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State Sales And Use Tax Forum
Regional update on the Mid-Western United States.

This column is the third installment in the third annual series of quarterly articles 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 column will focus on a particular region of the United States – namely the Northeastern- Southeastern- Mid-Western and Western States. Over the following paragraphs- we review any recent changes to sales and use taxes in the states located in the Mid-Western region of the United States; namely Illinois- Indiana- Iowa- Kansas- Michigan- Minnesota- Missouri- Nebraska- North Dakota- Ohio- Oklahoma- South Dakota- West Virginia and Wisconsin.

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).

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:

ILLINOIS
Illinois has a state sales tax (referred to in Illinois as “Retailers Occupation Tax”) and use tax imposed at a rate of 6.25%- plus potential additional local taxes- which can amount to a combined total sales/use tax of up to 9.25% of the purchase price or value of an aircraft.

Illinois has a fly-away exemption from its sales and use tax. A sales or use tax exemption is allowed for an aircraft that leaves Illinois within 15 days after the later of (1) the issuance of the final billing for the sale or purchase of the aircraft- or (2) the authorized approval for return to service- completion of the maintenance record entry- and completion of the test flight and ground test for inspection.

The aircraft must not be based or registered in Illinois after the sale or purchase. A use tax exemption is allowed for an aircraft that is temporarily located in Illinois for the purpose of a pre-purchase evaluation if the aircraft will not be based or registered in Illinois after the pre-purchase evaluation.

Finally- a use tax exemption is allowed for an aircraft that is temporarily located in Illinois for the purpose of a post-sale customization if the aircraft leaves the state within 15 days after the authorized approval for return to service- completion of the maintenance record entry- and completion of the test flight and ground test for inspection. The aircraft must not be based or registered in Illinois before- or after the post-sale customization.

In all of the foregoing instances- the aircraft seller must retain and provide to the Illinois Department of Revenue a signed and dated certification from the purchaser (IL DOR Form RUT-60) that the applicable requirements of the exemption were met.

INDIANA
Indiana has a state sales and use tax imposed at a rate of 7%. The state also has a fly-away exemption from its sales and use tax. An exemption from Indiana sales and use tax is allowed for an aircraft if:

1. The purchaser is a nonresident;
2. The person transports the property outside Indiana within 30 days after delivery;
3. The property will be titled or registered for use in another state or country; and
4. The property will not be titled or registered for use in Indiana.

Additionally- the purchaser must provide to the Indiana Department of Revenue a completed Indiana DOR Form AE-1.

IOWA
There have been no recent material changes to Iowa’s sales and use tax laws with respect to aircraft and aviation-related matters. Aircraft subject to registration in Iowa are typically subject to Iowa use tax rather than Iowa sales tax.

Iowa has a sales and use tax imposed at a rate of 6% with an additional optional local sales tax imposed at a rate of 1%-2%. In addition- the state imposes a registration fee on aircraft as follows:

• 1st year’s fee = 1% x manufacturer’s list price;
• 2nd year = .75% x manufacturer’s list price;
• 3rd year = .50% x manufacturer’s list price;
• 4th year and older = .25% x manufacturer’s list price.

The minimum annual aircraft registration fee is $35 and the maximum fee is $5-000. Iowa does not have a fly-away exemption from its sales and use taxes.

KANSAS
Kansas has a state sales and use tax imposed at a rate of 5.3%. In addition- Kansas counties- localities and transportation development districts may generally impose additional sales and use taxes at rates up to 3%.

Kansas has a fly-away exemption from its sales and use tax that applies to sales of aircraft to non-residents of Kansas if the aircraft is removed from Kansas within 10 days from the date of purchase and will be based or registered outside Kansas.

MICHIGAN
Michigan has a state sales and use tax at a rate of 6%. Michigan has a narrow fly-away exemption from its sales and use taxes for sales of aircraft that are temporarily located in Michigan for the purpose of sale and pre-purchase evaluation- customization or repair.

