The Pilot's Guide to Taxes

Do you use an aircraft for business? Are you planning to use an aircraft in conjunction with a business? If your answer to either one of these questions is "yes," this section of our subject report applies to you.

The basic tax question posed by AOPA members who use aircraft for business purposes is whether their aircraft expenses are tax deductible. The types of expenses our members commonly look to deduct are the basic costs associated with aircraft operations, including maintenance, fuel, tie-down or hanger fees, landing fees, insurance, and depreciation.

In this section of our tax booklet, we'll discuss the law governing the tax deductibility of aircraft expenses, along with cases and rulings that can help you interpret the law. Next, we'll turn to the basic mechanics involved in taking your deductions (e.g., which forms you should use). Finally, at the end of this section, we've included citations and summaries of important cases and rulings for you and your tax advisor to review.

AOPA members frequently ask whether they can take a tax deduction for the cost of their flight training. This section of our tax booklet discusses the law and cases governing the tax deductibility of flight training expenses. We'll also identify and briefly discuss the appropriate tax forms to use when claiming deductions. At the end of this section we'll list and summarize some Tax Court cases that you can review with your tax advisor in order to help determine whether you are eligible to take a tax deduction for flight training expenses.

Many of our members are using or would like to use an aircraft in an aviation-related business. The types of businesses involved include aircraft rentals, flight instruction, aerial photography, banner towing, and a host of other activities that involve the use of an aircraft. If you've ever considered putting an aircraft to work for you in a business, you should be aware of Internal Revenue Code (IRC) Section 183, better known as the "hobby loss rule." This rule applies to individuals, LLCs, and subchapter S corporations. If the IRS determines that your aviation activity is a hobby, expenses related to the activity are deductible-but only to the extent of the gross income from the hobby activity. Essentially, the IRS is saying that it's not going to allow a write-off of losses you've incurred while engaged in a hobby.

As you may have already guessed, it can be tricky to tell whether you are engaged in an activity for a profit under the IRS standards. The IRS regulations tell us that when making a determination as to whether an activity is engaged in for profit, it will look to all of the facts and circumstances of each case. The regulations go on to say that although a reasonable expectation of profit is not required, the facts and circumstances must indicate that you entered the activity or continued the activity with the objective of making a profit. The courts have further held that your profit making objective must be "actual and honest" in order for your activity to be considered as being for profit. In any case, there will be a presumption that your activity is for profit if you actually show a profit for three or more of the last five years in your business.

In an effort to assist you in determining whether an activity can be considered to be engaged in for profit, the IRS regulations list nine "relevant factors" which should be considered. The regulations caution that the listed relevant factors are not the only consideration to be taken into account when making a determination. In addition, the regulations also point out that a determination should not be based solely on whether the number of factors indicating a "for profit" intent exceed the number of factors tending to show a lack of profit motive. The nine relevant factors used by the IRS are (in pertinent part):

