Gregory J. Reigel
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October 31, 2006

A Question Regarding Aircraft Sales and Use Tax

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.

Posted by Greg

October 30, 2006

Recovering Fees Under The Equal Access To Justice Act

If you have to defend yourself against the FAA in an enforcement action or civil penalty action, and then you win, do you have any recourse against the FAA? Well, if you qualify under the Equal Access to Justice Act ("EAJA") you may be able to make the FAA pay for the attorney’s fees and expenses you incurred in defending yourself against the claims asserted by the FAA. Although this may not seem like much consolation for the ordeal you have endured, it at least provides some reimbursement when the FAA has improperly pursued an action. For more information on recovering fees under EAJA, you can read my latest article on the subject here.

Posted by Greg

October 28, 2006

FAA Issues Final Rule Governing Flight Simulation Training Devices (FTSDs)

On Monday the FAA will publish its Final Rule titled "Flight Simulation Training Device Initial and Continuing Qualification and Use". The Final Rule consolidates and updates flight simulation training device (FTSD) requirements that currently exist in different parts of the FARs and advisory circulars into a new part (FAR Part 60) to set forth qualification requirements for FTSDs. The new part also requires that sponsors of FSTDs have a Quality Management System. According to the final rule, "[t]hese changes are necessary to promote standardization and accountability for FSTD qualification, maintenance, and evaluation" and are intended "to ensure that users of FSTDs receive training in devices that closely match the performance and handling characteristics of the aircraft being simulated."

The new FAR Part 60 contains the requirements for the evaluation, qualification, and maintenance of FSTDs that are based on the current guidance regarding the capability and performance of simulators contained in Appendix H of part 121 and FAR 121.407. However, Part 60 will apply to all FTSD training regardless of the FARs under which the flight operations will occur (e.g. Part 121, 125, 135 etc.), but will not apply to Level 2 and 3 Flight Training Devices.

Part 60 also contains information previously found in the advisory circulars addressing airplane and helicopter FTSD qualifications. The standards from these ACs, as well as specific items that are subject to change through technological advancements will be placed in appendices to Part 60. Two additional appendices will cover "Qualification Performance Standards for Quality Management Systems for Flight Simulation Training Devices" and "Definitions and Abbreviations." Compliance with the qualification performance standards contained in the appendices will be madatory.

The Final Rule becomes effective October 30, 2007. If you would like further information you should review the details contained in the final rule or you may contact Ed Cook, Air Transportation Division (AFS-200), Flight Standards Service, Federal Aviation Administration, 100 Hartsfield Centre Parkway, Suite 400, Atlanta, GA 30354; telephone: 404-832-4700.

Posted by Greg

October 27, 2006

NASA/ASRS Form Can Now Be Submitted Online

The Aviation Safety Reporting System form (also somewhat inappropriately referred to as the "NASA form" since NASA is only the administrator of the ASRS program) that pilots are encouraged to submit when they have been involved in an accident/incident or other situation involving aviation safety or security, can now be submitted electronically through the internet. The form is available here. You simply fill out the form through your web browser and then hit the submit button. The web page will then give you confirmation of the submission. Make sure you print out the confirmation and save it. Also note that the form must still be submitted within 10 days of an accident/incident in order to obtain any waiver of sanction that may be available. For those without internet access, a hard copy ASRS form may still be filed through the U.S. mail.

Posted by Greg

October 25, 2006

TSA Extends Compliance Dates For Air Cargo Security Requirements Final Rule

In an Interim Final Rule published today and effective October 23, 2006, the TSA has extended the compliance dates by which time certain requirements must be completed. The requirements for which the TSA is extending the compliance dates are: "That aircraft operators, foreign air carriers, and indirect air carriers (IACs) ensure that their employees and agents with unescorted access to cargo successfully complete a Security Threat Assessment (STA); that IACs ensure that their employees and agents performing security-related duties are trained in the IAC's security program; and that airport operators ensure that individuals with unescorted access to expanded Security Identification Display Areas (SIDA) are subjected to a criminal history records check (CHRC) and a name-based security threat assessment (STA), receive proper security training, and hold appropriate personnel identification."

The compliance dates are as follows:

Compliance date for STAs for employees under Sec. Sec. 1544.228, 1546.213, 1548.15, and for IAC proprietors, general partners, officers, directors and certain owners of the entity under Sec. 1548.16: Changed from December 1, 2006 to March 15, 2007.

Compliance date for STAs for agents under Sec. Sec. 1544.228, 1546.213 and 1548.15: Changed from December 1, 2006 to June 15, 2007.

Compliance date for training of IAC employees under Sec. Sec. 1548.11: Remains November 22, 2006.

Compliance date for training of IAC agents Sec. Sec. 1548.11: Changed from November 22, 2006 to June 15, 2007.

Compliance date for submission and approval of extension of Secure Identification Display Area (SIDA) boundaries to cargo areas under Sec. 1542.205(a)(2) and (3): Remains October 23, 2006.

Compliance date for full compliance with requirements for individuals with unescorted access to expanded SIDA under Sec. Sec. 1542.205(b)(2), 1542.209, 1542.211, 1542.213, and Security Directives: Changed from October 23, 2006 to January 22, 2007.

