While it’s tempting to focus only on federal tax issues when buying a personal or business-use aircraft, state taxes need to be considered as well, because many states impose various types of sales, use and property taxes that can be significant. And many states are becoming much more aggressive in tracking down these aircraft in order to assert those taxes against the owners.
A few states have no aircraft sales or use taxes, and others offer some form of “fly-away” exemption for nonresidents when the airplane will be based in a different state. But most states impose sales taxes on aircraft purchases that take place in their jurisdictions, as well as “mirror image” use taxes that are designed to catch those who shop out of state in an effort to avoid their home-state sales taxes. As such, it is critically important to look not only at where the purchase will be made, but also where the airplane will be based when assessing the impact of state taxes.
As budgets have become tighter and the Internet has made it easier to track airplanes, several states have become much more aggressive in auditing owners for sales or use tax, even if the initial purchase occurred far in the past. And because of those tight budgets, those states are much less likely to accept sloppy paperwork or give the taxpayer much benefit of the doubt.
Issues with various types of property taxes or registration fees — which can be even more arcane and involve not just the state, but also the county or other local taxing jurisdictions — only compound the problem.
“It is critically important to look not only at where the purchase will be made, but also where the airplane will be based when assessing the impact of state taxes.”
So what does all of this mean? In short, you simply cannot ignore these taxes. There is, however, still some room for effective tax planning, but it must be done and documented appropriately before you buy the airplane, or at least hopefully before you are audited by the state. As such, it may well be worth the time, effort and cost to speak with a knowledgeable aviation attorney or CPA who can help plan for these issues up front, rather than paying a much larger tax — together with penalties and interest — several years down the line.
David T. Norton is an attorney, pilot and head of the aviation law practice at Dallas’ Shackelford Melton & McKinley. A graduate of the U.S. Air Force Academy, he spent nine years flying jets for the Air Force, and for the last 15 years has been very active as a lawyer and pilot in the national and international personal and business aviation community. Email him at dnorton@shacklaw.net.
