Aviation Taxation in Indiana, Part I: Department of Revenue Bulletin Outlines Sales and Use Tax Exemptions Relating to Aircraft Repairs

Indiana has long been recognized as the “cross roads” of America, but one day it may also be known as the “cross runways” of the nation.  The State of Indiana is promoting the growth of its aircraft repair industry through sales and use tax exemptions, and it is considering further expansion of exemptions for repair parts. 

Without question, aviation is essential to the Hoosier economy.  The Aviation Association of Indiana observes, “Indiana has a rich aviation history beginning with 19th century glider flights and evolving into transcontinental air travel, airfreight, and general aviation aircraft of all varieties.” http://aviationindiana.org/ (last visited May 28, 2012).  Local airports played a vital role in making Indianapolis’ hosting of Super Bowl XLVI a success.  “At game time, over 845 private planes were on the ground at the 16 airports that were part of Super Bowl Host Committee’s Outreach program.” http://bit.ly/KVwNN4.  Governor Daniels proclaimed March 2012 as General Aviation Appreciation Month in Indiana. See http://bit.ly/Jv5UD8.  The National Business Aviation Association notes, “The Hoosier State has 107 strategically distributed public-use airports with a combined direct and indirect economic impact of nearly $3 billion. Indiana has more than 10,000 active FAA-certificated pilots and hosts some 6,035 aircraft, ranging from light single-engine piston aircraft to jets.” http://bit.ly/Jv5UD8.

The Department of Revenue this month issued guidance on the application of sales and use tax exemptions involving the repair of aircraft.  See Informational Bulletin #74, see http://1.usa.gov/Kld9wF.

Exemptions for Aircraft Temporarily Stored in Indiana for Repair or Completion Work.

Ind. Code § 6-2.5-3-2 provides an exemption from use tax for an aircraft that meets the following requirements:

1. The aircraft is titled, registered, or based in another state or country;

2. The aircraft is delivered to Indiana by or for a nonresident owner or purchaser of the aircraft;

3. The aircraft is delivered to Indiana for the sole purpose of being repaired, being refurbished, being remanufactured, have completion work performed, or is subject to a prepurchase evaluation; and

4. Within 30 days after completion of the repair, refurbishment, remanufacture, or prepurchase evaluation, the aircraft is transported to a destination outside Indiana.

Ind. Code § 6-2.5-5-42 provides that a transaction involving an aircraft, including completion work performed, is exempt from the sales tax if:

1. The purchaser is a nonresident;

2. The purchaser transports the aircraft to a destination outside Indiana within 30 days after:

     A. Accepting delivery of the aircraft;

     B. A repair, refurbishment, or remanufacture of the aircraft is completed, if the aircraft remains in Indiana after the purchaser accepts delivery for the purpose of accomplishing the repair, refurbishment, or remanufacture of the aircraft; or

     C. Accepting delivery of the aircraft following completion work or a prepurchase evaluation.

3. The aircraft will be:

     A. Titled or registered in another state or country; or

     B. Based in another state or country, if the state or country does not require a title or registration for aircraft; and

4. The aircraft will not be titled or registered in Indiana.

The statute requires the purchaser to claim the exemption by submitting to the seller an affidavit affirming the required elements of the exemption and by identifying the state or country in which the aircraft will be titled, registered, or based.  Ind. Code § 6-2.5-5-42(b).

Within 60 days after a purchaser accepts delivery of an aircraft and claims an exemption for an aircraft to be registered outside Indiana, the purchaser shall provide the seller with a copy of the purchaser’s title or registration of the aircraft outside Indiana.  The same requirement applies within 60 days following completion of a repair, refurbishment, or completion or remanufacture of the aircraft, if the aircraft remains in Indiana after the purchaser accepts delivery of the aircraft for the purpose of accomplishing the repair, refurbishment, or completion or remanufacture of the aircraft.  “If the state or country in which the aircraft is based does not require the aircraft to be titled or registered, the purchaser shall provide the seller with a copy of the aircraft registration application for the aircraft as filed with the Federal Aviation Administration.” Ind. Code § 6-2.5-5-42(c).

For purposes of these exemptions, see Ind. Code § 6-2.5-3-2(f):

1.  “Completion work” means the addition of tangible personal property to or reconfiguration of the interior of an aircraft, if the work requires the issuance of an airworthiness certificate from the Federal Aviation Administration or equivalent foreign regulatory authority due to the change in the type certification basis of the aircraft resulting from the addition to or reconfiguration of the interior of the aircraft.

2   “Delivery” means the physical delivery of the aircraft regardless of who holds title.

3.  “Prepurchase evaluation” means an examination of an aircraft by a potential purchaser for the purpose of obtaining information relevant to the potential purchase of the aircraft.

Exemption for repair parts on foreign-owned aircraft.

Ind. Code § 6-2.5-5-46 (effective July 1, 2012) provides a sales tax exemption for parts, materials, equipment, and engines used, consumed, or installed in the repair, maintenance, refurbishing, remodeling, or remanufacturing of an aircraft or an avionics system of an aircraft that is registered in a foreign country and has a minimum landing weight of at least 5,000 pounds or is equipped with a turboprop or turbojet power plant.  The exemption applies only if the work is performed by a retail merchant who possesses a valid repair station certificate issued by the Federal Aviation Administration. The Indiana legislature has agreed to study this summer whether the foreign-owned exemption should be expanded to all aircraft and avionic devices. See HEA 1325, Sect. 6, see http://1.usa.gov/K5rOyf.

This post is the first in an intermittent series on tax and the Indiana aviation industry.

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