Independent of the headaches potential aircraft purchasers encounter when navigating the complicated sales and use tax scheme, additional headaches may arise over two additional sources of cost: personal property taxes and registration fees. Some states levy personal property taxes against large items of tangible personal property. Registration fees are imposed by some states on a flat fee basis, while others charge a higher fee for larger aircraft. Below is a discussion of these fees and a general sense of how they work.
Personal Property Taxes
Some taxing jurisdictions impose a personal property tax on aircraft, similar to how one pays property tax on their home. This tax is entirely independent of any sales and use tax imposed, so there is no opportunity for a purchaser to rely on sales and use tax exemptions. However, some taxing jurisdictions offer exemptions for personal property tax, but the exemptions available vary like sales and use taxes. Personal property taxes are levied against aircraft in Alabama, Arkansas, California, Georgia, Kansas, Kentucky, Louisiana, Minnesota, Missouri, Nebraska, Nevada, North Carolina, Oregon, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wyoming.
Each taxing jurisdiction utilizes different rules for assessing personal property taxes. As a result, the amount of personal property taxes owed on aircraft can vary considerably between states, in both rates and when the tax is applicable. For instance, some taxing jurisdictions will allow an aircraft purchaser to apportion the amount of personal property tax owed as a function of how much flight time the state has within the state. Other jurisdictions may provide apportionment only if personal property taxes are levied in other taxing jurisdictions. Some states only assess taxes on different tranches of the purchase price. Several states will also determine personal property tax based on the aircraft’s weight, its value, or its mileage.
Other taxing jurisdictions, like Texas, will only impose a personal property tax on business aircraft. Therefore, just because an aircraft relocates to a state that imposes personal property tax, does not mean every aircraft owner will be liable to pay it. Private owners that use their aircraft in a recreational capacity may be exempt from paying personal property taxes on their aircraft.
Registration fees
Registration fees also vary by state but can be costly when a state utilizes a rule based on purchase price or aircraft weight. In Arizona, the fee for registering an aircraft is $5, while in Connecticut, the registration fee for a large aircraft may exceed $2,500. Registration fees may result in unforeseen tax liability because states are inconsistent about the rules they use. This variance results in burdensome registration fees in some states and nominal costs in others. Below is a description of some of the rules a taxing authority may use when scheduling their registration fees:
- Flat fee: All aircraft are registered at the same rate no matter their type or purpose.
- Based on gross weight: Many states base registration fees on the aircraft’s weight. There are several ways states elect to do this. One way is by scheduling different weight tiers and ascribing them to a dollar amount. Some other states choose to base the registration fee on a cent per pound basis.
- Based on type: Other taxing jurisdictions will still impose a flat fee, but the fee paid will depend on the aircraft type. A single-engine, fixed-wing piston engine will usually have a lower registration fee than a turbojet.
- Based on age: Some aircraft will be given lower registration fees depending on how old the aircraft is. The cut-off varies for different states.
- Based on price: Another way to set registration fees is to base the fee on the value of the aircraft. Sometimes the registration fee is assessed on the manufacturer’s list price. Other times it can be the purchase price. Similar to basing the registration fee on weight, authorities may base registration fees on tiers of dollar amounts. The registration fee owed increases with higher tiers.
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- Discretion to Municipalities: Some states don’t bother to enact registration requirements and instead leave it to individual municipalities to determine scheduling and rates. In these states, a purchaser should know whether there is a registration fee levied at the local level.
States that impose registration fees are: Arizona, Michigan, Oregon, Connecticut, Minnesota, Hawaii, Mississippi, Rhode Island, Idaho, Montana, South Dakota, Illinois, New Hampshire, Utah, Indiana, New Mexico, Virginia, Iowa, North Dakota, Washington, Maine, Ohio, Wisconsin, Massachusetts, and Oklahoma.
It should be noted that some states utilize hybrid rules. Some jurisdictions like South Dakota use aircraft weight and age to determine the applicable registration fee. Other jurisdictions may cap registration fees owed at a certain amount, whereas others simply impose hefty registration fees for large aircraft.
If you would like us to analyze property taxes and registration fees for your aircraft, please call us at the number below or email us at Counsel@BizjetLaw.com.