1. Manner in which the taxpayer carries on the activity. The fact that the taxpayer carries on the activity in a businesslike manner and maintains complete and accurate books and records may indicate that the activity is engaged in for profit. Similarly, where an activity is carried on in a manner substantially similar to other activities of the same nature that are profitable, a profit motive may be indicated. A change of operating methods, adoption of new techniques or abandonment of unprofitable methods in a manner consistent with an intent to improve profitability may also indicate a profit motive.
2. The expertise of the taxpayer or his advisors. Preparation for the activity by extensive study of its accepted business, economic, and scientific practices, or consultation with those who are expert therein, may indicate that the taxpayer has a profit motive where the taxpayer carries on the activity in accordance with such practices. Where a taxpayer has such preparation, or procures such expert advice, but does not carry on the activity in accordance with such practices, a lack of intent to derive profit may be indicated unless it appears that the taxpayer is attempting to develop new or superior techniques which may result in profits from the activity.
3. The time and effort expended by the taxpayer in carrying on the activity. The fact that the taxpayer devotes much of his personal time and effort to carrying on an activity, particularly if the activity does not have substantial personal or recreational aspects, may indicate an intention to derive a profit. A taxpayer's withdrawal from another occupation to devote most of his energies to the activity may also be evidence that the activity is engaged in for profit. The fact that the taxpayer devotes a limited amount of time to an activity does not necessarily indicate a lack of profit motive where the taxpayer employs competent and qualified persons to carry on such activity.
4. Expectation that assets used in activity may appreciate in value. The term "profit" encompasses appreciation in the value of assets, such as land, used in the activity. Thus, the taxpayer may intend to derive a profit from the operation of the activity, and may also intend that, even if no profit from current operations is derived, an overall profit will result when appreciation in the value of land used in the activity is realized, since income from the activity together with the appreciation of land will exceed expenses of operation.
5. The success of the taxpayer in carrying on other similar or dissimilar activities. The fact that the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit, even though the activity is presently unprofitable.
6. The taxpayer's history of income or losses with respect to the activity. A series of losses during the initial or start-up stage of an activity may not necessarily be an indication that the activity is not engaged in for profit. However, where losses continue to be sustained beyond the period which customarily is necessary to bring the operation to profitable status such continued losses, if not explainable, as due to customary business risks or reverses, may be indicative that the activity is not being engaged in for profit. If losses are sustained because of unforeseen or fortuitous circumstances which are beyond the control of the taxpayer, such as drought, disease, fire, theft, weather damages, other involuntary conversions, or depressed market conditions, such losses would not be an indication that the activity is not engaged in for profit. A series of years in which net income was realized would of course be strong evidence that the activity is engaged in for profit.
7. The amount of occasional profits, if any, which are earned. The amount of profits in relation to the amount of losses incurred, and in relation to the amount of the taxpayer's investment and the value of the assets used in the activity, may provide useful criteria in determining the taxpayer's intent. An occasional small profit from an activity generating large losses, or from an activity in which the taxpayer has made a large investment, would not generally be determinative that the activity is engaged in for profit. However, substantial profit, though only occasional, would generally be indicative that an activity is engaged in for profit, where the investment or losses are comparatively small. Moreover, an opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are actually generated.
8. The financial status of the taxpayer. The fact that the taxpayer does not have substantial income or capital from sources other than the activity may indicate that an activity is engaged in for profit. Substantial income from sources other than the activity (particularly if the losses from the activity generate substantial tax benefits) may indicate that the activity is not engaged in for profit, especially if there are personal or recreational elements involved.
9. Elements of personal pleasure or recreation. The presence of personal motives in carrying on an activity may indicate that the activity is not engaged in for profit, especially where there are recreational or personal elements involved. On the other hand, a profit motivation may be indicated where an activity lacks any appeal other than profit. It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit or with the intention of maximizing profits. For example, the availability of other investments which would yield a higher return, or which would be more likely to be profitable, is not evidence that an activity is not engaged in for profit. An activity will not be treated as not engaged in for profit merely because the taxpayer has purposes or motivations other than solely to make a profit. Also, the fact that the taxpayer derives personal pleasure from engaging in the activity is not sufficient to cause the activity to be classified as not engaged in for profit if the activity is in fact engaged in for profit as evidenced by other factors whether or not listed in this paragraph.

Again, you should keep in mind that these factors are not the IRS's only measure of whether your activity is for profit. However, it has been our experience that they do play a critical role in the IRS's disposition of questionable cases. Therefore, you should keep these factors in mind when planning or conducting your aviation-related business activity.

Another important issue to consider when using an aircraft for business purposes is whether or not to place the aircraft in a separate entity. Many aircraft owners do this thinking they will mitigate liability exposure or for other business reasons. One unintended consequence of operating the aircraft out of a separate entity and leasing it to the entity or entities that perform an underlying business function is the potential triggering of the hobby loss rule for the entity owning the aircraft. This is typically due to depreciation taken on the aircraft that causes a tax loss.

The IRS has taken the view that when it looks at profit motive, it will look to the particular entity that is generating the loss. When the IRS takes that approach, the aircraft owning entity may encounter difficulty when attempting to push back on a hobby loss challenge.

Results in federal courts have been mixed on this issue. In one relatively recent Tax Court case, Rabinowitz v. Commissioner, T.C. Memo 2005-188, the Tax Court sided with the IRS. Specifically, the Tax Court held that a stand-alone entity operating an aircraft charter business must be evaluated separately from the owner’s underlying business operation (a clothing business) when determining whether the hobby loss rules apply.

In two other cases, federal courts have reached a different result. In Campbell v. Commissioner, 868 F.2d 833 (6th Cir. 1989) the U.S. Court of Appeals for the Sixth Circuit determined that a partnership’s aircraft leasing activity should be considered together with other business activities of the partnership when determining profit motive under the hobby loss rules. The IRS never acquiesced in this case. Therefore its holding is limited to the Sixth Circuit. However, in another recent case in the U.S. Court of Claims, the Campbell case was relied upon in determining that an entity owning an aircraft and leasing it to several other business entities, should be viewed as part of an overall enterprise when determining profit motive (See Morton v. United States, 107 A.F.T.R. 2d par. 2011-762).

