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Air traffic turnover tax: It's about "location, location, location, location".
Buying an airplane is a significant capital expenditure, with up-front costs between $2 million and $50 million. At 3%-10% VAT the VAT payable on the acquisition of an airplane is a significant drain on funds beyond the acquisition costs and does not add value to the airplane.
It may be an optional arrangement, but the buyer may have to prepay all VAT according to the structure of the contract. A good plan is the keys to maintaining your liquidity and making the most of the upside. In most countries, the general practice is that all operations by which ownership or ownership or both of material private assets are or are to be conveyed are liable to VAT.
The State in which ownership of an aeroplane is taken is the State which has the possibility to levy taxes first on the operation. The take-over of an aeroplane in a condition deemed "air-compatible" is an important part of the purchasing plan for an aeroplane. Countries are regarded as air traffic-friendly if their sales taxes are designed to encourage a sound, operating airline within their boundaries.
A way to achieve this is to minimise the VAT levied when a buyer buys an aeroplane within its area. In the following I will explain some of the inducements that an air transport friendly State offers to a buyer of an airplane and how the buyer can use them.
countries without state turnover tax: New Hampshire, Alaska, Delaware, Montana, Oregon and New Hampshire are states without state turnover taxes. They are the states most often favoured as supplier states for aeroplanes, as there is no state VAT to be levied on the supply of the aeroplane. The assumption of a sale or leasing of an airplane in these states offers a buyer the possibility to fully control his VAT burden since there is no state VAT on the ownership of the airplane.
Note that some states have districts or towns that also charge VAT. There should be no concerns if the district or municipality's basis of assessment is the same as that of the State. However, some states have districts or towns where the basis of assessment is not necessarily the same as the national one.
In this case, make sure that the plane is delivered in the district or town with the least rates. Tax exemptions for the sale or rental of aircraft: Countries such as Massachusetts offer an exception for the sale or leasing of an airplane in their state.
Those states are favoured as supplier states, as the state has a turnover duty but provides for a special waiver for the supply of an aeroplane in the states. It should be ensured that the State has not made the derogation dependent on an outside occurrence. New Jersey, for example, frees the sale of aeroplanes to an airline whose main place of business is in New Jersey and which operates inter-state, international or domestic flights.
Ceiling for the overall sale levy calculated on the supply of aircraft: The South Carolina government restricts the overall VAT levied on the sale of an airplane to $300 per sale. The North Carolina government restricts the amount of VAT levied on the sale of an airplane to $1,500. Whilst these States levy taxes on the supply of an aeroplane in their State, they restrict the amount of VAT to a par value per sale of aeroplanes.
Although not as perfect as the first two states, the amount of VAT relative to most states is nominally and as such still allows the buying of an airplane without significant expenditure on federal spending. I lovingly call this exception "get out of Dutch exemption". These states ( i.e. Nebraska) usually grant exemptions from the supply of aeroplanes in the state if the buyer is not established or based in the state, the aeroplane is not registered, hanged or stationed in the state and the aeroplane flies out of the state on its own within a certain timeframe.
In addition, the buyer will not restore the airplane within a certain amount of timeframe (typically six to 18 months). They must keep good record of the sale and prove that the plane has vacated the state within a certain amount of being. However, if you are planning to use the aeroplane in a more restricted configuration, such as agriculture, or do not expect to return to the condition in which it was delivered, this waiver must be taken into account.
Whilst the use of the various incentive schemes under discussion maintains a significant level of liquidity when buying an airplane, it is important to take them into account in your overall airplane buying plan. In case the plane is located in a state that levies duty on the total amount of the sale it is necessary to transfer or place the plane in a state where you can benefit from an exempt status or VAT on supply.
Locating the airplane in an air traffic compatible condition will reduce in advance the costs of delivering taxi revenue gains. It is therefore preferable to take over the aeroplane in a State which has no VAT or exempt the operation from VAT, which may not be feasible in practical terms.
Attention should also be drawn to the fact that the State in which the instrument is registred, stationed or hangarred may levy a user charge on the value of the instrument. Therefore, when planing your airplane acquisition, it is important to know the amount of the usage fee in the state in which you are planing the airplane basis.