Affected parties submitting comments on the intial Final Rule were concerned about their ability to comply with the deadlines for completion of STAs and training for the employees and numerous agents of the regulated parties. The TSA determined that extending the compliance dates would allow the affected parties a sufficient amount of time to comply in the hope of achieving a higher overall level of compliance.

Comments on the extended compliance dates are due on or before December 26, 2006. If you would like more information on the final rule or the interim rule, you may contact Tamika McCree, Office of Transportation Security Network Management (TSA-28), Transportation Security Administration, 601 South 12th Street, Arlington, VA 22202; (571-227-2632);

Posted by Greg

FAA Requests Comments On Amending Age 60 Rule

The FAA today published a Request for Comments on the issue of whether the US should amend FAR 121.383(c) (the Age 60 Rule) to increase the upper age limit for airline pilots up to age 65 provided another crewmember pilot is under age 60. The FAA's inquiry corresponds with the International Civil Aviation Organization's (ICAO) expected adoption of an amendment in November, 2006 that will implement this rule change.

The current rule, adopted in 1959, "prohibits any person from serving as a pilot, on an airplane engaged in operations under part 121 if that person has reached his or her 60th birthday." In response to the ICAO's anticipated action, the FAA created an Age 60 Aviation Rulemaking Committee ("ARC") to provide "a forum for the U.S. aviation community to discuss the new ICAO standard, make recommendations as to whether the United States should adopt that standard, and determine what actions would be necessary if FAA were to change the regulation to meet the new ICAO standard."

Comments on the Age 60 issue (Docket Number FAA-2006-26139) are due on or before November 15, 2006. If you would like further information, you may contact Dr. Fred Tilton, Federal Air Surgeon, Office of Aerospace Medicine, Federal Aviation Administration, 800 Independence Avenue, SW., Washington, DC 20591; telephone: 202-267-3537.

This issue has been brewing for many, many years. Over the years, many pilots have sought exemption from the rule and have challenged the rule in court. However, in every instance, the exemption petitions have been denied and the courts have deferred to the federal air surgeon's discretion in mandating the Age 60 rule.

Interestingly, Mr. Tilton's Federal Air Surgeon's Column in the latest edition of the Federal Air Surgeon's Medical Bulletin discusses this issue. Although he states that the research studies performed in the past have been "insufficient to support a change" in the rule, he appears (at least in the article) to have an open mind towards the ARC process and the upcoming debate. In light of the FAA's recent rulemaking actions to amend the FAR's to make them more consistent with ICAO standards, it will be interesting to see whether this trend continues with amendment of the Age 60 rule.

Posted by Greg

October 18, 2006

11th Circuit Rejects Airman's Statute Of Limitations Defense

In a recent unpublished opinion, the 11th Circuit has rejected an airman's claim that the FAA's revocation of his airline transport pilot certificate was time barred by 28 U.S.C. 2462. The case, Coghlan v. NTSB, arose when the FAA revoked the airman's ATP certificate based upon its belief that the airman had intentionally falsified an application seeking the addition of two type ratings to his ATP certificate. One of the arguments raised by the airman in opposition to the revocation was that the five-year statute of limitations contained in Section 2462 barred the revocation of his certificate. (This defense is different from the NTSB's 6 month stale complaint rule which would not have applied in this case because revocation based upon an intentional falsification charge alleges lack of qualification). However, both the administrative law judge and the NTSB rejected the airman's defense, as well as his other arguments, and affirmed the revocation. The airman then appealed to the 11th Circuit solely on the issue of whether the NTSB properly rejected his statute of limitations defense under Section 2462.

On appeal, the 11th Circuit rejected the airman's argument holding that Section 2462 did not apply to revocation proceedings. The Court noted that Section 2462 applies to "enforcement of any civil fine, penalty, or forfeiture" and thus, since a revocation is a "remedial" action, as opposed to a "penalty", Section 2462 did not apply. In response to the airman's argument that the revocation was, at least partially, a penalty, the Court reiterated the findings and rationale of the ALJ and NTSB "that the FAA revoked Coghlan’s ATP certificate not to punish him for his falsifications, but because his falsifications called into question his fitness to hold an ATP certificate and implicated matters of public air safety."

Based upon the cases cited by the 11th Circuit, the airman's defense was not new or novel. That also explains the fact that the unpublished status of the opinion. Finally, this case highlights the fact that a statute of limitations defense, whether under the stale compaint rule or otherwise, is typically not available against an intentional falsification charge.

Posted by Greg

October 04, 2006

Send Your FAA Form 337's To Oklahoma City

According to an Amendment to FAR Part 43, effective November 3, 2006, maintenance providers will be required to send FAA Form 337, Major Repair and Alteration, to the FAA Aircraft Registration Branch in Oklahoma City, Oklahoma within 48 hours of returning an aircraft, airframe etc. to service after completing a major repair or alteration, rather than submitting them to the local Flight Standards District Office which is the current requirement. "The purpose of this change is to centralize the processing of the Form 337 documents and facilitate FAA acceptance of electronic submissions of Form 337 documents in the future."

If you would like further information regarding this amendment, you may contact Robert Stockslager, AFS-340, Aircraft Maintenance Division, General Aviation and Repair Station Branch, AFS-340, Federal Aviation Administration, 800 Independence Avenue, SW., Washington, DC 20591; telephone (717) 774-8271, extension 258; facsimile (717) 774-8327, e-mail

Posted by Greg

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