As is usually the case, good planning, with experienced and qualified legal and tax professionals is necessary when planning for how a business aircraft should be owned and positioned within an underlying business or multiple businesses.

Hobby Losses - Cases and Rulings

AOPA members often lease their aircraft in order to defray ownership costs. If you are already leasing your aircraft or if you're thinking about leasing your aircraft, this section of our booklet is for you. Our objective is to give you some general insights with respect to tax aspects of aircraft leasing.

The first thing to keep in mind is that your aircraft leasing activity should be supported by an honest intent on your part to make a profit. (See discussion on hobby losses above.) Remember, if the IRS views your aircraft leasing activity as a mere excuse to help support your avocation of flying airplanes, you will not be allowed to take tax deductions on any losses you incur in your leasing activity. Therefore, and we cannot emphasize this enough, you should not look upon your aircraft leasing activity as a way of creating a tax shelter. To do so will only invite trouble.

Of course, if your aircraft leasing activity is generating a profit, there are very few tax complications. The IRS is generally content  to take their share of your profit, and you will be satisfied with the fact that your aircraft is producing revenue.

With this in mind, here are some tax considerations you should be aware of if your aircraft leasing activity does not turn a profit.

The first thing you should know is that you cannot take a loss deduction for any amounts that exceed what the IRS considers you to be at risk for in your aircraft leasing activity. Generally speaking, you are considered at risk in an activity to the extent of the cash and the adjusted basis (tax value) of other property you contributed to your aircraft leasing activity. Your at-risk amounts will also include amounts that you borrowed for use in the aircraft leasing activity if you are personally liable for the repayment of the borrowed amounts or the amounts borrowed are secured by property other than your aircraft. Therefore, in many cases, if you purchased an aircraft for cash, credit, or a combination of both, you would be considered to be at risk for the amount of the aircraft's purchase price.

The at-risk rules apply to individuals and to certain closely held C corporations. For purposes of the at-risk rules, a C corporation is a closely held corporation if, at any time during the last half of the tax year, more than 50% in value of its outstanding stock is owned, directly or indirectly, by or for five or fewer individuals. In the case of an S corporation, LLC, or partnership, the at-risk rules apply at the individual ownership level.

Once you've determined your allowable losses after applying the at-risk rules, you must now consider whether the IRS's passive activity loss rules will apply to your aircraft leasing activity. The passive activity loss rules were put into effect in 1987 in an effort by Congress to curb what they considered to be abusive tax shelters. The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities. The rules prohibit individuals, estates, trusts, certain closely held corporations, and personal service corporations from deducting losses in excess of income generated by passive activities. Passive activity losses that are not deductible in the current year are suspended and carried forward to offset passive activity income generated in future years.

The IRS defines passive activities as trade or business activities in which you do not materially participate and rental activities, regardless of the level of your participation. Since most of us earn the bulk of our income through activities in which we materially participate (i.e. our jobs), it is generally to our advantage not to have any losses classified as passive activities. Therefore, in order to have your deductions effectively reduce your tax liability, you'll have to show that your aircraft leasing activity is not a rental activity. You will also have to show that you materially participated in your aircraft leasing activity. With this backdrop, you might be wondering how you can possibly demonstrate that your aircraft leasing activity is not a rental activity? This seemingly impossible task is made somewhat possible by specific exceptions to activities considered by the IRS to be rental activities. The exceptions discussed below seem particularly appropriate if you are the typical individual who is leasing his aircraft to other pilots through an FBO.

The IRS will not consider your aircraft leasing activity to be a rental activity if:

1. The average period of your customers' aircraft use is seven days or less. You can calculate the average period of customer use by dividing the total number of days in which your aircraft was rented by the total number of rental periods. So, if you are leasing your aircraft through an FBO and your aircraft is rented 150 days in a year for 50 distinct and continuous rental periods, your average period of customer use will be three days. Therefore, you will have met the requirements for the exception and your aircraft leasing activity will not be considered a rental activity; or
2. You customarily make the rental property available during defined business hours for nonexclusive use by various customers; or
3. The average period of your customers' use is 30 days or less (as figured in exception (1) above), and you render significant personal services in connection with the leasing activity. The IRS tells us that significant personal services include only services performed by an individual.

