The COVID-19 pandemic has caused many airlines to temporarily ground aircraft. Due to its dry desert conditions, Arizona is a popular state for airlines and commercial aircraft lessors to park aircraft while not in active use. Airlines and commercial aircraft lessors should be aware, however, that Arizona's annual aircraft license tax may apply to an aircraft owned by a nonresident of Arizona if the aircraft is based in the state for more than 90 days in a calendar year.1 The annual license tax is administered and enforced by the Arizona Department of Transportation ("ADOT").
For aircraft based in the state for more than 210 days a year, Arizona aircraft license tax rate is one-half of one percent of the aircraft's value (determined by the average wholesale blue-book value for the make, model and year of the aircraft).2 For nonresident-owned aircraft based in the state for more than 90 days but fewer than 210 days, a reduced tax rate of one-tenth of one percent is imposed on the aircraft's value.3 A special flat annual license tax of $20.00 applies to aircraft stored in the state. However, to qualify for the $20.00 flat tax, the aircraft owner is required to file a sworn affidavit annually with the ADOT affirming the aircraft's storage in the state no later than the last day of February or within 60 days after the aircraft is placed in storage.4 Accordingly, if the sworn storage affidavit is not timely filed, then the ADOT is likely to impose the license tax at the standard rates of 0.5% (0.005) or 0.1% (0.001), as applicable.
The license tax does not apply to aircraft used in regularly scheduled operations by an airline company.5 However, the commercial aircraft exemption may not apply to aircraft indefinitely removed from regularly scheduled airline operations, aircraft stored in Arizona between leases with commercial airlines, or aircraft stored in Arizona as a source of spare parts.
Based on the foregoing, before deciding to store an aircraft in Arizona, the owner should consider whether the aircraft is likely to be in Arizona for more than 90 days, and, if so, whether a sworn storage affidavit should be filed with the ADOT to qualify for the $20.00 flat storage tax. Before filing the sworn affidavit, the aircraft owner should also consider whether storage of the aircraft in Arizona will trigger an Arizona use tax obligation. If the time for filing the sworn affidavit has passed, other aircraft license tax exemptions may be available to the aircraft and aircraft owner.
1. An aircraft owned by a nonresident who bases the aircraft in Arizona for a period of not more than 90 consecutive days or 90 day in any one calendar year, does not have to register the aircraft with ADOT or pay the state's aircraft license tax, if the aircraft is not engaged in intrastate commercial activity. Ariz. Rev. Stat. § 28-8322(D)(2). The meaning of "based in" and "days" in Arizona for purpose of the state's aircraft license tax is being litigated in Arizona. In BSI Holdings, LLC v. Ariz. Dep't of Transp., 417 P.3d 782 (2018), the Arizona Supreme Court held that it could not determine the meaning of a "day" in Arizona for purposes of the state's aircraft license tax without also knowing what "based in" Arizona means, which was not considered by the lower courts. Thus, the Arizona Supreme Court remanded the case back to the tax court to address the meaning of "based in" in Arizona under section 28-8336. A "resident" of Arizona includes "[a]n individual, partnership, company, firm, corporation or association that maintains a main office, a branch office or warehouse facilities in this state and that bases and operates motor vehicles in this state." Ariz. Rev. Stat. §§ 28-8321; 28-2001(A)(1)(e).
2. Ariz. Rev. Stat. §§ 28-8335; 28-8342.
3. Ariz. Rev. Stat. § 28-8336.
4. Ariz. Rev. Stat. § 28-8337.
5. The aircraft license tax is in lieu of Arizona property tax. A.Z. Const. art. IX § 15. Because airlines are subject to property tax on airline "flight property," airlines do not pay the state's aircraft license tax on commercial aircraft, unless the aircraft is permanently removed from regularly scheduled operations. Id.; see also Ariz. Rev. Stat. § 28-8322(D)(1); Ariz. Admin. Code R15-4-302.
Originally published on 6 May, 2020
This article is presented for informational purposes only and is not intended to constitute legal advice.