NBAA Focus: NBAA Responding to State Tax Challenges On Both Coasts

NBAA Focus: NBAA Responding to State Tax Challenges On Both Coasts

Business aircraft owners and operators in New Jersey and Nevada have recently joined with NBAA in opposing potentially onerous proposed state tax changes that could significantly impact operators’ bottom line.

“The industry needs to stay engaged in these state-level battles, because their outcomes could have significant implications for people and companies that rely on aircraft for the success of their businesses,” explained said Scott O’Brien, NBAAs senior manager of tax and finance.

For example, New Jersey already imposes a 2.75 percent tax on jet fuel (equal to 4 cents per gallon), with some exemptions for certain types of operations, and state legislators recently proposed a tax hike to 7 percent as part of a larger transportation infrastructure-funding overhaul.

However, the proposal faced significant opposition from groups, including NBAA – which sent a letter to legislators detailing concerns over the bill – and an alternative bill that removes the tax increase on jet fuel and aviation gasoline recently passed the New Jersey Assembly.

“The New Jersey infrastructure proposal raised concerns about how the state hoped to use aviation fuel tax revenues,” O’Brien added. “It appeared that New Jersey planned to divert aviation fuel tax revenue for public works projects unrelated to aviation. This is contrary to FAA regulations, which require aviation fuel tax revenue be used for airport or aviation-related projects.”

The numbers correspond to how high on the list each state is for most expensive jet fuel tax. If the proposed tax hike went into effect, the Garden State would have jumped to third-from-top of the list.

In Nevada, a draft tax bulletin proposed a significant change to current law and administrative decisions that would have negated a key tax exemption designed to encourage aircraft owners to locate in the state. Based on current state tax code, there is a presumption that aircraft acquired outside of Nevada will not be subject to use tax if certain conditions are met.

Specifically, the aircraft must be first used in interstate or foreign commerce outside of the state, and second, for the 12 months following the first use, the aircraft must be used predominantly on flights between Nevada and other states.

The draft tax bulletin would have limited the exemption to “for hire” service only and would have required “continuous” use of the aircraft in intrastate commerce for at least 12 months, making the statute impossible to comply with and virtually meaningless.

“After hearing industry opposition, the Nevada state tax commission chose not to pursue the proposed changes to the interstate commerce exemption and released a revised bulletin,” said O’Brien. “The New Jersey and Nevada proposed state tax changes are strong evidence of why the industry needs to be aware of state issues and register opposition when onerous changes are proposed.”

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