State Tax Exemptions: Tips for Aircraft Owners

You may have heard of a fly-away state or a resale exemption; these are just two examples of state exemptions for sales and use tax on an aircraft.

Last month, I mentioned that aircraft are mobile property and can be taxed in multiple jurisdictions. That’s why it’s important to understand the exemptions that are available to you and any limitations that apply.

Fly-Away Exemptions

Using a fly-away exemption is common practice for aircraft closings.  There are many states that provide an exemption from sales tax if certain conditions are met. If the conditions are met, the transaction can take place in a neutral location without incurring sales tax. However, this exemption only applies to the sale transaction in that state.  

Once the aircraft is removed from the fly-away state and moved to a permanent hangar, it’s highly likely that use tax will apply. Depending on the state and specific circumstances, there are often opportunities for deferring, or even avoiding the use tax all together under an exemption.

Resale Exemptions

Many states allow a resale exemption, which is the most common method we see to manage sales and use tax liabilities. If your aircraft is operated under a dry-lease—which many are—it may qualify as a purchase for resale. In this case, tax would not be due on the purchase. Instead, tax will be collected and remitted on the dry-lease payments over time.

Full Exemptions

Even better, many states provide full exemptions for sales and use tax on aircraft. Following are a few state-specific exemptions:

• Illinois exempts aircraft that are used more than 50% of the time in Part 135 operations.
• Texas has an exemption for aircraft purchased outside of the state that meet a departures test in the first 12 months of ownership.  
• California has an interstate commerce presumption and a common carrier exemption.

Some states provide exemptions for aircraft used in Part 135 operations, and some have exemptions for specific aircraft (e.g., large aircraft, helicopters, or fractional interests). And some states impose a maximum tax on aircraft between $500 and $2,500, while others, like New York, have exempt all aircraft without conditions.  

The key is to identify where the aircraft will be based, and it may be multiple locations, and research the exemptions available to you in those states.  

Many have state-specific requirements, including closing location, initial flights and reporting, so it’s imperative to address issues before taking delivery of the aircraft.

As always, be sure to consult your aviation tax expert to make sure you have everything covered.