Aircraft
When you acquire complete or partial ownership of an aircraft,or when you first bring an aircraft into Minneso- ta to be hangared, you must register the aircraft with the Minnesota Department of Transportation (DOT), Office of Aeronautics. You must furnish proof that the correct sales or use tax has been paid or that your purchase is exempt. If the correct sales tax has not been paid, it must be paid at the time of registration. See the Aircraft Reg- istration and tax payment section below for details.
The guidelines in this fact sheet do not apply to airline- companies subject to airflight property taxes under M.S.270.071 to 270.079. For Minnesota sales and use tax purposes, the term “air-
craft” includes, but is not limited to:
airplanes
gliders
gyro-copters
helicopters
hot air balloons
kit planes (assembled or unassembled)
powered parachutes
sail planes
ultralights and sportplanes
Aircraft registration and tax payment
To register your aircraft and pay any tax that is due, you must complete an Aircraft Registration Application and Sales/Use Tax Return form (Aircraft Registration). In some cases, the registration and payment of tax can be completed electronically. To electronically register and pay, or to download a copy of the Aircraft Registration form, go to the DOT, Office of Aeronautics web site: w.dot.state.mn.us/aero
For information on registration requirements contact:
Minnesota Department of Transportation
Aircraft Registration, Office of Aeronautics
222 East Plato Boulevard
St. Paul, Minnesota 55107-1618
Phone (651) 234-7201
Website: www.dot.state.mn.us/aero
Sales or use tax payment.
To show proof that sales or use tax has been paid, to pay any tax that is due, or to claim an exemption from the tax, complete Section 3 of the Aircraft Registration. Instructions for completing Section 3 and information on allowable exemptions are on page two of the Aircraft Registration.
Mia aircraft dealers should charge Minnesota sales tax and list the tax amount on the invoice.
The dealer is re- quired to inform the Office of Aeronautics that sales tax was paid so that the aircraft registration can be completed. If the dealer doesn’t inform the Office of Aeronautics of the sales tax paid, you will be required to prove that you paid sales tax in order to register the aircraft without paying additional sales or use tax. You must complete and file a paper Aircraft Reg- istration if you are claiming a sales tax exemption.
If you buy an aircraft from a private party, a business that does not normally sell aircraft, or from an >out-of- state dealer, you may not be charged Minnesota sales tax. There is no exemption from sales tax on these air- craft purchases. Minnesota use tax will be due when you register your aircraft with DOT, Office of Aeronautics.
Tax applies to purchases of unairworthy or disassem- bled aircraft, as long as the aircraft retains a federal air- craft registration number. If you buy parts to build an aircraft, the parts are taxable. Before registration can be completed, you must present proof that Minnesota sales or use tax has been paid or that an exemption applies.
Tax paid to another state.
Credit is allowed for sales tax legally required to be paid to another state. If the other state’s tax rate is less than Minnesota’s rate, you owe the difference to Minnesota. You need to attach a copy of the receipt showing tax paid to another state to your Aircraft Registration.
Local tax.
If an aircraft is purchased, hangared or stored in an area that has a local sales and use tax, local tax is also due. If the appropriate local tax has not been paid, it is also due when you register your aircraft. Request Fact Sheet 164, Local Sales and Use Taxes, for more information. Aircraft designed specifically for and used primarily for agricultural spraying are required to be registered, but are not subject to Minnesota sales or use tax.
Air craft trades
A trade-in deduction is allowed for aircraft if all the following conditions are met:
the sale must be conducted by a licensed aircraft dealer, or a lessor registered to collect and remit Minnesota sales tax,
an invoice or sales agreement must show the transaction was a trade and must show the value of each aircraft,
the federal registration numbers of both aircraft must be shown, and
the new owners must each complete their own Aircraft Registration, unless the licensed Minnesota aircraft deal- er handled the transaction.
Even trades.
There is no tax due on an even trade of an aircraft for an aircraft if tax was correctly paid on the initial aircraft purchases, and all the above conditions are met.
Other trades.
