Sales and use taxes on aircraft vary drastically from state to state. Some states have no sales and use tax, while others charge a hefty fee. Additionally, each state has different exemptions to the tax. With ever-changing legislation and interpretation of state sales taxes and exemptions, it is important for aircraft owners to understand the current regulation in their home state.
Contrasting recent legislative
approaches in two states
While Washington state lawmakers recently enacted a new luxury tax on noncommercial aircraft, Arkansas has taken a different approach – passing legislation that clarifies sales and use tax exemptions available for business aircraft owners.
Washington state legislatures passed Senate Bill 5801 and Gov. Bob Ferguson signed it into law in late May 2025. The budget bill includes a new 10% luxury tax on noncommercial aircraft purchases above $500,000 and will be effective starting April 1, 2026.
In April 2025, Arkansas legislatures approved House Bill 1807, which clarifies the exemption for aircraft purchased for rental and leasing. The bill was signed by Gov. Sarah Huckabee Sanders and goes into effect Oct. 1, 2025.
The Arkansas legislation provides clarity on the long-standing purchase for resale exemption that allows taxpayers to defer sales tax on leased aircraft. Aircraft owners in Arkansas now have guidelines on remitting sales tax on lease revenues, which is customary for all leased equipment. The legislation imposes an annual minimum lease payment of at least 7.5% of the aircraft’s purchase price.
Aviation Tax Consultants dealt with numerous aircraft sales and use tax audits in Arkansas over the past two years, as the Department of Finance and Administration, or DFA, was taking novel legal positions to deny the long-standing rental and leasing exemption available to aircraft owners. Some cases were headed to the court system, which may have been a strategy by the DFA to discourage taxpayers from pursuing these exemptions and instead pay sales tax on the acquisition of the aircraft.
An Arkansas client introduced us to a lobbying firm in February. The firm’s principal is an aircraft owner, so he was intimately familiar with the tax issues faced by aircraft owners in Arkansas. His lobbying firm undertook this project to advocate for clarifying legislation in Arkansas to preempt these ongoing aircraft audit cases.
The proposed legislation was modeled after the law passed in 2008 by Indiana legislatures to clarify its aircraft sales and use tax enforcement. Since its passage in Indiana, aircraft audits there have become a rare occurrence as taxpayers are provided with clear and unambiguous guidelines on how to comply with the law.
The lobbying firm was successful in Arkansas, and the draft legislation received bipartisan support as it encouraged compliance by aircraft owners – potentially boosting tax revenues and fostering new business and employment opportunities. The law passed both legislatures and was signed by the governor in May.
Monitoring the evolving tax landscape
In the current environment of state budget deficits, more and more states are taking aggressive action and targeting business aircraft owners and their exemptions for much needed tax revenues. Instead of passing laws restricting the use of the exemption, tax administrators at various state departments “take matters in their own hands” and create new interpretations of tax statutes to deny exemptions to business aircraft owners.
We have seen these arbitrary administrative actions against business aircraft owners in Utah, Ohio, Nebraska, Alabama and Colorado.
For example, in just the past year the Utah State Tax Commission and its tax auditors have adopted a 10% annual minimum lease payment requirement for aircraft leases. This policy does not apply to construction companies leasing construction equipment, and this policy was not passed by the Utah state legislature, rather it was selectively applied to aircraft owners. Aviation Tax Consultants has been guiding clients through the evolving tax landscape, especially when they discover the same sales tax exemption that applied to their last three aircraft – over years of ownership – no longer applies, despite no legislative changes to the tax law.
Navigating sales and use taxes in your home state
Aircraft owners should review their aircraft ownership and lease structure, understand the current enforcement landscape in their home state and potentially make proactive changes to comply in a changing environment.
The successful legislative efforts in Arkansas may provide a blueprint for other aviation stakeholders to counter overzealous tax administrators from targeting business aircraft owners in their home state.
Noah Block, CPA, is an aircraft tax advisor at Aviation Tax Consultants. Noah lives in Chicago and travels all over the country to aviation events to meet owners and help them navigate sales tax and income tax planning.