Minnesota Revamps Taxes On Aviation… Changes Expected To Be More Fair & Vitalize Aviation In State

ST. PAUL, MINN. – Minnesota Governor Mark Dayton signed a 2013 Omnibus Tax Bill into law May 23, 2013, which includes several provisions that are intended to boost aviation activity in the state, make registration fees more equitable among aircraft owners, and enhance funding sources for the State Airports Fund through an increase in the jet fuel tax for general aviation.

First, beginning June 30, 2013, the sales tax paid on the purchase of aircraft in Minnesota is being deposited into the State Airports Fund, rather than the State General Fund. This change puts aviation in line with the other modes of transportation that receive their sales tax to support their infrastructure.

Effective July 1, 2013, aircraft owners and operators operating under FAR Part 91 or 135, are no longer paying a state sales tax on aircraft parts or the associated installation labor. This enables Minnesota maintenance facilities to be more competitive with neighboring states and the growing number of states that have already eliminated their state sales tax on aircraft parts and labor.

Aircraft registration fees will change, too, effective July 1, 2014, from a “percentage rate” to a “flat rate” based on the cost of aircraft when new.

The current registration fee is 1 percent of the list price for the first year of ownership, decreasing to .25% over 7 years. Even if you buy a used aircraft, the registration fee is based on the price of the aircraft when it was new. The new flat rate will still be based on the list price of the aircraft when it was new, regardless of how much you paid for it, and regardless of its age, but the rate is much more reasonable.

For example, the registration fee for an aircraft valued at $5 million is currently $50,000 for the first year, $45,000 the second year, $37,000 the third year, $30,000 the fourth year, $22,500 the fifth year, $15,000 the sixth year, and $12,500 the seventh year.

In comparison, the owner of a $5 million aircraft under the new flat rate will pay only $7,500 per year for as long as they own the aircraft.

The chart below shows the new registration fee for aircraft ranging in price from $0 to over $40 million:

Base Price                                        New Registration Fee
Under $499,999                                      $100
$500,000 to $999,999                             $200
$1,000,000 to $2,499,999                    $2,000
$2,500,000 to $4,999,999                    $4,000
$5,000,000 to $7,499,999                    $7,500
$7,500,000 to $9,999,999                  $10,000
$10,000,000 to $12,499,999              $12,500
$12,500,000 to $14,999,999              $15,000
$15,000,000 to $17,499,999              $17,500
$17,500,000 to $19,999,999              $20,000
$20,000,000 to $22,499,999              $22,500
$22,500,000 to $24,999,999              $25,000
$25,000,000 to $27,499,999              $27,500
$27,500,000 to $29,999,999              $30,000
$30,000,000 to $39,999,999              $50,000
$40,000,000 and over                        $75,000

While this change in registration fees may result in a minimal increase to some aircraft owners and operators in the near term, it will encourage the purchase of new aircraft or an upgrade to larger aircraft. This change will impact all aircraft registered in Minnesota except aerial applicators and medical emergency aircraft.

Also effective July 1, 2014, the fuel tax on jet fuel sold to general aviation will increase from 5 cents to 15 cents per gallon. The bill also eliminates the fuel brackets for general aviation jet fuel. This increase does not apply to AvGas or to the commercial airlines which pay the Flight Property Tax.

Lastly, the bill requires the Minnesota Department of Transportation Commissioner to report on or before June 30, 2016, and every four (4) years thereafter, to the chairs and ranking minority members of the Senate House of Representatives committees with jurisdiction over transportation policy and budget.

This report must include the amount and sources of annual revenues to and expenditures from the State Airports Fund. It must include draft legislation for any recommended statutory changes to ensure the future adequacy of the State Airports Fund. This should ensure that the statutes will reflect operational activity and will meet the infrastructure needs of aviation in Minnesota.

Gordon Hoff, executive director of the Minnesota Business Aviation Association (MBAA), which spearheaded the legislation that took 6 years to pass, credits all three professional aviation organizations in the state and Delta Airlines for its passage: MBAA, which is comprised principally of corporate flight departments; the Minnesota Aviation Trades Association (MATA), consisting of fixed base operators and aviation support service businesses; and the Minnesota Council of Airports (MCOA), whose membership is comprised principally of airport managers and engineering firms. While the legislation has no direct impact on the airlines, Delta Airlines wanted to support it for the betterment of aviation in the state.

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