A Massachusetts state representative, Cory Atkins, recently proposed adding a sales tax on aircraft in Massachusetts. Neighboring states either don’t have sales tax at all (New Hampshire) or mostly exempt aircraft (e.g., Connecticut). It isn’t surprising that a politician would dream of taxing a $60 million Gulfstream at 6.25 percent and spending the resultant $3.75 million on worthy projects supervised by wise bureaucrats (cf. the Big Dig, which could have been fully funded with sales tax revenues from just 3,893 Gulfstream G-650s (8 built so far says Wikipedia)).
What is surprising about this proposed new tax is that it is put forward by a representative from a town, Concord, partly occupied by an airport, Hanscom Field. Arguably the town would be better off if the airport were shut down and the land converted to McMansions paying property tax, but a shut down is not possible due to the fact that the airport is used by the adjacent Hanscom Air Force Base and the airport is owned by Massport, which would not cede its authority and revenue source to Concord. The airport generates a lot of jobs for people involved in hangaring airplanes, piloting them, fixing them, and fueling them. A tax on airplanes would result in hangar, repair, pilot, and fuel jobs moving to Nashua, New Hampshire, a 10-minute flight away. Why would a politician want this for the town that she represents?
One obvious argument would be to minimize noise from those Gulfstreams. But if the Gulfstream lives in Nashua, along with its pilots, flight attendants, fuelers, mechanics, and hangar crew, it will need to perform twice as many operations at Hanscom Field to get a passenger off to Teterboro, Dulles, or Palm Beach. Instead of landing and taxiing to its hangar, the plane will taxi, unload, and then noisily depart for its New Hampshire home.
I’m not surprised that a politician would propose a new tax but wouldn’t one expect it to come from a politician whose district did not include airport-related businesses and employees? Even the most peace-loving Congressmen nearly always support more military spending in their own district. Could it be the one-party nature of Massachusetts politics that accounts for Ms. Atkins’s war on Hanscom Field?
Sadly, legislators in Massachusetts are accountable to no one, certainly not to their constituents. Back in the days when we had Republican governors, we had at least a token balance, with the potential threat of a veto. Alas, no more.
Consider the Governor’s plan to raise taxes (sales + income) as another example of this. The stated goal is to “make investments in the MBTA and in education”. There is no one from the other party to oppose the governor, who will get what he wants sooner or later. Sadly, what will happen is that other than certain token capital spending, most of the money will flow through to unions in increased wages, who will then kick back some of it to their favorite politicians in the form of campaign contributions.
Which is why, if Scott Brown ever decided to run for governor, I’d be inclined to vote for him just so there is some balance in government, regardless of whether or not I agree with his specific views.
Isn’t Concord a pretty expensive town? Is it possible that very few of the people who work at the airport live in Concord?
Vince: Concord has some expensive houses, but the same woman represents Acton, Carlisle, and Chelmsford, which are not as fancy. Concord has downtown businesses, including restaurants and a hotel, that are patronized by people who come to Hanscom Field for work, travel, or whatever.
Why should aircraft be exempt from sales tax in the first place? General aviation is already subsidized by the public at large for the benefit of very few. In my experience, private aviation is either a hobby for the wealthy, or a business “tool” for the elite.
You often take a critical stance against welfare. I would argue that not taxing aircraft is welfare for the elite.
It’s not clear to me why taxing aircraft would have much of an impact in the local economy. Aren’t the vast majority of light aircraft legacy, and not subject to sales tax which would apply to newly purchased or sales of existing aircraft? Light aircraft are located where the people or industries they serve are. Are you suggesting that people are going to pick up their house, family and jobs/companies to avoid paying 6% on the off chance they want to sell or buy one of their $100-200k toys? Perhaps the airports in your area cater to mostly high-end, expensive business jets and helos. Maybe it would make sense for those folks to transplant themselves somewhere nearby. However, there’s nothing preventing the other, non-tax, areas from adding a sales tax as well. In fact, I’d say that if it passes in your area, it is more likely that adjacnet areas will follow suit.
Not to mention, one can imagine all the absurd tax breaks and write-offs companies which can afford a fleet of Glufstream’s already enjoy related to those aircraft. First world problems.
Senorpablo: Even if you think that a tax that will result in a loss of jobs at an airport is a good idea it is still strange that a politician representing the region where the job losses will occur is the one promoting the new tax. That was the point of the original posting.
