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REGIONAL SALES & USE TAX FORUM (SOUTHERN STATES 2009)

January 2009

Category: Business Aircraft - Tax

Author: Christopher B. Younger

STATE SALES AND USE TAX FORUM

Regional update on the Southern United States.

This month sees the second article in a series of quarterly columns that will describe recent changes to aviation related state sales and use tax and, where pertinent, other aviation related tax issues in various regions of the United States. Each quarterly column will focus on a particular region of the United States - including the Northeastern, Southern, Mid-Western and Western States.

In this column, we review any recent changes to state sales and use taxes in the states located in the South-eastern region of the United States: namely Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.

Without further ado, here’s a lowdown on state sales and use taxes within the individual states and any changes introduced, or due, within said state:

ALABAMA – There have been no recent material changes to Alabama’s sales and use tax laws with respect to aircraft and aviation related matters. It is important to remember that Alabama has a state general sales tax of 2%, plus potential additional local taxes, which can amount to a combined total sales/use tax of up to 5%. Careful planning is also required for the utilization of common sales tax avoidance/deferral techniques as these can result in a denial of an apparently available exemption (e.g. casual sales), or higher effective sales tax rates (e.g. leasing structures).

ARKANSAS - This state has a state general sales tax of 6%, plus potential additional local taxes, which can amount to a combined total sales/use tax of up to 9%. However, effective January 1, 2008, the collection of city and county sales/use tax was limited to the first $2,500 of gross receipts, gross proceeds or the gross sales price of aircraft.

In addition, effective January 1, 2008, purchasers in certain situations were entitled to a credit or rebate for payment of county or municipal sales or use tax exceeding $2,500 for a single transaction.

Again, careful planning is required for the utilization of common sales tax avoidance/deferral techniques as these can result in a denial of an apparently available exemption (e.g. casual sales), or higher effective sales/use tax rates (e.g. leasing structures).

FLORIDA – Although there have been no recent material changes to Florida’s sales and use tax laws with respect to aircraft and aviation related matters, all aircraft sold and/or delivered in Florida are subject to Florida's six percent sales tax, unless the transaction is specifically exempted by law.

Furthermore, if the aircraft is delivered into a county that imposes a discretionary sales surtax, then dealers must also collect this tax. However, discretionary sales surtax applies only to the first $5,000 of the aircraft purchase price.

Please be advised that, based on anecdotal information received from numerous aircraft purchasers and dealers, enforcement activity with respect to collection of Florida sales and use tax on aircraft sales and usage in Florida has been substantially increased. Aircraft buyers/owners must be especially vigilant when it comes to the purchase and use of aircraft in Florida and compliance with related sales and use tax laws.

GEORGIA – There have been no recent material changes to Georgia’s sales and use tax laws with respect to aircraft and aviation related matters. It is important, however, to remember that Georgia has a state general sales tax of 4%, plus potential additional local taxes, which amount to a combined total sales/use tax of up to 7% in most instances.

KENTUCKY – With no recent material changes to Kentucky’s sales and use tax laws with respect to aircraft and aviation related matters, Kentucky imposes a statewide sales/use tax rate of 6%.

LOUISIANA – Louisiana imposes a statewide sales/use tax rate of 4% on aircraft plus additional local (parish) taxes that can be nearly equal to the state rate. The Louisiana Department of Public Safety and parish taxing authorities have announced changes to local sales and use tax rates in the Parishes of Sabine and Vermilion, effective October 1, 2008.

In Sabine Parish, the Town of Many decreased its municipal sales and use tax rate to 1% from 1.25%.

Accordingly, the total state and local sales and use tax rate in Many decreased to 9.625% from 9.875%. Vermilion Parish enacted a 0.5% hospital district sales and use tax for certain areas of the parish.

MISSISSIPPI – There have been no recent material changes to Mississippi’s sales and use tax laws with respect to aircraft and aviation related matters. Mississippi imposes a statewide sales/use tax rate of 3% on aircraft purchases.

Worth noting: Mississippi also imposes an annual registration fee on aircraft domiciled in the state. The annual registration fees are based on the type and weight of aircraft, including number of engines. Fees range from $25 to $2,500. Aircraft Weight/Fee: (i) 3,600 lbs and under/$25.00; (ii) 3,601-10,000 lbs/$250.00; (iii) 10,001 lbs and greater/$2,500.00.

NORTH CAROLINA - There have been no recent material changes to North Carolina’s sales and use tax laws with respect to aircraft and aviation related matters. Sales at retail of aircraft, including all accessories attached when the purchaser takes delivery of its aircraft, are subject to a lower tax rate of 3%, with a $1,500 tax maximum. Sales of aircraft are not subject to North Carolina local sales tax.

SOUTH CAROLINA – As per North Carolina, there have been no recent material changes to South Carolina’s sales and use tax laws with respect to aircraft and aviation related matters. Although subject to the state’s sales tax at the then current rates, aircraft are subject to a maximum sales/use tax of $300 in South Carolina.

TENNESSEE - There have been no recent material changes to Tennessee’s sales and use tax laws with respect to aircraft and aviation related matters. The sales/use tax rate is 7%, plus 2.75% of the sales price in excess of $1,600 and up to $3,200. Additionally, local sales/use tax rates of between 1.5%–2.75% also apply to the purchase.

VIRGINIA – Finally, there have been no recent material changes to Virginia’s sales and use tax laws with respect to aircraft and aviation related matters. Virginia imposes a 2% aircraft sales and use tax on aircraft purchases and aircraft required to be registered in Virginia in lieu of its sales/use tax.

In the April issue of World Aircraft Sales Magazine, we will take a state-by-state look at the mid-western United States, including: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, West Virginia and Wisconsin.

Christopher B. Younger is an attorney at Ober|Kaler, and a member of the firm’s Aviation Tax and Transactions group. He is a tax and FAA specialist concentrating in the areas of corporate aircraft transactions and aviation taxation. Ober|Kaler’s Aviation Tax and Transactions group provides full-service tax and regulatory planning and counseling services to corporate aircraft owners, operators and managers. The group’s services include Code Section 1031 tax-free exchanges, federal tax and regulatory planning, state sales and use tax planning, and preparation and negotiation of transactional documents commonly used in the business aviation industry, including aircraft purchase agreements, leases, joint-ownership and joint-use agreements, management and charter agreements, and fractional program documents.

Mr. Younger can be reached at the Baltimore office of Ober|Kaler located at 120 East Baltimore Street, Baltimore, Maryland 21202, telephone +1 (410) 685 1120, email: cbyounger@ober.com

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