The aircraft must leave Michigan within 15 days after the sale and the completion of the pre-purchase evaluation- customization- maintenance- improvement- or repair related to the sale (whichever occurs later). Also- the aircraft must not be registered or based in Michigan prior to- or after the sale and any pre-purchase evaluation or customization related to the sale.

MINNESOTA
Minnesota imposes a sales and use tax at a rate of 6.875% with additional local sales and use taxes of up to 1%. Minnesota has a limited fly-away exemption from its sales and use tax. A non-resident may take possession of an aircraft in Minnesota and keep it in the state for 10 days without being subject to sales tax provided that the aircraft is removed from the state and subsequently registered in another state or country; and the aircraft is used exclusively for training purposes during that 10-day period.

MISSOURI
There have been no recent material changes to Missouri’s sales and use tax laws with respect to aircraft and aviation-related matters. Missouri imposes a state-wide sales and use tax at a rate of 4.225% plus local county/city sales tax at rates up to 5.375%. Missouri does not have a fly-away exemption from its sales and use taxes.

NEBRASKA
Nebraska imposes a state-wide sales/use tax at a rate of 5.5% plus local sales/use tax at rates up to 1.5%. Nebraska has a limited fly-away exemption from its sales and use tax for aircraft purchases by non-residents as long as the aircraft will not be registered or based in Nebraska and will not remain in Nebraska for more than ten days.

NORTH DAKOTA
Under North Dakota law- aircraft are exempt from the state’s sales and use tax- but are subject to an aircraft excise tax imposed at the rate of 5%. If the aircraft is purchased for lease or rental- the excise tax may be imposed on the lease or rental cost of the aircraft.

North Dakota does not have a fly-away exemption from its sales and use taxes.

OHIO
Ohio imposes a state-wide sales tax at a rate of 5.5% plus local county/city/transit authority sales taxes imposed at combined rates of up to 3%. Ohio does not have a fly-away exemption from its sales and use taxes.

OKLAHOMA
Oklahoma imposes a state-wide excise tax in lieu of sales tax on the purchase price or market value of aircraft registered in Oklahoma at a rate of 3.25%. Oklahoma has a limited fly-away exemption from its aircraft excise tax that applies to aircraft with a purchase price in excess of $2.5 million that are transferred to a non-resident of Oklahoma for immediate transfer outside of the state.

SOUTH DAKOTA
South Dakota imposes a state-wide registration excise tax in lieu of sales tax on the purchase price or market value of aircraft registered in South Dakota at a rate of 4% in addition to an aircraft’s registration fees- which vary depending on the type of aircraft being registered and its MTOW.

South Dakota has a limited fly-away exemption from its registration excise tax if an aircraft is removed from the state before it is required to be registered.

WEST VIRGINIA
West Virginia imposes a state-wide sales/use tax at a rate of 6%. West Virginia does not have a fly-away exemption from its sales and use taxes.

WISCONSIN
Wisconsin imposes a state-wide sales tax at the rate of 5% plus local county/city sales tax at rates between 0.1% and 0.6%. Wisconsin has a fly-away exemption from its sales and use taxes for sales of aircraft to non-residents of Wisconsin who will not use the aircraft in Wisconsin.

NEXT TIME…
In the July 2011 issue of World Aircraft Sales Magazine- we will take a state-by-state look at the western United States- including: Alaska- Arizona- California- Colorado- Hawaii- Idaho- Montana- Nevada- New Mexico- Oregon- Texas- Utah- Washington and Wyoming.

Please keep in mind that this article serves as a general and broad overview of state sales and use tax laws and does not constitute legal advice or a legal opinion. Therefore- it is always advisable to consult with qualified aviation counsel when considering any questions regarding the application of sales and use tax in a particular situation or to a particular transaction.

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:
cyounger@gkglaw.com.


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