Sales and Use Tax on Aircraft Purchases

Generally, a "use tax" applies to use, storage, enjoyment, or other consumption of tangible personal property that has not been subjected to a sales tax. 

Rodney Lake is a tax and business lawyer with Drummond Woodsum in Portland, Maine. He primarily focuses on representing businesses and owners in transactional matters, including aircraft-related transactions. Rodney also provides counsel to members of AOPA’s Legal Services Plan on a variety of FAA enforcement, accident, and tax matters, and is an adjunct professor of aviation law at the University of Maine at Augusta. Rodney is a private pilot.  

AOPA members are often forced to address sales taxes when they purchase aircraft. Sales tax, where it applies, generally applies to sales of tangible personal property. An aircraft is a classic example of tangible personal property. If you live in a state that has a sales tax and you purchase an aircraft in that state, your initial thought should be that the tax will most likely apply to the transaction.  

Perhaps your aircraft purchase will be exempt from sales tax under your state's lawSome states, for example, specifically carve out certain categories of aircraft, or aircraft that are immediately removed from the state—often because legislators in those states were convinced of an economic rationale for the given exemption. But since a fundamental tenet of tax law interpretation is that "taxation is the rule, and exemptions are the exception"—you should anticipate that your purchase in a sales tax state is taxable, unless an exemption clearly applies. 

But let's assume your anticipated aircraft purchase is not exempt from your state's sales tax. "I know how to get around this," you say. "I'll just take delivery of my aircraft in a state that has no sales tax, and fly it home afterwards." You congratulate yourself on your tax acumen and creativity. 

This scheme, however, simply won't work. A "sales tax" is what's known as a consumption tax. The mechanics of a sales tax, generally, is that when a taxable transaction occurs the seller withholds the consumption (sales) tax on the sale and remits it to the taxing authority—which, typically, is the state where the sale occurred. (This is what happens, for example, when you buy shoes at the local department store in a sales tax state.)  

To block exactly the maneuver you have cooked up here, every state imposing a "sales tax" also imposes what's known as a "use tax." The "sales tax" and the "use tax" are effectively the same consumption tax; they are just two sides of the same coin. Where a sales tax would otherwise apply (e.g., because you live in a sales tax state), but the seller in your transaction was not required by law to collect a sales tax (e.g., because the seller is located in a no sales tax state), the use tax kicks into effect to ensure that the transaction does not go untaxed.  

Generally, a "use tax" applies to use, storage, enjoyment, or other consumption of tangible personal property that has not been subjected to a sales tax. In these cases, the buyer has the obligation to pay the consumption (use) tax directly to the state. (This is what happens, for example, when you buy shoes from an online retailer that is not required to collect sales tax in your sales tax state. In case this comes as a surprise: yes, you owe use tax on those shoes unless you use, store, enjoy and consume them exclusively in a no sales tax state.) 

In other words, the "sales tax" and the "use tax" are really just two different collection mechanisms for what is effectively the same consumption tax. It may be possible in particular circumstances to avoid both of them, but if you have any connection to a sales tax state the analysis will always be more complicated than simply purchasing and taking delivery of the aircraft in a no sales tax state. Given the amount of taxes often at stake, state revenue agencies are frequently aggressive about asserting sales and use tax jurisdiction over aircraft, and so any planning in this regard is best done with the assistance of experienced professionals. 

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