tax, you may have a filing obligation in that state as a result of your aircraft physically present in the state.
As tangible personal property, States with a personal property tax may tax the value of the aircraft. Most typically this would be an apportioned amount based on the valuation of the aircraft as found in published aircraft valuation manuals. Each State where you land the aircraft provides an opportunity to subject your aircraft to their property tax.
Lest we forget the Federal Government via our good friend the IRS subjects aircraft to the Federal Excise Tax on Transportation. This tax is computed based on the amount you pay for the trip and an additional amount if your trip involves any layover stops along the way.
As you can see, the upfront cost of the aircraft is but a small part of the total cost to own an aircraft. In future blog entries, I'll focus on aviation sales or use tax issues - but will also reference some of the other tax issues mentioned above.
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!
Other recent “Aviation Tax” posts by Guy Nevers, CPA, MT:
- Aircraft Maintenance; Big Dollars Mean Big Tax Headaches
- Aviation Sales Tax: It's All About "Location, Location, Location"
- Aviation Taxes: Welcome to the Aviation Tax Blog