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REGIONAL SALES & USE TAX FORUM (South Eastern States 2010)

January 2010

Category: Business Aircraft - Tax

Author: Christopher Younger

State Sales And Use Tax Forum

Regional update on the Southeastern United States.

This column is the second installment in the second annual series of quarterly columns describing recent changes to aviation related state sales and use tax issues (and where pertinent, other aviation related tax issues) in various regions of the United States. As was the case with the last series of quarterly columns, each quarterly round-up will focus on a particular region of the United States – namely the Northeastern, Southeastern, 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 Southeastern 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 along with 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. 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%.

Although beyond the scope of this article, aircraft owners and prospective owners should analyze the property tax implications of owning and hangaring an aircraft in Alabama.

ARKANSAS
There have been no recent material changes to Arkansas’ sales and use tax laws with respect to aircraft and aviation related matters. As stated in last year’s southeastern state forum, Arkansas 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%.

Effective January 1, 2008, the collection of city and county sales/use tax became limited to the first $2,500 of gross receipts, gross proceeds or the gross sales price of aircraft and purchasers in certain situations are entitled to a credit or rebate for payment of county or municipal sales or use tax exceeding $2,500 for a single transaction.

FLORIDA
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.

Under current law, any aircraft that enters Florida during the first six (6) months of ownership by a new owner is presumed to be subject to Florida sales or use tax. The Florida Department of Revenue clarified its use-tax law in a letter to AOPA, stating that, under current law, as interpreted by the DOR and the courts, “A brief, recreational use of property in Florida will not, by itself, subject an aircraft owner to use tax.”

This position does not, however, provide any formal legal protection to non-resident aircraft owners and operators, and provides no protection for non-residents who may have another connection to Florida such as real estate ownership.

As of the date that this article was written, Florida legislators have introduced Senate Bill 220 and House Bill 173 to exempt aircraft owners from paying use taxes when visiting Florida for not more than 21 days during the first six months of aircraft ownership.

House Bill 173 also lowers the sales tax rate on aircraft from 6% to 3%. The Bills are under consideration as of the writing of this article. Similar legislation failed to pass the Florida Legislature in May 2009.

Another bill currently under consideration in the Florida Senate (Senate Bill 858) creates an exemption from Florida sales and use tax for purchases of an interest in aircraft that primarily will be used in a fractional aircraft ownership program; and for parts or labor used in the completion, maintenance, repair, or overhaul of an aircraft for primary use in a fractional aircraft ownership program.

The bill would create a cap on the amount of state and local taxes levied, including any discretionary sales surtaxes, to $300 on the sale or use of a fractional aircraft ownership interest. The maximum tax applies to the total purchase price of the fractional ownership interest, including monthly management or maintenance fees, when sold by, or to the operator of the fractional ownership program, or transferred upon the operator’s approval. This legislation has been introduced in prior sessions of the Florida legislature and has not yet been passed.

GEORGIA
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.

The state extended from June 30, 2009 until June 30, 2011 an exemption for the sale or use of engines, parts, equipment and other tangible personal property used in the maintenance or repair of aircraft when such items are installed on such aircraft that is being maintained or repaired in Georgia and is not registered in Georgia.

KENTUCKY
There have been no recent material changes to Kentucky’s sales and use tax laws with respect to aircraft and aviation related matters. Kentucky imposes a state-wide sales/use tax rate of 6%.

Although beyond the scope of this article, aircraft owners and prospective owners should analyze the property tax implications of owning and hangaring an aircraft in Kentucky.

LOUISIANA
There have been no recent material changes to Louisiana’s sales and use tax laws with respect to aircraft and aviation related matters. 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.

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.

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. Casual sales of aircraft by an individual not engaged in the regular sale of aircraft are exempt from the sales tax and use tax.

SOUTH 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 current rates, aircraft are subject to a maximum sales/use tax of $300 in South Carolina. If an aircraft will be based in North Carolina or South Carolina, ensure that local property tax issues are addressed.

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. There is also a tangible personal property tax on aircraft held for business use.

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 special 2% aircraft sales and use tax on aircraft purchases and aircraft required to be registered in Virginia.

NEXT TIME…
In the April 2010 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 Younger is an attorney at the Law Offices of Christopher B. Younger, LLC. He is a tax and FAA specialist concentrating in the areas of corporate aircraft transactions and aviation taxation. He has extensive experience in planning and implementing unique aircraft ownership and operating structures on a global level. He has worked on numerous tax audits with the IRS and with various state taxing authorities. The firm’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 firm’s offices at 47 East All Saints Street, Frederick, Maryland 21701; telephone (301) 696 5735; email: cbyounger@cbyoungerlaw.com

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