Also, the personal services provided do not count if they are:

1. Services needed to permit the lawful use of your aircraft;
2. Services to repair or improve property that would extend its useful life; or
3. Services that are similar to those you would commonly provide with long-term rentals; for example, cleaning and maintenance or routine repairs.

Even if you're able to clear the first hurdle and avoid having your activity labeled by the IRS as a rental activity, you must still show that you materially participated in the aircraft leasing activity, in order to avoid the classification of your losses as passive. The IRS considers that you have materially participated in your aircraft leasing activity if you satisfy any one of the following tests:

1. You participated in the aircraft leasing activity for more than 500 hours;
2. Your participation is substantially all of the participation in the activity as compared to all other individuals for the tax year, including the participation of individuals who did not own any interest in the activity; or
3. You participated in the activity for more than 100 hours during the tax year and you participated at least as much as any other individual (including individuals who did not own any interest in the activity) for the year.

While the tests listed above are designed to measure whether your participation is material, there are also guidelines published by the IRS defining participation. Generally, the regulations define participation as any work you (as a person with an interest in the aircraft) do with respect to the aircraft leasing activity. However, the IRS will not consider work that you do as participation if (1) it is not work that an aircraft owners would customarily do in a rental activity and (2) one of the main reasons that you are doing the work is to avoid the disallowance of any losses as passive.

You are permitted to establish proof of your participation by any reasonable means. While contemporaneous time reports and logs are not required, they can prove immensely helpful. The IRS permits approximations of time spent on an activity. But in the end, you are responsible for proving your participation meets the requirements of the regulations. At a minimum, you should have appointment books, calendars, electronic spreadsheets, or other reliable means to establish your participation. In one very recent case, the U.S. Tax Court determined that a taxpayer's airplane rental was a passive activity where he failed to produce reords establishing material participation. See Williams, TC Memo 2014-158.

While our experience indicates that very few, if any, of our members will meet the 500 hour test (See item 1), the substantial participation and 100 hour participation tests can be met. However, it is absolutely critical that you carefully document all the work you do for your aircraft leasing activity, in order to successfully assert your material participation.

Anyone considering leasing aircraft through an FBO or flight school should be aware of two Tax Court cases directly related to this issue. The legal citations for both cases are Frank v. Commissioner of Internal Revenue, T.C. Memo 1996-177 (1996) and Kelly v. Commissioner of Internal Revenue, T.C. Memo 2000-32 (2000). In both of these cases, the IRS took the position that the taxpayer's aircraft leasing activities were "rental" activities and therefore the losses incurred by the aircraft owners were passive in nature.

The IRS argued that the only "customer" of the aircraft owners was the FBO or flight school. Therefore, none of the exceptions to the general rule (see above) could apply. The Tax Court agreed with the IRS. To date, these are the only two published cases that address this issue. Both of these cases are now cited in IRS's Audit Technique Guide, the training and field manual used by auditors in the field. The message and import of these cases cannot be ignored or underestimated.

Another recent development is the release of IRS Revenue Procedure 2010-13. This ruling requires certain taxpayers to file special grouping elections disclosing the business relationships between an aircraft owner, aircraft operator, and any end users. One example of where this grouping will be helpful/necessary is the case of an aircraft owner dry leasing an aircraft that supports a business owned by the aircraft owner. Such an election may establish that the grouping is an "appropriate economic unit" or "single activity" for the purpose of determining gains or losses under the passive activity loss rules. 

If you want to engage in aircraft leasing activities, you should be prepared with professionally drafted agreements and up-to-date information from lawyers and/or accountants familiar with the issues.

AOPA fields a lot of questions from members regarding sales and use taxes related to aircraft. The questions always take on a special urgency when the tax collector calls and wants to know why these taxes haven't been paid. Sales and use taxes can take a hefty bite out of your flying budget, and in most cases, they can't be avoided. But they can be planned for.

This guide is intended to acquaint you with the basics of sales and use tax laws. Any such attempt is fraught with difficulties because the laws change periodically and can vary widely from state to state, so for the most part, our discussion must be rather general.

There are, however, some common threads that run throughout the various state laws.

Our hope is that you will gain an awareness of potential problems and prepare for them when you plan your next aircraft purchase, or if you move your aircraft to another state.

If you have an option where you may buy an aircraft and where you may then base it, a careful examination of the specific state's tax laws might save you some money.

We've used two approaches to present the basic information. First, we'll discuss the nature of sales and use taxes, how they are collected, and some of the more common exemptions to the taxes. In the second part of this section, we'll answer some frequently asked questions relating to sales and use taxes.

