States Aim To Tax Private Jets, Yachts
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The crowds at Maine’s lobster shacks may be a bit thinner this summer thanks to a round of tax bills the state is sending out to visitors who arrive by private plane or yacht.
Some plane owners are looking at assessments of as much as $200,000 for bringing their aircraft to the state for short visits.
The crackdown comes as a number of states, seeking more revenue amid an economic slowdown, are seeking to tax private planes and yachts that land or moor even on a temporary basis. In California, Governor Schwarzenegger recently made an unsuccessful attempt to do away with a tax break critics dubbed the “sloophole.” It allows California residents to avoid the use tax by keeping newly purchased planes and yachts out of state for 90 days. The “sloophole” does not apply to a more frequent import: automobiles.
New York does not tax nonresidents who bring aircraft or boats into the state, a spokeswoman for the Department of Taxation and Finance, Susan Burns, said.
“I couldn’t believe it,” a Bedford, Mass., resident and pilot who got a bill from the Pine Tree State last year for more than $25,000, Stephen Kahn, said. “I thought it was absurd, invidious, and totally made you not want to go to Maine.”
Mr. Kahn, who works in venture capital, said he bought his four-seat, single-engine Cirrus SR22 in 2002 and quickly began using it for weekend visits to a home he built on family property alongside a lake in Camden, Maine.
“On a good day, you could drive there in four hours. During the summer, it can be five or six, depending on traffic,” he said. He now makes the same trip, from Hanscom Field near Boston to an airport in Rockland, Maine, in an hour or less.
“Having an airplane and being able to fly up there made all the difference to me,” Mr. Kahn said.
About a year ago, Maine’s tax department sent him a letter demanding about $17,500 in tax plus $8,000 in interest. The authorities said they determined that his plane was in Maine for more than 20 days in 2003 and therefore was subject to a “use tax,” similar to a sales tax, of 5% of the plane’s full purchase price, estimated at $350,000.
Mr. Kahn could have claimed a credit for sales tax paid elsewhere, but he did not owe any because Massachusetts, like many other states, does not tax the purchase of aircraft.
Word of Maine’s bills spread quickly among pilots and left many vowing to scuttle their trips down east. “I know of half a dozen pilots who have canceled their vacations to Maine and are going to some other state where they feel welcome,” Mr. Kahn said. “It’s definitely going to hurt their business.”
Disgruntled pilots are finding they have to choose their new destinations carefully, since the states of Florida, Illinois, and Washington are all reported to have toughened enforcement of sales and use taxes on aircraft.
“States are very squeezed for revenue right now with the down economy,” a Portland, Maine, lawyer representing Mr. Kahn and about nine other aircraft owners challenging the tax bills, Jonathan Block of Pierce Atwood, said. “It’s perceived as squeezing money out of non-residents who are on the wealthier end of the scale and don’t vote in Maine.”
The new scrutiny tax officials are applying to plane owners is partly spurred by technology. A few years ago, the Federal Aviation Administration began making public the origin, destination, route, and tail number information on general aviation flights. Private firms compile the data and sell it, while making some information available for free on the Internet. State tax agents are searching that data, which is used to send out bills to people like Mr. Kahn. Some pilots have taken steps to get their aircraft removed from the FAA’s public database.
“There are a few non-residents who have been hit by this thing that have been understandably very upset,” a spokesman for Maine Revenue Services, David Bauer, said. However, he said pilots’ groups have circulated “misinformation” about the tax rules.
Mr. Bauer said the tax only applies to aircraft which spend 20 days in Maine in the first year after purchase. Time spent for maintenance or overhaul doesn’t count. In addition, the Maine tax does not apply where the owner paid a sales tax of 5% or more in another state.
Maine applies the same use tax to boat owners who bring their vessels into Maine for more than 30 days in the first year of ownership. A spokeswoman for a group representing Maine marina owners said tax agents regularly visit marinas looking for boats on extended visits.
“To say they’re marching up and down the coastline may be a little bit of an overstatement, but they do get out there,” Susan Swanton of the Maine Marine Trades Association said. “It’s not just an ill effect to Maine industry. It’s an ill effect to the tourism industry in general … We notice it.”
A bill to do away with the use tax on planes owned by non-residents died last month in the Maine legislature. The measure had widespread support, but the direct cost of the changes was estimated at $500,000, a tough sum to forego as the state tried to close a $190 million budget gap.
“The issue of taxing personal aircraft and yachts isn’t up there with brain-injured children in wheelchairs,” Maine’s budget director, Ellen
Schneiter, said. “That’s the kind of environment we were in.”
Asked about the revenue lost by discouraging tourism, she said, “Most people don’t arrive in their own airplane.”