3. STATE SALES AND USE TAX

3.02 Computation of the Tax

Regardless of the nature of the tax, the method of computation is generally the same. The tax is generally computed as a percentage of the sales price. The same exemptions are generally allowed for both sales and use tax purposes. In many states, a reduction is allowed for trade-ins. The tax rates are generally the same.

Differences in the computation of the use tax are allowed, as long as the difference does not discriminate against property purchased outside of the state.1 For example, the use tax may be computed using the depreciated value of the property.2 The use tax laws may allow additional exemptions for property previously used outside of the state. And there may be no county use tax.

Common Exemptions

Fly-Away Exemption

Many states do not impose sales tax where an aircraft is sold within the state to a nonresident who is immediately taking the aircraft out of the state. The requirements of these exemptions vary from state to state. Some require that the aircraft be removed from the state "immediately" while others specify a period of time, such as 10 days. The requirement that the purchaser be a nonresident may pose problems for a company which is doing business in the state, even where the headquarters are in another state. This exemption applies only for sales tax purposes and not for use tax purposes.

Resale Exemption

Essentially every state allows an exemption for aircraft sold for resale or lease. The major exception is in those states where the sales tax takes the form of a business license tax. In many of those states, a sale for resale is not exempt, but is taxed at a lower rate.3 A few states do not exempt a sale for lease or a lease for sublease.4 The laws or regulations of a few states indicate that sales to out-of-state dealers or lessors are not exempt. Fortunately, the Courts have not always enforced this requirement.5 A few states limit the exemption to sales for resale in the United States.6

Common Carrier Exemption

Most states have some kind of common carrier exemption. But the types of activities covered differs from state to state. Some exempt only airlines, while others also exempt charter operations or simply operations which cross state lines.

Occasional Sales Exemption

While most states have an occasional sales exemption, the exemption typically does not apply to aircraft. Nevertheless, there are some states that, as a matter of policy, do not tax sales of aircraft which are not going to be based in the state. This is particularly true in those states where the sales tax on aircraft is considered to be an initial registration tax. In many states, the occasional sales exemption is valid only for sales tax purposes.7 In other states, the exemption applies for both sales and use tax.8

The Reduction for Trade-Ins

Where used property is traded-in on new property, many states provide that tax is charged only on the difference. This rule can apply not only to aircraft, but to aircraft parts. For example, many aircraft owners purchase remanufactured parts, and obtain credit for turning in their old cores. Many states allow a reduction for the allowance given on the old core, including some states which do not ordinarily allow a deduction for trade-ins.

  1. Haliburton Oil Well Cementing v. Reily, 373 U.S. 64 (1963) [exemptions]; Associated Industries of Missouri v. , 511 U.S. 641 (1993) [county use tax].
  2. See, e.g., N.Y. Law 1111(b)(1) [if the property was first used outside of New York for more than 6 months, the tax will be computed based on the lower of cost or the value of the property when first used in New York]; Penn. Law 201(g)(5).
  3. See, e.g., Delaware and Hawaii.
  4. See, e.g., Illinois and Maine.
  5. See, e.g., New York.
  6. See, e.g., Tex. Law 151.006(2).
  7. See, e.g., Terco, Inc., 339 N.W.2d 17 (Mich. App. 1983).
  8. See, e.g., Alexander K. Bernhard, 683 P.2d 21 (Nev. 1984).