[To answer your broader issues… private aviation is already taxed by the federal government via a per-gallon tax on fuel. Some states add their own per-gallon fuel tax, despite the fact that states don’t fund airport construction or air traffic control. If you believe that private airplane owners aren’t paying what you’ve decided is their “fair share” you could simply raise the fuel taxes. That would have the positive environmental effect of encouraging more fuel-efficient aircraft. A sales tax, on the other hand, encourages people to keep operating older less-efficient airplanes. You conjecture that New Hampshire will be inspired by a new tax in Massachusetts and its $100/year legislators will get together to impose a sales tax of their own, but what precedent is there for that? People in New Hampshire don’t seem anxious to copy the Massachusetts experience. A lot of wealthy people have fancy houses. It is tough to move the fancy house to a tax-free state such as New Hampshire. If you think that the government is so starved for revenue why not advocate for a sales tax on houses? 6.25% every time a house changes hands would give our wise legislature a lot more freedom to spend money for our benefit.]
It doesn’t seem to me that jobs are the only consideration. Perhaps the politician perceives the benefit to the many residents to be greater than the negative impact of projected job losses. Wrong thinking or not, that seems to be in line with the accepted public agenda of a politician. Seems pretty straightforward.
You seem to be in a unique, minority position to be effected by this issue. I bet if you took an informal pole of the overall population, they would be pretty clueless and disinterested. Aside from some folks working at the airport, this is so far outside the every-persons domain that it hints of being offensive for them to consider. Most folks associate aircraft ownership with the folks on the vertical slope of the hokey-stick graph which is the increasing income inequality divide. I don’t see this getting any sympathy from the 98% of people who reside in the flat part of the graph.
As far as taxing per gallon, we do that with cars in addition to sales tax in most states. It would be an interesting concept for the millions of cars on the road today to switch exclusively to the per gallon tax model. Now that would have a very real impact on America’s fuel dependency, much more so than aircraft! Can you imagine the oil companies reaction to that? The elite with their Ferrari’s which get driven 300 miles per year would benefit dearly to the detriment of people who use modest vehicles daily to do, and get to and from, work. In a tangible sense, aircraft most closely resemble cars so it’s an interesting point you bring up that they are taxed differently. Price wise, aircraft are more akin to houses which come with yearly property taxes. Perhaps a hybrid of per gallon and ownership tax is more “fair”?
Why don’t we levy sales tax on houses? I suppose for the same reason we don’t tax groceries: they’re a basic necessity. People need things to eat, and places to take shelter. Private aircraft certainly do not fall into that category.
It sounds like aircraft purchasers in your area have enjoyed a tax break for a long time, perhaps at the expense of adjacent communities which don’t have the exemption. People will bemoan an increase of taxes no matter how clever, fairly applied, or productive and well intended the results.
New Hampshire is not exactly a tax-free state. The tax on those fancy houses is $24.50 per $1,000 in my town. The minimum buildable lot is assessed at about $100,000 just for the land, so the owner of the meanest run-down shack will pay at least $2,450 per year. There is no sales tax on automobiles but the registration fee varies with the model and age of the car, like the excise tax in Massachusetts, and can be quite a bit for a brand-new luxury car. An airplane is cheap to register: $48.
Do you know how many other states besides Massachusetts and New Hampshire have no sales or use tax on aircraft? Six. Alaska, Delaware, Montana, North Carolina, Oregon, and South Carolina.
Illinois has a 6.25% use tax on aircraft, but O’Hare is doing just fine.
Senorpablo: Why isn’t it easy to tax aircraft the same way that states rake in revenue from cars? Cars are regulated on a per-state basis. It is illegal to register a car in State X and live/drive in State Y. Aircraft are federally regulated. It is legal to use, anywhere in the world, an airplane that is registered in any country. The state police can pull you over and take away your car if they don’t like how you’ve got it registered. The state police cannot pull over a NetJets Gulfstream or Emirates A380 and tow it away.
