Business Aviation Law Blog : Boston Aviation Lawyer & Attorney : Harry Ekblom : Sullivan & Worcester Law Firm : FAA Regulation & Aircraft Transactions

Special thanks to Sullivan & Worcester's Van Hilderbrand and Ari Hoffman, environmental intern, for preparing this post.

In June 2010, a complaint for declaratory and injunctive relief was filed by several environmental groups who request that the Environmental Protection Agency (“EPA”) determine if greenhouse gasses (“GHGs”) from marine vessels, aircraft and other non-road vehicle sources “significantly contribute to air pollution which may reasonably be anticipated to endanger public health or welfare” (District of Columbia, C.A. 1:10-cv-00985). Pursuant to its authority under the Clean Air Act (“CAA”), 42 U.S.C. § 7401 et seq., EPA has adopted aircraft emissions standards “covering certain criteria pollutants or their precursors and smoke; these standards do not currently regulate emissions of CO₂ and other [greenhouse gases].”  Regulating Greenhouse Gas Emissions Under the Clean Air Act, 73 Fed. Reg. 44,354, 44,469 (July 30, 2008). Ultimately, the environmental groups want to force EPA action to establish a plan for regulating GHG emissions from these sources. 

Late last year, four aviation related associations, the Air Transport Association of America (“ATA”), National Business Aviation Association (“NBAA”), Aerospace Industries Association of America (“AIA”), and General Aviation Manufacturers Association (“GAMA”), moved to intervene in the case in support of EPA. The aviation associations claimed that an EPA action plan would harm the associations by (1) imposing new aircraft emissions standards and (2) developing such standards on an accelerated timetable (the complaint calls for a 90-day determination timetable). 

Last month, the Court denied the intervention and held that the claimed injuries were too hypothetical and too far removed from the judgment to constitute a “certainly impending” causal connected injury for standing purposes. In support of its holding, the Court stated that its decision would only make the EPA initiate the endangerment finding process, not cause the agency to find that GHGs emitted from these sources endanger the public health and welfare. The Court also denied permissive intervention under Rule 24(b) of the Federal Rules of Civil Procedure because the associations’ participation would not be helpful to the litigation. As this case progresses, please check back to this blog for future posts.

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Special thanks to Joseph X. Donovan, tax attorney at Sullivan & Worcester, for his contributions to this post.

A bill has been introduced in the Massachusetts legislature that would remove the existing sales and use tax exemption for aircraft. The bill was introduced by Representative Cory Atkins of Concord. Massachusetts does have sale and use taxes – but provides an exemption for aircraft (Massachusetts General Laws, Chapter 64H, §6(vv)). Per the bill, that exemption would be limited, effective August 1, 2011, to sales of aircraft “to certificated or licensed carriers of persons or property, for compensation or hire, in interstate or foreign commerce under authority of the laws of the United States or any foreign government, or sold to any foreign government for use by such government outside of this state, or sold to persons who are not residents of this state and who will not use such aircraft in this state otherwise than in the removal of such aircraft from this state.” In addition, there is language in the bill that seems to imply that the Massachusetts Department of Revenue will adopt rules imposing tax on transfers of fractional interests in aircraft. A hearing on the bill is scheduled for May 12 (Thursday) from 10:30 AM to 2:30. This bill was introduced in January 2011, but, until now, it had not generated much attention. That likely will change with increasing scrutiny of “tax expenditures” of all kinds in Massachusetts.  

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Special thanks to Joseph X. Donovan, tax attorney at Sullivan & Worcester, for his contributions to this post.

In two decisions issued on the same day, the Maine Supreme Judicial Court has reached contrary conclusions on the taxability of aircraft purchased outside the state but used in Maine on more than a de minimis basis in the year following purchase.

In Blue Yonder, LLC v. State Tax Assessor, Dkt. No. BCD-10-3 (April 26, 2011), a Massachusetts-organized limited liability company (“Blue Yonder”) owned by a husband and wife purchased an aircraft in Minnesota, and the husband flew it to Massachusetts, where it was registered. No sales or use tax was paid in any state.  The husband thereafter rented the aircraft from the LLC for business and personal use and also for use in so-called “angel flights,” delivering patients to places of care in Massachusetts.

During the first 12 months of ownership, the aircraft was present in Maine, where the husband and wife owned properties, about 21 days, or about six percent of the time.

The court first considered and rejected as controlling two exemptions: (1) a provision covering aircraft “purchased by a nonresident and intended to be … transported outside the State immediately upon delivery” (36 M.R.S.A. Sec. 1760(23-C)(C)); and (2) a provision covering sales with respect to which “the seller delivers the property to a location outside this State” (36 M.R.S.A. Sec. 1760 (82)). These exemptions, the court concluded, only apply in the case of in-state sales.  This interpretation may open the court’s logic up to later constitutional challenge, because it is difficult to see how, under the Commerce Clause, a taxpayer can be better off, all other things being equal, just by virtue of a sale having taken place in the state.

This interpretation was not determinative of the outcome in the case, however, because the court went on to hold that Blue Yonder was entitled to claim exemption from tax under a provision that applied when property was “purchased and used by the present owner outside the State … [f]or more than 12 months.”  36 M.R.S.A. Sec. 1760(45)(B).  The court reasoned that this exemption could not be conditioned on exclusive use outside Maine during the 12-month period, because the legislature would have expressly required such use if it so intended.  Nor was it willing to adopt a bright-line number-of-days test. (The Maine Legislature subsequently did adopt a bright-line test, under which an aircraft may not be present in the state for more than 20 days during the 12 months after its purchase if it is to be exempt.)  The court concluded, rather, that it was appropriate to adopt a requirement that the use outside the state be “sufficiently substantial” to make the imposition of the use tax “unjust.”  Under this test, the court found Blue Yonder’s use of the aircraft outside the state for about 94% of the time to be sufficiently substantial for the exemption to apply.

In contrast, in Victor Bravo Aviation, LLC v. State Tax Assessor, Dkt. No. BCD-10-2 (April 26, 2011), during the year subsequent to its purchase, the aircraft in question was in Maine overnight on 121 occasions, and in Maine for the entire day on 89 days.  Moreover, it was sometimes placed in a hangar owned by the taxpayer and located in Maine.  On these facts, the court ruled that the aircraft was not used so substantially outside of Maine during the first 12 months of ownership that it would be unjust to impose the tax.

Readers may want to note that the Maine law at issue in Blue Yonder and Victor Bravo in at least two respects is eccentric, and not likely to be replicated in many states:

Ø      The aircraft in both cases were rented or leased. In most states, the purchaser would have been entitled to buy the aircraft tax free for resale in the regular course of business, and then would have charged tax, if at all, on the rental or lease payments it received from its customers. Because Maine law generally treats a lessor as subject to tax on its purchases, the taxpayer in Victor Bravo, for example, was hit with a tax based on its entire purchase price, rather than just on the rental stream it collected with respect to Maine transactions.

Ø      It is unusual for a court to adopt an ad hoc interpretation of use outside the state that is as generous to the taxpayer as the “sufficiently substantial” test applied in these cases.  Rather, in many states, a similarly-situated taxpayer would run the risk that any use in the state beyond a de minimis level could trigger a tax.

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