Today's Paper News Sports Features Business Opinion LEARNS Guide Newsletters Obits Games Archive Notices Core Values

Act ends tax on some nonresidents' planes

by Glen Chase | May 4, 2015 at 2:04 a.m.

Keith Rose of Rose Aircraft Services Inc. in Mena estimates that an outdated state law that required nonresident aircraft owners to pay sales taxes if they transfer ownership of a plane in Arkansas has cost his company as many as a dozen contracts a year to repair and refurbish business and commercial aircraft.

Today, such transactions are exempt from sales taxes under a new state law passed in late March giving Arkansas "fly away" status for aircraft worked on by Arkansas-based maintenance companies but sold and purchased by out-of-state residents or companies.

"I know that for the last decade maybe that we have have lost out on 10 to 12 projects a year because of that silly fly away rule," Rose said Friday. "Now we can go out and actually advertise and promote that they can bring that airplane to Arkansas" for inspections and repairs.

The law, Act 1182 of 2015, dropped a requirement that sales taxes be collected when an aircraft is sold in the state, even if the buyer and seller are both nonresidents and the plane will be based in another state. That move allows Arkansas-based maintenance, repair and overhaul facilities to vie for work with states such as Kansas, Oklahoma and Illinois that already offer such a sales tax exemption.

The act, sponsored by state Rep. Joe Jett, D-Success, also clarified that labor and parts used on aircraft rated at 12,500 pounds for gross maximum take-off weight and above are exempt from sales taxes.

Chad Causey, executive director of the Arkansas Aerospace & Defense Alliance, said Arkansas' aircraft maintenance operators were losing business under the old law, which he said posed a serious problem.

"Aircraft are very portable, making it easy to shop around for [maintenance, repair and overhaul] services," Causey said.

Given the cost of some repairs or maintenance, whether routine or a major refurbishment done for a sale, aircraft owners will go to states where the tax structure allows them to save money, he said.

It might cost an owner more than $1,000 in fuel to fly from Arkansas to a repair shop in another state, Causey said. "But the tax savings versus doing that work here might be $8,000, $9,000, $10,000 depending on the amount of work, so you're still going to save."

Rose agreed that given the expense, aircraft owners shop around for the best prices.

"Most refurbishments or major maintenance events on these aircraft run into six figures or greater, and a few cents of sales tax makes a huge difference in what it costs the operators," he said.

Allowing nonresidents to take possession of an aircraft bought from another non-resident while it is at an Arkansas facility without having to pay sales taxes will generate business and potentially add jobs, Causey said.

Before the change, nonresident owners interested in selling might choose an Arkansas shop to repair or refurbish an aircraft. When it came time to compete the sale and sign paperwork to change ownership, the aircraft would be flown to another state to avoid the sales tax requirement. With the act in place, nonresident owners can have an Arkansas shop do the inspection and then conduct the sales transaction and have any other work without having to move the aircraft.

Because such sales were typically being completed out of state, the Arkansas Department of Finance and Administration determined that Act 1182 would have no impact on state revenue. The department said the act had no fiscal impact because a seller and buyer would fly that plane to another state to do the final paperwork.

Labor and parts for work done on aircraft with a gross take-off weight rating less than 12,500 pounds are still subject to state sales taxes.

The initial measure introduced by Jett, House Bill 1662, proposed exempting all service work, including parts and labor, done on aircraft from state sales taxes.

However, the Finance and Administration Department estimated that would reduce state revenue by $2.1 million in fiscal 2016 and by $3.1 million in fiscal 2017. Most of those funds go to the Arkansas Department of Aeronautics. The department estimated that in the past two years, about 2,000 aircraft of all sizes were sold in Arkansas, of which about 500 were sold to out-of-state residents who paid the Arkansas tax.

Causey said that idea was dropped because of the negative impact to the aviation trust fund, which needs the money to help pay for runway and taxiway maintenance at airports around the state.

While the sales tax exemption will make Arkansas shops more competitive for work involving larger aircraft, Rose said his company and others will have to keep overall prices competitive for work on smaller aircraft to compete with shops in other states to offset the sales tax levy.

As the economy improved, Arkansas-based maintenance, repair and overhaul shops, as well as its fixed-base operators, are seeing rising demand, Causey and Rose said. The National Business Aviation Association said Arkansas has 45 repair stations and 80 fixed-base operators. A fixed-base operator provides fuel, parking, hangars and other services to private and business aircraft.

"Now with more confidence in the economy and with business picking up, those business jet owners are using their aircraft more," Causey said, which in turn steers work to repair and fueling operators.

Rose said that over the past 18 months, he's seen his business steadily increase. He said the recession that began in late 2008 resulted in a 90 percent drop in revenue. While things have improved, he said overall revenue still isn't back to where it was in 2007.

Act 1182 can make that happen, he said.

"If the economy will halfway hold together, I expect that if I do my job and get the word out, I expect that this is going to amount to somewhere in the neighborhood of seven figures' worth of revenue and probably 10 to 12 jobs in our little company here in Mena just on this fly away thing," Rose said.

SundayMonday Business on 05/04/2015

Print Headline: Act ends tax on some nonresidents' planes


Sponsor Content