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Aviation Sales Tax: It's All About "Location, Location, Location"

author photo of Guy Nevers

With an upfront cost ranging between $2 million-$50 million, the purchase of an aircraft represents a significant investment. With sales tax rates ranging from 3%-10%, the sales tax liability on the purchase of an aircraft is a major cash outflow over and above the purchase price and adds no value to the aircraft. Leasing may be an option, however depending on how the lease is structured the purchaser may still need to pay all of the sales tax upfront. Good planning is key to conserving cash flow and getting the most value out of your purchase dollar.

Most states follow the rule that all transactions by which title or possession, or both, of tangible personal property, is or is to be transferred is subject to sales tax. As such, the state in which possession of an aircraft is taken, is the state which has the opportunity to tax the transaction first. Taking delivery of an aircraft in a state considered “aviation friendly” is an important part of the purchase planning of an aircraft. States are considered aviation friendly when their sales tax laws are such that they promote a healthy active aviation industry within their borders. One way they accomplish this is by minimizing the sales tax charged when a purchaser takes delivery of an aircraft within their borders. Below, I discuss some of the incentives an aviation friendly state provides to a purchaser of an aircraft and how the purchaser can take advantage of them.

States with No State Sales Tax:

Alaska, Delaware, Montana, New Hampshire, and Oregon are states without a state sales tax. These states are most preferred as a delivery state for aircraft as there is no state sales tax to be assessed upon delivery of the aircraft. Taking delivery of a purchase or lease of an aircraft in these states provides a purchaser the opportunity to manage their sales tax exposure to the fullest extent, since there is no state sales tax upon possession of the aircraft. It should be noted that some states have counties or cities who also levy sales taxes. If the county or city tax base is the same as the state, there should be no concern. However some states have counties or cities where the tax base is not necessarily the same as the state tax base. If this is the case, care should be taken to ensure delivery of the aircraft in the county or city with the lowest rate.

Exemption from Tax on Sale or Lease of an Aircraft:

States like Massachusetts provide an exemption for the sale or lease of an aircraft in their state. These states are preferred as a delivery state because while the state has a sales tax, they provide a specific exemption for the delivery of an aircraft in the states. Care here should be taken to ensure the state has not conditioned the exemption on an external event. For example, New Jersey exempts the sale of aircraft to an air carrier having its principal place of operations within New Jersey and engaging in interstate, foreign or intrastate air commerce.

Cap on Total Sales Tax Charged on Delivery of Aircraft:

South Carolina limits the total sales tax charged on the sale of an aircraft to $300 per transaction. North Carolina limits the total sales tax charged on the sale of an aircraft to $1,500. While these States tax the delivery of an aircraft in their state, they limit the amount of sales tax charged to a nominal amount per sale of aircraft. While not as ideal as the first two states, the amount of sales tax is nominal compared to most states and as such still permits the purchase of an aircraft without a significant outlay to the government.

Fly – Away:

This exemption is what I affectionately call “get out of dodge exemption”. In these states (i.e. Nebraska), they typically exempt the delivery of aircraft in the state if the purchaser is not a resident or domiciled in the state, will not register, hanger or base the aircraft in the state, and will fly the aircraft under its own power out of the state within a specified period of time. Furthermore, the purchaser will not bring the aircraft back into the state within a given period of time (six months to 18 months typical). An exception for maintenance is usually provided. You must keep good records of the sale and proof the aircraft left the state within a period of time. For example fuel purchases, runway fees example. If you plan on using the aircraft in a more limited capacity such as farming, or do not anticipate returning to the state of delivery, this exemption is one to consider.

Other Considerations:

While taking advantage of the various incentives discussed will preserve significant cash flow when purchasing an aircraft, it’s important to consider them in your overall aircraft purchase planning. If the aircraft is sitting in a state which taxes the entire purchase price, it will be necessary to ferry or position the aircraft into a state where you can take advantage of an exemption or an the sales tax upon delivery. The cost of positioning the aircraft into an aviation friendly state will diminish the upfront tax savings realized on the delivery. As such while taking delivery of the aircraft in a state which has no sales tax or exempts the transaction from sales tax is desirable, in practice it may not be realistic.

It also must be noted, absent a specific exemption, the state where the aircraft is registered, based or hangared, will have the opportunity to assess a use tax on the value of the aircraft. As such, in planning your aircraft purchase it will be important to understand the use tax exposure in the state you plan to base the aircraft.

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 a member of the AICPA, Ohio Society of CPA's and a Sales Tax Affiliate member of the Institute for Professionals in Taxation.

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Comments

10 Responses to Aviation Sales Tax: It's All About "Location, Location, Location"

  • Posted by Steve on November 6, 2016 6:55pm:

    I live in south carolina and have a newer single engine aircraft that is hangared in SC and have been paying the state use tax each year. Can i legally register this aircraft in Delaware. I have been told by a few pilots that do this I can avoid the annual use tax. They also state that as long as the plane is out of state on January 1 of each year this is legal. I fly the plane for pleasure only.
    I am unable to find any information on this in the tax code.
    Any direction that you can provide is appreciated.