Mark: The airplanes that operate at O’Hare are not subject to sales tax. Nor do they pay federal and state fuel taxes like privately operated planes (they pay a federal airline ticket fee). They are based in states that don’t tax aircraft that are, for example, operated under FAR 121 (airlines) or FAR 135 (charter), or they are based in states that don’t tax aircraft at all, or they are based in states that have given special tax breaks to a particular airline to keep it headquartered there. Absent government regulation that makes illegal for a foreign carrier to serve domestic routes, the airplanes that operate at O’Hare would be like the cruise ships that visit Florida, San Diego, Seattle, and New York City, i.e., they would be based in foreign countries and operated by foreign nationals who would go home to rest periodically (Emirates is a good example of a carrier that would be dominant but for protectionist laws).
As for your list of tax-free states… http://www.ct.gov/drs/cwp/view.asp?a=1477&q=269920 shows that Connecticut doesn’t tax airplanes that are heavy (more than 6000 lbs.) or that operate by a “licensed carrier engaged in interstate commerce”. So the Greenwich-based hedge fund’s Gulfstream will not be taxed. Nor will the Gulfstreams and fancy jets based in Connecticut by Warren Buffett’s NetJets. So a politician could claim that a tax on airplanes will be “soaking the rich” but in fact the tax will hit a family that buys a $50,000 Cessna to travel to grandma’s house in Maine or a flight school that buys a $25,000 trainer in which young people learn. It won’t touch big corporations. It won’t touch rich people who use fractional jet services such as NetJets or charter services. It won’t touch rich people who buy their own turbine-powered airplanes.
http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html shows that if a state did have a sales tax that would apply to corporate jets they would probably have to then rebate the tax to selected companies as an inducement to keep them based in that state. So you’d have more of the crony capitalism that already defines the U.S. where the tax rate that a company pays depends on which politicians they connect with and, perhaps, fund with campaign contributions.
Trying to raise a lot of revenue with a sales tax on airplanes (can fly across state lines), rather than on, say, houses (bolted to foundation), doesn’t make sense due to the fact that there are 50 states in the U.S. that compete for businesses and residents. For the idea to work the states would have to get together in a cartel and promise not to cheat with rebates. But what incentive would an efficient state such as Texas (7.9% of GDP spent by state and local government) or New Hampshire (8.1% spent) have to join with an inefficient state such as New York (12.8% spent) or California (11.2% spent) [source: http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-2010-new-york-citizens-pay-most-alaska-least ]? Texas and New Hampshire attract a lot of (tax-paying) businesses and residents by having generally lower taxes.
[And separately, Mark, don’t complain too much about your real estate taxes in NH! A lot of towns in Massachusetts are now at about $20 per $1,000 for residential real estate and as high as $43 per $1,000 for commercial. The people who live in those houses also have to pay 6.25% sales tax on most things (not aircraft right now!) and an income tax rate of either 5.25%, 5.3%, or 12%. Only someone who lived in a very fancy house and had a very low earned income would pay more in tax in New Hampshire.]
Do small airplanes lose value as they clock up more hours the way that cars do as mileage increases? If they do, I think that it would be reasonable to call a family rich which “buys a $50,000 Cessna to travel to grandma’s house in Maine.”
Vince: A $50,000 Cessna was built in the 1980s and is no longer depreciating. The direct operating cost (fuel plus maintenance and overhaul reserve) is about $100 per hour. The airplane travels at about 120 mph and needs to cover fewer mile than a car to get to the same destination (no curves in the road). So the cost per equivalent road mile is probably about 75 cents. AAA says that the cost of operating an SUV is 77 cents per mile and a sedan around 60 cents (see http://newsroom.aaa.com/tag/your-driving-costs/ ). So the family that travels to Maine by airplane is not obviously “richer” than the family who travels in a sedan or SUV, especially since the airplane may be owned in a two- or four-way partnership with other families (nobody needs an airplane 24/7).
Amazing how many people think that airplane owners are rich people. Me and my club partner bought our first airplane for 30k. Traveled around east coast a lot and as you mentioned, probably paid less in expenses then if we driven cars. We sold this plane after 9 years of ownership for 20k. So not much of depreciation here. Some of my colleagues own boats or play golf and they spent at least twice more per year on their hobbies that we spend on airplane (including keeping it in a top shape).
Phil, it seems like you answered your own question when you postulated that Adkin’s proposal would increase the number of operations at Hanscom Field. Isn’t that good for the local economy?
Craig: An aircraft based in New Hampshire that comes in to Hanscom to pick someone up (two operations) generates most of its jobs back home in New Hampshire.