Massachusetts Bill Will Remove Existing Sales and Use Tax Exemption for Aircraft

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.  

Florida Weighs Tax Break for Aircraft

See the article dated April 15, 2009 in the online edition of The Wall Street Street Journal.  The article references an article in the St. Petersberg Times reporting on a proposal moving through the Florida legislature that would cap aircraft sales and use taxes at $25,000.   Incidentally, the Florida Senate Bill Analysis and Financial Impact Statement for this proposal (CS/SB 2376) provides a useful summary of Florida sales and use taxes relating to aircraft.


Amendment to NY Sales & Use Tax Law Affecting the "Commercial Aircraft" Exemption

Given their straitened finances, many States are taking a hard look at measures to raise additional tax revenue. Business aircraft operations are likely to receive more than their fair share of attention from state legislators and administrators.  Among the most recent of these initiatives to come to light are two measures from New York that tighten existing sales and use tax exemptions affecting aircraft purchased or based in that State.

One of these measures limits the scope of the “commercial aircraft” exemption (N.Y. Tax Law §1101(b)(17)) from New York’s sales and use tax. Under §1101(b)(17), an aircraft needs only to be used primarily (i.e., more than 50%) to transport persons or property for hire in order to qualify for the exemption. A little counter-intuitively, the availability of the commercial aircraft exemption is not conditioned on the operation of an aircraft under FAR Part 135 or 121 (that is, air charter or airline operations). Because of this, this exemption was especially useful to those business aircraft operators that used their aircraft primarily for their own use and for the use of their affiliates, but not primarily for third party charter – a pretty typical fact pattern for larger businesses with aircraft operations.

New York Assembly Bill 157-B amends the commercial aircraft exemption to provide that an aircraft used primarily to transport a purchaser’s personnel or those of an affiliated entity does not qualify for the exemption. The amendment adds the following language to §1101(b)(17):

Transporting persons for hire does not include transporting agents, employees, officers, members, partners, managers or directors of affiliated persons. Persons are affiliated persons with respect to each other where one of the persons has an ownership interest of more than five percent, whether direct or indirect, in the other, or where an ownership interest of more than five percent, whether direct or indirect, is held in each of the persons by another person or by a group of other persons that are affiliated persons with respect to each other. 

The amendment appears to be directed at those larger business aircraft operators that use their aircraft primarily for their own use and for the use of their affiliates. This amendment is likely to discourage operators from basing their aircraft in New York.  On a positive note, it should help to relieve congestion at Westchester County Airport.  The amendment will be effective June 1, 2009.