Governor Deval Patrick’s proposed new aircraft sales tax for Massachusetts has been passed by our House and denied by our Senate. The decision will now rest with a conference committee.
At first glance this would appear simply to be a jobs creation bill for New Hampshire, Connecticut, and Rhode Island, sending airplanes, hangar construction, maintenance, and pilot jobs over the borders. It also looks like a revenue reduction bill since (a) nobody buying a $10 million plane would be dumb enough to base it in Massachusetts and pay the tax, and (b) all of people who would have been employed in the care and feeding of that $10 million plane will now become residents of other states and therefore will stop paying income tax, sales tax, and property tax here in Massachusetts.
A deeper look reveals how destructive this bill will be to the environment. Let’s look at noise first, a common complaint of those who have recently built houses near long-established airports.
Scenario 1: Jet lives in MA. Owner drives to airport, takes off for West Palm Beach, hangs out with rich pals, returns to MA. Jet is tugged into hangar. Takeoffs in MA: 1. Landings in MA: 1.
Scenario 2: Jet and its crew of pilots, flight attendant, and mechanics all live in Nashua, NH and pay taxes up there. Owner drives to his local airport in MA where the plane is waiting for him. He flies to West Palm and back. The jet returns to NH. Takeoffs in MA: 2. Landings in MA: 2. Twice as much noise plus some extra fuel burned for the additional 10 minutes of flight time each way.
Now let’s look at fuel consumed and CO2 emitted.
Joe Average: Joe and his three friends are going to buy a new four-seat airplane for $300,000 and share it. They had planned to keep it at Hanscom Field despite the high fuel prices and expensive hangars. Faced with the new tax, however, they decide that the plane should live in Nashua, NH. The tax savings alone will pay for four years of hangar up there and they only plan to keep the plane for four years before upgrading to something with higher performance to match their increased flying skill. Fuel and maintenance will be cheaper as well. Every time they go flying, however, Joe and his friends will drive an additional 60 miles round-trip to get to the plane and back home.
Generic Company: Despite facing some of the nation’s highest labor costs and most onerous regulations on business, somehow this mid-sized company has managed to hang on in the blighted crack-house dominated town of Springfield, MA. All of their competitors have moved to South Carolina and Kentucky or overseas. Generic has offices and operations in six other states and keeps a 15-year-old jet here at headquarters for when it needs to send teams of people out to meetings (neither Springfield nor any of its other locations are served by commercial airlines). The jet is very noisy by modern standards and also rather thirsty. Generic has been considering upgrading to a quieter airplane that burns half as much fuel, but the payback period would be 5 years because they don’t fly many hours per year. When Deval Patrick’s new tax takes effect, Generic runs the numbers again, concludes that the payback period would now be 8 years, and decides to fly the airplane for 10 minutes to tax-free Connecticut for repainting and new carpet and upholstery. Generic will be inflicting a lot more noise on neighbors with its old jet and burning twice as much fuel as if they had upgraded.
If passed, this tax is going to be remembered as another nail in the coffin of central and western MA. Eastern Massachusetts does okay no matter how incompetent our government. Harvard and MIT have accumulated more than $50 billion dollars in wealth. There are a lot of businesses that need to be near Harvard and MIT. People come up from Manhattan fighting for the chance to pay $10 million for a beach house on Nantucket and then to pay property tax on that house for the rest of their lives. If the City of Cambridge can’t figure out how to teach kids reading and arithmetic for $15,000 per year per kid, Buffy and Chip can be sent to private school.
What have they got going in Worcester and points farther west? Big airports and a tradition of skilled craftsmanship. With Governor Patrick’s new tax, they’ll have to look somewhere other than aviation for new jobs. Maybe they can compete with northern Kentucky for the next Toyota factory…
Philip: you have said in the past (on this blog) that you aren’t necessarily opposed to taxes on planes and aviation-related stuff, just that these Massachusetts taxation systems are idiotic for the state. In theory (and I know this is completely unrealistic), would you be in favor of some kind of federal taxation system that would stop a “race to the bottom” for states and their taxes, by making sure taxes are equal–or nearly equal–among the states?
