State Taxes

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Minnesota Aviation Groups Achieve Aviation Tax Reform

May 23, 2013

Minnesota recently passed an omnibus tax bill that makes the first substantive changes to the state’s aviation fees and taxes since they were conceived in 1945. While business aircraft will see the biggest changes, the new statutes benefit commercial and general aviation as well, and ensure steady revenue to the state’s airport fund.

“This piece of tax legislation has been a passionate commitment of the Minnesota Business Aviation Association (MBAA) and, in particular, by MBAA Government Liaison and Executive Director Gordon Hoff,” said Bob Quinn, NBAA’s Central region representative. “For six years, the MBAA partnered with an array of stakeholders, from Delta Airlines to the Minnesota Council of Airports, to provide a beneficial result for the entire aviation community.”

On July 1, 2014, a flat annual registration fee based on an aircraft’s list price will replace a formula of percentages and a seven-year depreciation schedule. Using a $20 million business aircraft as an example, Hoff said the formula fee was 1 percent of that – $200,000 – the first year.

“Over seven years it depreciates to a quarter-percent, which is $50,000,” Hoff explained. “Iowa does this as well, but it caps the fee at $5,000.”

Under the new flat fee, which eliminates the depreciation schedule for purposes of calculating the registration fee, Minnesota’s annual registration fee for that $20-million aircraft will be $22,500. The top fee is $75,000 for aircraft with list prices of $40 million or more, and the minimum fee is $100 for aircraft that cost less than $500,000. Beyond the immediate savings to operators, “the new flat fee won’t discourage operators from buying new aircraft,” said Hoff.

Minneapolis-based General Mills operates three Cessna Citation Xs, and it “will see a significant reduction in the fixed expenses in operating those airplanes,” said Neil Brackin, director of air transportation, an active member of the MBAA coalition. “More importantly for us (and all operators of business aircraft) as we look to the future and acquisition of new aircraft, the impact of this change is even more significant.”

A new 15-cent-per-gallon jet fuel tax offsets the registration revenue, which will now be going to the state airport fund.

“We did that voluntarily,” said Hoff. “We have long felt that the fuel tax is simple to administer and represents an equitable way to tax operators based on how much they fly.”

Brackin said the increased jet fuel tax was a fair trade for the reduction in fixed costs, and “we feel good about it because it keeps the airports, which are excellent, adequately funded.” The tax on avgas remains 5 cents per gallon.

Since 1945, the sales tax on aircraft went to Minnesota’s general fund, Hoff said. It will now go to the aviation fund. In addition, the new tax legislation eliminated the 6.875-percent sales tax on aircraft parts and associated labor.

To smooth the revenue transition, this takes effect on July 1. To make sure another 68 years do not pass before the next review, said Hoff, “we requested that the state aeronautics bureau report to the house and senate transportation committees on the airport fund’s status and how the changes are working or not working.”