REGIONAL SALES & USE TAX FORUM (3.4)
Category: Business Aircraft - Tax
Author: Christopher Younger
State Sales And Use Tax Forum
Regional update on the Western United States.
This column is the fourth installment in the third 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, we focus on a particular region of the United States each quarter – 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 western region of the United States, namely Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming.
Additionally, we will discuss whether or not each state has a “fly-away” exemption from its sales and use tax. A fly-away exemption typically permits a buyer of an aircraft who takes delivery of the aircraft in a particular state to remove the aircraft from that state following the purchase of the aircraft without paying that state’s sales or use tax - provided that the conditions of the exemption are met.
Following is a lowdown on state sales and use taxes within the individual states and any changes introduced, or due, within said state.
Alaska does not have state sales and use tax. However, some local jurisdictions impose local sales tax. Municipal sales tax rates range from a low of 1% to a high of 7%. Alaska does not have a fly-away exemption from local sales tax.
Arizona has a state sales tax, which is referred to as the transaction privilege tax. The transaction privilege tax is not a true sales tax because it is not imposed on each sale of tangible personal property; its base is generally the gross receipts from such sales.
The statewide transaction privilege tax rate is 6.6% from June 1, 2010 through May 31, 2013. After May 31, 2013, the rate is scheduled to decrease to 5.6% and, effective July 1, 2021 the rate is scheduled to decrease to 5%. Certain counties also impose additional countywide sales tax.
Arizona has a fly-away exemption from its transaction privilege tax for a sale of aircraft to a non-resident who will not use the aircraft in Arizona other than to remove it from Arizona, including a corporation not incorporated in Arizona if the principal corporate office is located outside Arizona.
California has a state sales and use tax imposed at a rate of 7.25% (after June 30, 2011) - the rate was 8.25% prior to the end of June. In addition, California has many special taxing jurisdictions that are funded by sales and use tax at a rate of up to 2% that is added to the new 7.25% rate.
California has a fly-away exemption from its sales and use tax for a sale of aircraft to a non-resident for use outside California. The "use outside California" requirement is satisfied if the non-resident, as owner or lessee, removes the aircraft from California and does not bring it back into California (except for warranty or repair work) within 12 months after its removal. The exemption is not affected by the following:
(i) Test flights made to determine if the aircraft flies according to specifications or that it is in proper operating condition, even if the flights are made after the sale and delivery of the aircraft to the purchaser.
(ii) Modifications, repairs, or replacements made after delivery of the aircraft, and prior to its being removed from California.
(iii) Operation of the aircraft, either before or after delivery, to train the pilots or other personnel in proper operation or maintenance of the aircraft, provided that the training period is not longer than what is reasonably required.
The exemption remains in effect, even if title to the aircraft passes to a third party for security purposes only, provided beneficial ownership remains with the non-resident or lessor.
Colorado has a state sales and use tax imposed at a rate of 2.9%. In addition, Colorado localities may impose additional sales and use tax at rates between 1% and 5.5%. There have been no recent material changes to Colorado’s sales and use tax laws with respect to aircraft and aviation-related matters.
Colorado has a fly-away exemption from its sales and use tax for a sale of aircraft to a non-resident who removes the aircraft from the state within 120 days of the sale. The aircraft must not be in Colorado for a period exceeding 73 days in any of the three calendar years following the calendar year of the aircraft’s removal from Colorado. If the aircraft is hangared or parked overnight in Colorado, it will be determined to be in the state.
At the time of sale, the purchaser must submit an affidavit to the seller stating that the purchaser is not a resident of Colorado and agrees to pay the sales and use tax if the conditions for the exemption are not met.
Hawaii has a state sales tax (which is referred to as the general excise tax and is actually a tax on a seller’s gross receipts from sales of tangible personal property), and a state use tax. Each is imposed at a rate of 4% (4.5% in Oahu). Hawaii does not have a fly-away exemption from its excise and use tax.
Idaho has a state sales and use tax imposed at a rate of 6% plus a local sales tax (at rates up to 3%) that is imposed by certain resort cities. Idaho has a fly-away exemption from its sales and use tax for a sale of aircraft delivered in Idaho but purchased for use outside Idaho, provided that the aircraft:
(i) is sold to a non-resident;
(ii) is taken from the point of delivery to a point outside Idaho;
(iii) registration is changed immediately after delivery to show the new owner; (iv) will not be in Idaho more than 90 days in any 12 month period after delivery.
Montana does not have state sales and use tax.
Nevada has a state sales and use tax. The general statewide Nevada sales and use tax rate is 6.5% after July 1, 2011 (reduced from 6.85%). Additional local sales tax may be imposed at a rate up to 1% in addition to the statewide sales and use tax rate. Nevada does not have a fly-away exemption from its sales and use tax.
In New Mexico, the sales tax is referred to as the “Gross Receipts Tax” (GRT) and the use tax is referred to as the “Compensating Tax” (CT). The GRT rate is 5.125% to 7.95% and the CT rate is 5.125%. New Mexico does not have a fly-away exemption from its GRT and CT.
Oregon does not have state sales and use tax.
Texas has a state sales and use tax imposed at a rate of 6.25%. In addition, Texas counties and localities may impose additional sales and use tax at rates not to exceed 2%. Texas has a fly-away exemption from its sales and use tax for sales of aircraft in Texas to a person for use and registration in another state or nation before any use in Texas (other than flight training or transporting the aircraft out of the state). The person purchasing the aircraft must sign an exemption certificate indicating that the purchase is for out-of-state registration and use.
Utah has a state sales and use tax imposed at a rate of 4.7% plus additional local sales and use tax of up to 3.65%. Utah has a very narrow fly-away exemption from its sales and use tax for aircraft manufactured in Utah.
The statewide sales and use tax rate is 6.5%. Washington also has a wide variety of local sales and use tax. As a result, notwithstanding the 6.5% statewide rate, actual rates vary from 7.0% to 9.5% depending on location.
The Washington state legislature is considering a proposal that would increase tax for airplane owners that is similar to proposed legislation introduced, and defeated last year. Introduced on April 14, House Bill 2089 would impose an annual excise tax of 1% on the taxable value of aircraft registered in Washington.
Washington has a very narrow fly-away exemption from its sales and use tax for sales of aircraft to non-residents from other states or Canadian providences that charge 3% or less sales or use tax, or from states charging higher rates that permit Washington residents exemption from otherwise taxable sales by reason of their residence.
Wyoming imposes a statewide sales and use tax at a rate of 4% plus local sales and use tax at rates between 0.25% and 2%. Wyoming does not have a fly-away exemption from its sales and use tax.
In the October 2011 issue of World Aircraft Sales Magazine, we will take a state-by-state look at the North-Eastern United States, which we previously reviewed in the October 2010 issue.
Christopher B. Younger is a member of the Business Aircraft Group at GKG Law, P.C. He is a tax and FAA specialist concentrating in the areas of corporate aircraft transactions and aviation taxation. Mr. Younger can be reached at the firm’s Washington, DC office, 1054 31st Street, NW, Suite 200, Washington, DC 20007, telephone: (202) 342-5295, facsimile: (202) 342-5203, e-mail: email@example.com.