    • Posted by Guy on November 7, 2016 3:11pm:

      Steve, good to hear from you

      Use tax is assessed when you use property in the state. Physical presence in the state is a form of use. With aircraft, as long as the aircraft is hangared in the state it will not matter where it is registered. The state will consider it as taxable absent an exemption.

      Since you use the aircraft primarily for pleasure, there isn't an exemption against the use tax available.

  • Posted by Ben on October 10, 2016 4:11pm:

    I live in California and want to buy an aircraft out of state and avoid paying California sales and use tax. If I take delivery out of California and fly the plane 50% on business out of state, how long do I have to do this and what receipts need to be given to California FTB?

  • Posted by Jen on August 1, 2016 3:25pm:

    If my employer, a licensed aircraft dealer in Texas, buys an aircraft currently in Florida, and wants to keep it there for 2 months for extended maintenance, and then sells it and delivers it to a non tax state is he ever liable for sales tax....or is only the final purchaser responsible?? Thanks for this great site!!

    • Posted by Guy on August 1, 2016 5:01pm:

      Hi Jen! Thanks for stopping by; glad you like the site!

      It's possible that Florida could assess tax on the purchase of the aircraft even though your employer is licensed in Texas. In order to execute a resale certificate, Florida requires you to be registered in Florida and provides you with a state issued resale certificate. If you are not registered in Florida, then your employers purchase of the aircraft would be subject to sales tax even though he intends to resell the aircraft.

      If your employer is registered in Florida, you could execute a Florida resale certificate and purchase the aircraft exempt from sales tax. If the aircraft is sold to a purchaser, and delivered in a non tax state, then, depending on the states rule your employer would not need to collect sales tax on the subsequent sale.

      However, depending on what the purchaser intends to use the aircraft, they may be subject to a use tax when they bring the aircraft back to their domicile state. That shouldn't be your responsibility, but its good to know.

      Let me know if this helps and if you have any other questions.

      Kindest Regards,

      Guy

  • Posted by Matt on July 19, 2016 5:26pm:

    I am a military member stationed in Colorado, and I'm also a Nevada state resident. I purchased a plane in October of 15 for 28k and haven't done anything since. I just recently got a letter in the mail from the Clark County Assessor (Las Vegas area) asking about the airplane. Since I am a legal resident in both states, what should I do to pay the least amount of taxes?

    • Posted by Author photo of Guy Neversguyneverscpa on July 19, 2016 5:50pm:

      Good evening Matt; thanks for stopping by!

      This is a good question because you are a resident of two states, which can make if very difficult to figure out which state can tax the aircraft. A couple of questions for you first so I can understand the facts a little better.

      Which state do you have a drivers license in?
      Which state are you registered to vote in?and model of the aircraft?
      What is the year, make and model of the aircraft?
      Where do you hangar or store the aircraft most of the time?
      What do you use the aircraft for (i.e. personal transportation or do you transport others for a fee?)

      I'm guessing Clark County sent you the letter because the aircraft is stored at an airport in Clark County. Since that is where you are likely storing the aircraft, that would be where the aircraft is present and Clark County would have the right to tax it.

      Since you are a legal resident of Colorado as well, there may be some advantage to relocating the aircraft there and paying the Colorado tax (if any). Thus my questions above. They can help me understand a few things, and get you to the best answer.

      Let me know if this helps and if you have any other questions.

      Kindest

      Guy

      • Posted by Matt on July 19, 2016 7:35pm:

        Guy,

        My drivers license is from Nevada and I also vote there. The aircraft is a 1974 Piper Warrior used for personal pleasure. It is hangared in Greeley, CO at GXY. My father lives in Las Vegas and I loaned him the plane for a month or so which is how they probably got my N number for assessing reasons. The airplane is in Colorado for 75% of the year and sometimes I let my dad use it. Thanks for the help!

        • Posted by Guy on July 20, 2016 5:51pm:

          Ahhh yes; you got caught with the assessor taking down tail numbers of aircraft and looking them up on the FAA website. Tax authorities do this quite a bit.

          Hangaring the aircraft in Colorado is a good thing; as Colorado does not assess a property tax on aircraft. Since it is in Colorado 75% of the time and not in Nevada, I don't think Nevada should tax the aircraft.

          Here is my recommendation.

          Write a letter to Clark county and explain to them that the aircraft is hangared at GXY, and is not habitually in Nevada. Provide proof of hangar rent at GXY, to show the aircraft is stored in Colorado. If you have maintenance performed on the aircraft at GXY, and purchase fuel at GXY provide those invoices as well. Explain to them that the aircraft was only in Nevada for a very short period of time.

          I would think this should provide sufficient information to show the aircraft should not be taxed by Clark county.

          Let me know how this turns out and if I can be of any assistance!

          Kindest

          Guy

  • Posted by Steve on December 16, 2015 7:41pm:

    Having engines replaced on a Montana registered airplane in Michigan and want to exempt the sales tax on the purchase of the engines purchased from a Canadian company shipping to Michigan

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