4. STATE PROPERTY/REGISTRATION TAX

4.01 Property Tax

The property tax is an annual tax which is generally computed based on the value of the property. For this reason, the tax is often referred to as an "ad valorem" tax.

Computation of the Property Tax

The computation of the property tax generally involves consideration of the following factors:

In the case of business aircraft which are used in several states, consideration must also be given to the possible impact of the apportionment rules.

Exemptions

Aircraft are considered personal property. Some states do not tax personal property. In some states, nonbusiness aircraft have been held to be exempt as personal assets.1 In at least one state, business aircraft are exempt from tax.2

Taxable Value

The computation of the taxable value generally involves the following steps:

Some states require that all property be valued "uniform and equally" using the same rules for all property. Other states have adopted classification rules, which allow different kinds of property to be valued differently.

Fair Market Value

The method of computing fair market value can vary considerably. Some states consider only fair market value. Other states allow the use of a depreciated cost, and sometimes allow the use of accelerated depreciation. Other states use trending tables, which ta ke into account both depreciation and inflation.

Assessed Value

The tax computation is made by reference to the assessed value, which is generally a percentage of fair market value. In some states, the same percentage is used for all property. Other states allow the use of different percentages for different kinds of property.

Tax Rate

The tax rate is computed by the taxing authorities and generally changes from year to year. In most cases, the same rate applies to all property. In some cases, different rates apply to different kinds of property.

The Apportionment Rules

Where an aircraft is used in several states, the taxation is determined by reference to several rules:

The Common Law Rule

Under the old common law doctrine, personal property was taxable entirely in the domicile of the owner.3 A corollary of this rule was the \ldblquote home port\rdblquote doctrine, which held that ships could be taxed only in their home port.4 In the first case addressing the taxation of aircraft, the Supreme Court held that aircraft were taxable entirely in the state of domicile.5 However, in a subsequent cases, the Supreme Court held that aircraft could be taxed outside of the state of domicile.6 Furthermore, the Supreme Court appears to have rejected the home port doctrine.7 Nevertheless, the Court has held that the domicile state retains the power to tax property which is not taxable elsewhere.8

The Due Process Clause

The Supreme Court held a nondomiciliary state could impose a property tax on the aircraft, where the aircraft had a situs in that state.9 Conversely, the due process clause prohibits the domiciliary state from imposing tax where the property does not have a situs in that state.10

The Commerce Clause

Once property has acquired a situs in a state, the commerce clause requires that the tax be apportioned.11 Similarly, where property has acquired a situs in a nondomiciliary state, the domicile state is required to apportion the tax.12 Apportionment has also been required in the case of property used in foreign commerce.13

Taxation of Commercial Aircraft

Because of these constitutional constraints, almost every state has adopted special provisions relating to commercial aircraft:

Aircraft Covered

These provisions generally apply only to interstate airlines. However, in some cases, these provisions apply to other kinds of aircraft. For example, in some states, the exemption is based on the weight of the aircraft.14 And some local tax assessors have allowed other types of aircraft to compute tax on an apportioned basis, without the need to prove an out-of-state situs.

Federal Limitations

In the case of commercial aircraft, federal law prohibits the states from taxing air carrier transportation property at a higher value or rate than other property in the same assessment jurisdiction.15 However, the limitation does not apply to an "in lieu" tax which is completely used for airport and aeronautical purposes.16

Taxation of Other Aircraft

The taxation of other aircraft is not necessarily subject to rules which are as clear. For example, the final outcome could be the result of a series of negotiations. For example, the state of domicile might assert a right to tax the entire aircraft, unless the owner can show that the aircraft is based in another state.17 However, if the aircraft is based outside the state of domicile, then the state in which the aircraft is based might assert a right to tax the entire aircraft.18

In the case of noncommercial aircraft, most tax authorities appear to be inclined to accept the proposition that such aircraft should be taxed only in the state where the aircraft is based. This may be a matter of economics. Although the tax authorities could attempt to increase tax revenues by taxing aircraft based outside of the state, any revenue gains could easily be offset by tax revenues lost to owners of aircraft based in the state. Faced with this kind of "zero sum" game, the tax authorities have a clear incentive to avoid the costs of litigation by accepting a clear answer, instead of the "right" answer.

Tax Tricks

The state tax Laws generally provide for the taxation of property located in the state on a certain day of the year. Some aircraft owners have viewed this as an opportunity to avoid tax- by insuring that the aircraft is not in the state on that date. However, the Courts have held that the fact that the aircraft is not present on assessment date does not necessarily allow the aircraft to escape tax.19

  1. Kans. Law 79-201k(b).
  2. See, e.g., Appeal of Ann Robinson, CCH ¶200-255 (Wyo. SBE 1988).
  3. This was an implementation of the rule "mobilia sequuntur personam" (movables follow the person).
  4. See e.g., Hays v. Pacific Mail S. S. Co., 17 How. 596 (1855) [California could not tax ships stopping in California to unload or for repairs where their home port was New York].
  5. Northwest Airlines v. Minnesota, 322 U.S. 292 (1944).
  6. Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954).
  7. See, e.g., Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979).
  8. See, e.g., Central RR Co. v. Pennsylvania, 370 U.S. 607 (1962) ["the State of domicile retains jurisdiction to tax tangible personal property which has 'not acquired an actual situs elsewhere'."]
  9. Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954).
  10. Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194 (1905).
  11. Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954).
  12. Central RR Co. v. Pennsylvania, 370 U.S. 607 (1962).
  13. See, e.g., Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979).
  14. See, e.g., Mo. Law 155.010 ["'Commercial aircraft', [are] aircraft fully equipped for flight and of more than ten thousand pounds maximum certified gross take-off weight."].
  15. 49 USC 40116(d).
  16. 49 USC 40116(d).
  17. See, e.g., Tex-Air Helicopters, Inc., 940 S.W.2d 299 (Tex. 1998).
  18. See, e.g., In the Matter of the Appeal of Bassett Furniture Industries, Inc., 339 S.E.2d 16 (NC App. 1986); Bi Go Markets, Inc., and Wetterau, Inc., 843 S.W.2d 916 (Mo. 1982).
  19. See, e.g., White Cloud Charter, Inc., Dkt:No. A99A1512 (Ga. App. 1999); In the Matter of the Appeal of Bassett Furniture Industries, Inc., 339 S.E.2d 16 (NC App. 1986).