N.H. one of the Few States With Out Aircraft Use Tax...

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REGIONAL SALES & USE TAX FORUM

By Christopher B. Younger

State Sales And Use Tax Forum

Regional update on the northeastern United States.

This month sees the launch article of a series of quarterly columns that will describe recent changes to aviation related state sales and use tax and, where pertinent, other aviation related tax issues in various regions of the United States. Each quarterly column will be focused on a particular region of the United States - including the northeastern, southern, 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 northeastern region of the United States, namely Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.

Without further ado, here's a lowdown on state sales and use taxes within the individual states and any changes introduced, or due, within said state: Connecticut – There have been no recent material changes to Connecticut's sales and use tax laws with respect to aircraft and aviation related matters. Connecticut continues to exempt from its sales and use tax purchases of aircraft that weigh over 6,000 pounds.

Delaware - Likewise, there have been no recent material changes to Delaware's sales and use tax laws with respect to aircraft and aviation related matters. Delaware has no sales tax. Delaware continues to provide an exemption from its gross receipts tax to sellers that are subject to that tax for sales of aircraft with an MTOW over 12,500 pounds.

Maine – Much has been reported and written concerning Maine's stance on the imposition of its use tax on non-residents who fly their planes into Maine. Some of the reporting has been hyperbolic and, to an extent, "sensationalist." However, despite the hyperbole in press reports, it is clear that Maine has begun to strictly enforce its use tax statutes as they relate to aircraft located in Maine on which no Maine sales or use tax has previously been paid.

Prior to January 1, 2007, Maine imposed use tax on aircraft when the (i) owner had not paid to another state equivalent sales tax on the owner's aircraft purchase and (ii) aircraft was not purchased and used for more than 12 months before it became physically present in Maine.

The Maine Revenue Service has stated that its "position has always been that mere entry of an aircraft into Maine airspace does not constitute sufficient presence to trigger use tax." However, if the aircraft had a ground presence "of more than a de minimis level," this gave rise to a use tax liability under pre-2007 law, regardless of the reason for that presence or the duration of the aircraft's stay in Maine. The Maine taxing authorities have stated that it was common practice prior to January 1, 2007 not to assess use tax against an aircraft that was periodically present in Maine solely for repair purposes. There was, however, no formal policy to distinguish mechanically necessary repairs from discretionary maintenance and aesthetic work, like periodic reconditioning.

The Maine legislature has amended its laws effective January 1, 2007 to provide several changes to Maine use tax laws with respect to aircraft. First, the changes created an exemption from Maine use tax for non-resident-owned aircraft with a limited presence in Maine (no more than 20 days in the year following its purchase) or that are in Maine solely for purposes of "major repairs," "major alterations" or "preventive maintenance" as those terms are defined by federal regulation.

Accordingly, all aircraft meeting this definitional requirement are exempt from Maine use tax regardless of when they enter Maine as long as there was no taxable presence of the aircraft in Maine prior to January 1, 2007.

Another change was the enactment of an exemption for sales or leases of aircraft that weigh over 6,000 pounds, that are propelled by one or more turbine engines, or that are in use by a Federal Aviation Administration classified charter (Part 135) operator. Exempt turbine-powered aircraft can include both jet aircraft and aircraft that use propellers.

One key thing to remember is that the Maine use tax will not be imposed if a non-resident owned aircraft does not come into Maine within the first 12 months after its purchase by the non-resident. Also, even if the aircraft is present in Maine within the first 12 months for purposes other than repair and maintenance, no Maine use tax is due if a sales or use tax of 5% or more was paid in another state.

Finally, even if an aircraft is present in Maine within the first 12 months after its purchase by a non-resident, no use tax is due if the aircraft is in Maine for no more than 20 days during the 12 months following its purchase, exclusive of days during which the aircraft is in Maine for the purpose of undergoing "major alterations," "major repairs" or "preventive maintenance" as those terms are described in FAA regulations.

Clearly, non-residents need to plan carefully if they (i) intend to fly into Maine, (ii) spend more than 20 days in Maine within one year after the initial purchase of their aircraft and (iii) have not paid sales or use tax on their aircraft in another state.

Maryland – Maryland raised its state sales and use tax rate to 6% effective January 3, 2008. There remain, however, significant planning opportunities to eliminate or reduce the Maryland sales or use tax payable with respect to a particular aircraft transaction or use.

Massachusetts – Politicians in Massachusetts have been debating whether to repeal the exemption from Massachusetts' sales and use tax on aircraft. However, to date, Massachusetts has not repealed or altered its broad exemption from sales and use tax on aircraft sales and aircraft repair parts.

NOTE: Regarding income taxes, the Massachusetts Department of Revenue has issued new guidance about the imposition of Massachusetts' personal income tax on income of non-resident flight crew-members who are assigned to work on aircraft based in the state. This guidance pertains mainly to flight crew who are assigned to flights operated under FAR Part 91.

New Hampshire – New Hampshire has no state sales and use taxes.

New Jersey – New Jersey raised its sales tax rate to 7% effective July 1, 2006. There have been no other recent material changes to New Jersey's sales and use tax laws with respect to aircraft and aviation related matters.

New York - There have been no recent material changes to New York's sales and use tax laws with respect to aircraft and aviation related matters.

Pennsylvania - Similarly, there have been no recent material changes to Pennsylvania's sales and use tax laws with respect to aircraft and aviation related matters.

Rhode Island - Effective January 1, 2005, Rhode Island exempted the sale, storage, use or other consumption of new or used aircraft and aircraft parts from taxation. Labor charges continue to be exempt where labor charges are separately stated by the seller.

Vermont – Finally, there have been no recent material changes to Vermont's sales and use tax laws with respect to aircraft and aviation related matters.

In the January 2009 issue of World Aircraft Sales Magazine, we will take a state-by-state look at the southern United States, including: Alabama; Arkansas; Florida; Georgia; Kentucky; Louisiana; Mississippi; North Carolina; South Carolina; Tennessee; and Virginia.

Christopher B. Younger is an attorney at Ober|Kaler, and a member of the firm's Aviation Tax and Transactions group. He is a tax and FAA specialist concentrating in the areas of corporate aircraft transactions and aviation taxation.

Ober|Kaler's Aviation Tax and Transactions group provides full-service tax and regulatory planning and counseling services to corporate aircraft owners, operators and managers. The group'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. á Mr. Younger can be reached at the Baltimore office of Ober|Kaler located at 120 East Baltimore Street, Baltimore, Maryland 21202, telephone (410) 685 1120, email: cbyounger@ober.com