What is a “Gotcha State”? For purposes of this article, a “Gotcha State” is a state that may subject an aircraft to a tax in their state even though the aircraft is registered and paying all the appropriate taxes to the state where it is predominately hangared. This is a huge concern to owners/operators of aircraft, as it sometimes makes it difficult to understand where they should pay taxes.
Discussed below are some of the states that fall into this category. Of course some states are more aggressive than others and, in the past and coming year, more states are getting aggressive in collecting taxes and fees they feel are due to them.
If the owner of an aircraft is not a resident of Arizona, but brings an aircraft into Arizona for more than 90 days in a calendar year, but less than 210 days, the aircraft is subject to a .1% (1/10%) of FMV Aircraft License Tax. However, if it is found that the owner is either a resident or the aircraft is in the state more than 210 days; the owner will owe the .5% (1/2%) of FMV Aircraft License Tax.
The State Board of Equalization (SBE) is extremely aggressive. It is not a question of if the aircraft owner will receive a letter, but when. If an aircraft spends any significant time in California there is the likelihood of correspondence from the SBE. In addition, aircraft that are operated under FAR 91 Subpart K “Fractional Ownership” are subject to property tax based on the amount of time the aircraft spends in the state.
Florida has been aggressively pursuing aircraft owners who bring their aircraft into the state within six months of purchase. The state has been interpreting this to mean that the owners now owe sales tax to the State of Florida. There are currently a couple of bills that have been introduced for the 2010 Session to clarify this.
Although there are number of ways to reduce the application of the Illinois Sales and Use Taxes, Illinois also has an Aircraft Use Tax that is imposed on aircraft which may override any exemptions.
Any non-resident who bases an aircraft in the state for more than 60 days shall register the aircraft with the Department of Aviation. If the aircraft is in the state with a dealer or repair station for repairing, remodeling or refurbishing, neither the non-resident nor the dealer or repair station is required to register the aircraft.
Aircraft are required to be registered, if they are operated or otherwise controlled, within the state for a period of more than 30 days. Not only could this subject the aircraft owner to the aircraft registration fee, but also the Aircraft Use Tax.
The Commonwealth of Kentucky will subject any commercial aircraft that come into the state to their property tax based on the amount of time the aircraft spends in the state.
An aircraft brought into the state by a non-resident for not more than 20 days is exempt from the state sales/use taxes. This is strictly enforced.
Any aircraft owned by a non-resident of this state and transiently or temporarily using the air space overlying this state or the airports, thereof shall be exempt from taxation, unless it uses the airspace overlying this state or the airports thereof for more than 60 days in the tax period. The operation of an aircraft in the air space overlying this state or the use of airports within this state for any purpose, at any time, during one day, shall be considered as use for one complete day.
There is exposure for property tax unless the aircraft owner can prove that they do not have sufficient Nexus in the state. This is because Missouri defines a commercial aircraft as any aircraft
that weighs more than 3,000 pounds and all commercial aircraft are taxed based on the amount of time the aircraft spends in and over the state.
Several counties in Texas have become very aggressive in assessing property taxes on aircraft that land at an airport in any county. However, there are very good guidelines available that explain own much time the aircraft would have to be in the state to establish sufficient Nexus.
Aircraft that are owned by non-residents and are based in Virginia more than 60 days in a 12-month period, are required to be licensed in the Commonwealth. In addition, before any aircraft can be licensed by the Department of Aviation, the owner of the aircraft must have satisfied the 2% Aircraft Sales and Use Tax imposed by the Virginia Department of Taxation.
Aircraft owned by non-residents, if the aircraft is in the state for less than 90 days, are exempt from registration. In addition, if an aircraft qualifies as being operated by a public utility companies, the company operating the aircraft could be subject to additional taxation.
Nel Stubbs, VP/Co-Owner
Conklin & de Decker