The classic definition of a sales tax is a tax imposed on the sale of tangible personal property within a state. Most of us are quite familiar with the concept of a sales tax. We pay sales taxes on our smallest purchases up to our big-ticket items like cars, boats - and yes, aircraft. So if you buy an aircraft in a state that imposes a sales tax--and the vast majority do--you will be subject to the tax unless you qualify for an exemption. If you take the aircraft to another state, you may be faced with a use tax.

A use tax typically applies to the use, storage, or consumption of tangible personal property in a state. The wording of the laws indicates that a use tax could be imposed on everything that you might bring into a state. Although you may have brought whole truckloads of personal property into a state when you moved from one to another, you probably didn't have to deal with a use tax. Because of the tremendous problems in trying to police the payment of the tax, states choose to focus their efforts on big-ticket items, and an aircraft certainly is considered big-ticket.

To illustrate how the use tax works, let's say you buy an aircraft in State A, which has no sales tax. So far, so good - you don't owe any tax. You then move your aircraft to State B where it will be kept at a local airport that you use as a home base. If State B has a use tax, you will be liable for that tax unless you qualify for an exemption.

The use tax has a similar impact when you purchase an aircraft in a state that has a low sales tax rate. If State A imposes a 3-percent sales tax, which you paid, you are not off the hook if State B has a 5-percent use tax. State B should [see Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)] credit you for the 3-percent tax you paid to State A and require you to pay the 2-percent difference between the tax rates.

As you can see, State B's use tax has the effect of negating the advantage of buying aircraft in a state with no sales tax or a low sales tax rate. In most states, the sales and use tax rates are the same, so your purchases of in-state and out-of-state goods will usually wind up taking the same tax bite.

Sometimes it isn't easy to determine whether your use of an aircraft in a particular state will trigger use tax liability. The law generally requires that your use of an aircraft creates a sufficient nexus or connection with the taxing state before use taxes can be imposed. In most cases, the state in which you base your aircraft is probably going to be able to assess you for a use tax. There is a case where the State of New York went so far as to try to impose use tax liability on an aircraft owner who was forced to make an emergency landing in that state. Thankfully, the state was unsuccessful in this attempt. It has also been ruled in several states that pilot training, routine maintenance, and warranty work will not trigger use tax liability. As a general rule, it is fair to say that, if your aircraft remains in a state for some extended period, the state may consider it part of your property in that state, and you may be subject to a use tax.

Once it is established that a sales or use tax is owed, the aircraft purchaser is normally responsible for payment of the tax. In some cases, a seller will be liable for collection of the sales tax, especially in cases where the seller is licensed to sell aircraft (i.e., an aircraft dealer). This does not, however, relieve the purchaser of the ultimate liability for sales or use taxes.

Usually the aircraft purchaser is responsible for obtaining the proper forms from the state in order to pay the appropriate sales or use tax. Often the tax is payable as of the date of the aircraft sale. Some states have requirements that the tax be submitted, along with proper documentation, within a specified number of days (typically 15 to 30 days) from the sale of an aircraft. Late payments are usually subject to interest and penalties.

How does a state track aircraft transactions? Some states require that you register your aircraft. This is an easy way for them to track the ownership of an aircraft. Other states regularly obtain information from the FAA regarding aircraft newly registered by residents. Sometimes it is as simple as sending a tax collector out on the airport ramp to record N numbers or review control tower log sheets, so they can later be cross-checked with state tax records. You should be aware that states have become more and more aggressive in collecting sales and use taxes on aircraft. Many state budget deficits are growing, and aircraft are an easy target for tax collectors.

As you can see, it is difficult to escape sales and use taxes; however, there are exemptions scattered throughout the states that might offer some relief in specific cases. Some states provide relief to aircraft owners by taxing aircraft at a lower than standard rate or by placing a limit or cap on how much the tax can be.

One limited exemption allows you to avoid the sales tax in the state where you purchased an aircraft if you take delivery of it out of state or intend to ship it out of the state within a specified time frame. This exemption is often referred to as a "fly-away" exemption.

However, as you recall, this exemption will not be helpful if you bring the aircraft into a state that has a use tax. Some states permit an exemption for "casual, isolated, or occasional sales." What constitutes a casual, isolated, or occasional sale is not always easy to determine and isn't the same in all states. Certainly, a sale by a person regularly engaged in the business of selling aircraft is not casual, isolated, or occasional. But a sale from a private owner who used the aircraft for his own business or pleasure would be considered casual, isolated, or occasional. There can be many factual variations, and each one must be looked at in the light of applicable state law. While the casual sales exemption seems attractive at first glance, a closer look shows that its usefulness has diminished over the years. For instance, some states that have a general exemption for casual, isolated, or occasional sales specifically exclude sales of aircraft. In other states, the exemption only applies to sales under $1,000 or some other low dollar amount. So before you jump to the conclusion that you are exempt because you purchased an aircraft through a private seller, you ought to check the applicable state laws very carefully.