Tom: The Federales already collect tax on aviation fuel and the latest FAA funding bills in Congress raise the tax by something between 65 and 220 percent. The Feds also collect 7.5% excise tax on every charter operation. These taxes discourage business activity to some extent but they encourage conservation of fuel and the purchase of new fuel-efficient airplanes (the majority of which are manufactured here in the U.S.).
It is unclear why a state should be collecting a tax on aviation. The Feds pay for nearly all airport construction and expansion. The Feds pay for air traffic control. The Feds pay to maintain safety standards via inspections.
A sales tax on new airplanes, even at the Federal level, is probably a bad idea. It will encourage businesses to continue operating older airplanes, which waste fuel and which are not as safe. A sales tax also discourages purchases from one of the few industries that still manufactures here in the U.S. A fuel tax, by contrast, discourages purchases from countries such as Venezuela and Saudi Arabia that are thorns in our side.
States collect property tax on hangars. States collect income tax from pilots, mechanics, and dispatchers. States collect sales tax from those folks when they buy stuff in local stores. States collect property tax on the houses where these employees live. It is not clear to me why they need also to collect tax on the purchase of new airplanes that are going to be used almost exclusively in interstate commerce and whose operation is already taxed by the Federal government.
Philip, these arguments can easily be applied to most businesses in Massachusetts for the other taxes, fees and regulations imposed by this state. This state has had much success in spite of itself, but its regressive tax system coupled with the anti-business attitude of the ruling elite is chipping away at that success. I think our failure to gain back the jobs lost during the last recession are directly attributable to the business hostile nature of this state.
Paul: These arguments can certainly be applied to any business that moves at 450 knots or faster. A $50 million Gulfstream and its crew can be moved over the border much more easily than the average business with $50 million in assets. A guy who needs work done on his car would have to drive an extra hour to get it done in New Hampshire and avoid the sales tax on a $300 part. A guy who needs work done on his airplane would have to fly only an extra 10 minutes and would avoid sales tax on a $30,000 part. Aviation is different because … airplanes fly.
I was looking for towns in MA that charge an excise tax on planes just as they do on cars and boats when I found your blog. I live in a town with a small muni airport which is subsidised by the tax payers and has become a club for some wealthy hobbyists in town. It has also become a nuisance because of the addition of jet aircraft which has moblized a group of tax payers and neighbors. When I had a boat I paid dearly for the pleasure of owning it and I pay dearly for my property which I see as over valued by the town. But you are right about planes being able to be parked out of harms way. Just as those who say “tax the rich” they will find that doesn’t work because the rich can hire people to find ways to avoid taxes. Look at Ted Kennedy, his mother died as a resident of Florida to avoid MA taxes. So even though information like this is available to the people who continue to elect him it doesn’t matter. Why do we bother to try to get a fair shake from people who can afford $10 mil for their own jet but wont pay the relativley small charges for ownership? It just doesn’t make sense when they have the rest of us to support them through the FAA on down to our little airport. So, as you point out when taxes get too high business and people leave. Just as I go to the local hardware store and pay a higher price, rather than the home center a little further away, to keep him handy, the rich ought not kill the golden goose.
JohnS: I’m not sure that towns are authorized to tax aircraft. The Massachusetts Aeronautics Commission collects an annual registration fee. The state and the feds pay for nearly all of the cost of building and maintaining municipal airports, so I think they want to keep taxing authority to themselves. The state and the airport can collect fuel taxes and fees (often more than $2 per gallon). The feds collect fuel taxes and a 7.5% excise tax on charter revenue. These guys wouldn’t want the town government of Teterboro, NJ coming to the party and trying to collect $20 million in tax from all of the Gulfstreams at KTEB because that might interefere with their own attempts to bleed the Gulfstream operators.