Flight Property and Air Commerce: A Minnesota Sales and Property Tax Update

December 2017

Many of our clients have reached out to FMJ to understand the recent changes made to the Minnesota sales and property taxes for aircraft beginning in 2018. The immediate reaction to the announcement of these changes ranged from mild confusion to this being one more tax reason why someone would want to move out of the state forever. Fortunately, the impact is much more minor than feared by many and we wanted to put it in context.

The Minnesota Legislature in conjunction with the Minnesota Department of Revenue have recently amended the statutes and rules concerning the sales and use tax exemption for air flight equipment[1] and altered the definition of “flight property” and “air commerce” and added a definition of “intermittently or irregularly timed flights”[2].  These changes were published in the 2017 Sales and Use Tax Legislative Bulletin published by the Minnesota Department of Revenue dated June 27, 2017[3], and the 2017 Property Tax and Local Aids Legislative Bulletins published by the Minnesota Department of Revenue dated June 30, 2017[4].  All of these changes go into effect on January 1, 2018.

Generally, in Minnesota, an aircraft cannot be registered with the state until the state has received evidence that the sales and use tax has been paid.  Under Minnesota law, there are numerous exemptions available which avoid the sales and use tax requirement, one of which is the air flight equipment exception.

Currently, under the air flight equipment exemption, purchasers of qualified aircraft and equipment can pay the air flight property tax on an annual basis in lieu of sales and use tax.  In order for aircraft to qualify as air flight equipment, aircraft have to be used by a company or person to conduct air commerce and must have a “gross weight” of 30,000 pounds or greater.  The concept of gross weight is variable but generally thought of as the total weight of the aircraft at any given time. But gross weight is not defined in the statutes.

Starting on January 1, 2018, the air flight equipment exemption will require that aircraft have a “maximum takeoff weight” of at least 30,000 pounds in order to qualify for the air flight equipment exemption.  This change from gross weight to maximum takeoff weight does not affect the requirement that the aircraft are used by a person or company in air commerce.  Maximum takeoff weight is a standard measure used by the FAA and the aviation industry.

As a result, this change affects only a small number of large aircraft purchasers which may have previously qualified for the air equipment exemption due to having a gross weight of at least 30,000 pounds (fully loaded with passengers, cargo, fuel and oil before starting the engines or taxiing) and now may not qualify due to having a maximum takeoff weight of less than 30,000 pounds.  However, due to the air commerce requirement of this exemption, this change does not affect any aircraft which are owned by a non-commercial Part 91 leasing companies which lease aircraft to operators because leasing does not qualify as air commerce under the statute.  It only affects the types of aircraft described above used by other commercial operators under Parts 135 or 121.

There are no changes to other, more common sales tax exemptions, such as the purchase for resale or fly away exemptions.

The Minnesota Legislature also amended the definition of flight property, starting January 1, 2018, to mirror the requirement of the air equipment exemption of a minimum of a 30,000 pound maximum takeoff weight.  The new definition of flight property specific excludes aircraft with a maximum takeoff weight of less than 30,000 pounds.  The Legislature also simplified the definition “air commerce” to make use of their newly created defined term of “intermittently or irregularly time flights” which encompasses the part 135 charter operations where the flight details are negotiated with the customer.  The changes to the defined terms in Section 270.071 are merely technical amendments and not substantive and should not have any effect on any exemption or use of an aircraft.

We hope this article will alleviate any concerns regarding these changes. But if you have any additional questions regarding Minnesota sales and use tax or any aviation tax concerns in any other state please contact Kevin Johnson or Conor Gaughan.

[1] See Minn. Stat. § 297A.82

[2] See Minn. Stat. § 270.071

[3] http://www.revenue.state.mn.us/law_policy/Documents/2017%20Sales%20and%20Use%20Tax.pdf

[4] http://www.revenue.state.mn.us/law_policy/Documents/2017%20Property%20Tax%20and%20Local%20Aids.pdf