Another exemption worth mentioning is what we will call the interstate commerce exemption. This exemption is specifically carved out in some states for aircraft, motor vehicles, railroad cars, etc., that are used principally in interstate or foreign commerce. So if you purchase an aircraft that you use regularly across state lines for business, this exemption might be applicable. This exemption applies regularly to situations where an aircraft will be used for commercial operations in a Part 135 or Part 121 operation.

If you are going to purchase your aircraft with the intention of leasing it to a flight school or FBO, you may qualify for a full exemption from sales tax. Many states consider leases to be "sales." That means that if you purchase your aircraft for the purpose of leasing it to others, you are purchasing the aircraft for the purpose of resale-a common exemption from sales tax. However, once you start collecting money for the leased aircraft, you will typically need to pay sales tax on the lease revenue received. Taking advantage of this exemption often requires pre-registration for a resale certificate or license and careful planning by tax professionals.
Now that we've gone over the basics, let's take a look at some specific questions we frequently get from members relating to sales and use taxes.

Due to the rapidly changing state and local tax codes, we have not published tax rate data. Specific information can be obtained by contacting the appropriate state agency.

Questions and Answers

Another type of tax you may encounter as an aircraft owner is a personal property tax. The following states have personal property taxes that may apply to your aircraft:

Alabama, Arkansas, California, Georgia, Kansas, Kentucky, Louisiana, Minnesota, Missouri, Nebraska, Nevada, North Carolina, Oregon, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, Wyoming.

Please note that in several of these states, personal property taxes are applied at the local level.

Generally speaking, personal property taxes are assessed on all property of (1) a specified type; (2) located within a certain place; and (3) at a specified time. A brief discussion of these features of personal property taxes, as they relate to your aircraft, follows below.

Property of a specified type. There is little doubt that your aircraft is a tempting target for any state or local tax collector. First, it is easy to trace the existence of your aircraft through FAA or local registration documentation. Second, your aircraft usually represents a relatively high dollar assessment as far as personal property taxes go. Although your aircraft may be an easy target for personal property taxes, you should be aware that many jurisdictions only assess you if your aircraft is used for commercial or business purposes. Therefore, if your aircraft use is purely personal, you should check to see if you are exempt from the tax before you pay.

Located within a certain place. It is well settled that with respect to aircraft and other tangible personal property, the actual site of your aircraft, rather than your residence, determines the place of taxation. Therefore, if you live in a jurisdiction with no personal property tax, you may still have to pay tax on your aircraft if you base it within a taxing jurisdiction. The legal rationale for this rule is based on the theory that your aircraft is enjoying the protection of the state or local jurisdiction where it is kept. Therefore, when you're planning on a place to base your aircraft, you may want to consider whether that place has a personal property tax. You can't simply go by the law where you happen to have a residence at a specified time.

This is an interesting feature of personal property taxes. The tax is often based on property found within the taxing jurisdiction at a certain date. Some aircraft owners have interpreted this to mean that as long as their aircraft is out of the state on the specified "tax date," they are not subject to tax. It's not that easy. The law generally states that as long as your aircraft has a more or less permanent location within the taxing jurisdiction, you can be subject to personal property taxes. Of course, this also means that if you are merely passing through or have your aircraft at a site for repairs on the tax date, you should not be subject to personal property taxes.

You should keep in mind that many states have personal property tax laws that permit local jurisdictions (counties or cities) to levy personal property taxes. Your local jurisdiction may or may not levy personal property taxes.

Another important point to remember is that the personal property tax is based on the value of your aircraft. Most states apply the tax on the fair market value of the aircraft. Therefore, you should ensure that the assessed value of your aircraft for tax purposes coincides with published guidance.

Some states also have registration fees that they impose on aircraft. Sometimes the fees are in addition to personal property taxes (see Oregon, Utah, and Virginia) and sometimes they are substitutes for personal property taxes. The states imposing registration fees are listed below:

Registration fees are often imposed as a flat rate. However, sometimes the fee is dependent on the weight and/or seating capacity of the aircraft. You should check with your state or local revenue office to determine the method applied.