I was recently asked a question regarding the payment of sales tax on an aircraft. The scenario presented was this: A Minnesota resident receives an aircraft as a gift from an out of state relative and then the Minnesota resident bases and registers the aircraft in Wisconsin. Does the Minnesota resident pay tax on the aircraft and if so, what type of tax does the individual pay and to whom is it paid?
Before answering the question, we should first review the very basics of sales and use tax. A sales tax is a tax assessed against your purchase of personal property that is subject to sales tax. A use tax is a tax you pay on personal property that you purchase and use in the state and for which sales tax was not collected at the time you purchased or acquired the personal property (e.g. a private sale or purchase made out-of-state). Both the sales and use taxes are usually assessed at the same rate (e.g. 6.5% in Minnesota and 5% in Wisconsin).
With respect to aircraft, ordinarily if you purchase an aircraft and take delivery within a state that charges sales tax and you keep the aircraft within that state, you would pay sales tax on the purchase of the aircraft to that state. Unless you are purchasing from an aircraft dealer or someone else who is required to collect sales tax on the purchase, you typically pay the sales tax to the state at the time you register the aircraft.
But what happens if you purchase the aircraft and take delivery in a state that charges sales tax, but you then relocate it to another state right after the sale? Well, many states have a “fly-away exemption” that allows an aircraft purchaser to take delivery of the aircraft within the state and not pay that state’s sales tax, provided the aircraft is immediately removed to another state. However, even though the purchaser is able to avoid paying the sales tax in the state of delivery, when the purchaser then registers the aircraft in the purchaser’s home state, the purchaser usually pays use tax to the purchaser’s home state.
The difference between the amount the purchaser would have to pay in sales tax in the state of delivery versus the amount the purchaser will have to pay in use tax to register the aircraft in the purchaser’s home state could be significant. Additionally, other exemptions from sales and use tax beyond the scope of this article may be available to the purchaser (e.g. purchase for resale or rental etc.). Thus, to the extent possible, an aircraft purchaser must carefully plan the aircraft purchase in order to minimize the sales or use tax that will be owed on the purchase.
Now to our scenario: Based only upon the basic facts presented, it appears that the Minnesota resident would not pay sales or use tax in either Minnesota or Wisconsin because the aircraft was a gift from a relative. However, keep in mind that if any of these facts change, the tax analysis may also change. Each transaction is unique and application of the sales and use tax laws can be very complicated. You should contact an attorney familiar with both aircraft and the tax laws applicable to aircraft to properly identify and minimize any taxes that may be due in your particular situation.