Sometimes aircraft are traded and the val- ue of one aircraft is more than the value of the other. If all the preceding conditions are met, the person trading up to the higher value aircraft must pay tax on the differ- ence in price. The person trading down to a lower value aircraft may claim an even trade exemption.
Trades between individuals.
If the trade is not con- ducted by a licensed aircraft dealer or lessor as described in this section, tax is due on both aircraft, based on the value of each aircraft.
Air craft dealers and lessors
All Minnesota aircraft dealers and lessors must be regis- tered with the Minnesota Department of Revenue to col- lect sales tax. If you are not registered to collect sales tax, may apply for a Minnesota identification number at the Department of Revenue website at:
www.revenue.state.mn.us, or call Business Registration at 651-282-5225 to register.
How to report sales and use tax.
The dealer or lessor must collect tax on all sales and leases of aircraft unless a valid exemption applies. Dealers and lessors should report sales tax collected as General rate sales on their sales and use tax return. Sales and use tax returns are filed electronically over the Internet or by phone.
Charging sales tax.
For sales of aircraft, the sales tax rate imposed in the seller’s taxing jurisdiction applies when the purchaser picks up the aircraft at the seller’s location. If the seller delivers the aircraft to a different location for the purchaser, the sales tax rate imposed in the taxing jurisdiction where the aircraft is delivered is charged. The rate of tax imposed on the lease or rental of an aircraft that requires only one payment for the lease or rental period follows these same rules.
The rate of tax imposed on the lease or rental of an air- craft that requires recurring periodic payments is based on the tax rate imposed in the primary property location for each payment. The primary property location is the address for the leased property given to the lessor by the lessee. The property location is not altered by intermit- tent use at different locations.
Purchases by dealers or lessors.
To buy an aircraft solely for resale or for leasing to others, give the seller a fully completed Form ST3, Certificate of Exemption, and claim the resale exemption. Repair and replacement parts can also be purchased exempt for resale or lease.
Registration by dealers or lessors. To register aircraft exempt from tax, refer to the appropriate procedures listed in the following paragraphs.
Resale: To qualify, the aircraft may be used only for demonstration purposes. You must show you are a li- censed Minnesota aircraft dealer or otherwise in the business of selling aircraft. Attach a copy of your Min- nesota dealer’s license to your Aircraft Registration. If you do not have one, attach a description of your busi- ness. You will also need to fill in your Minnesota Tax ID number.
Lease: Attach a copy of all executed leases to your Aircraft Registration. If no formal lease agreement exists, you must attach a description of the leasing or rental activity. Include a statement describing the owner’s use of the aircraft. If the aircraft is owned by a nonprofit incorporated flying club or association, attach a copy of the club’s charter and bylaws. You will also need to fill in your Minnesota Tax ID number.
Note: If you registered the aircraft exempt solely for resale or leasing to others, but later use the aircraft for any business or personal use, you owe use tax on the original purchase price of the aircraft.
Nonprofit incorporated flying clubs
A nonprofit incorporated flying club or association may buy aircraft used for leasing purposes and aircraft repair parts exempt from sales tax. The club must collect sales tax from its shareholders and/or members on all rental fees, dues, membership fees, and all other fees and charges assessed upon the members. When the flying club registers the aircraft, it must file the Aircraft Registration. Use “Lease” as the exemption reason to show that the aircraft is owned by a nonprofit incorporated flying club or association. Attach a copy of the club’s charter and by-laws and list the club’s Minnesota Tax ID Number.
Nonresidents
A non-Minnesota resident who takes possession of an
aircraft in Minnesota is exempt from paying Minnesota sales or use tax if the purchaser transports the aircraft outside Minnesota and:
the aircraft is not returned to Minnesota except in the course of interstate commerce, or occasional use;
the aircraft is subsequently registered in another state or country; and
the aircraft meets the definitions in M. S. 360.511 and is approved by the FAA.
This exemption also applies if the non-Minnesota purchaser takes possession of the aircraft in Minnesota and uses it here exclusively for a training period of not more than ten days before removing it from Minnesota.
This exemption also applies if the non-Minnesota purchaser takes possession of the aircraft in Minnesota and uses it here exclusively for a training period of not more than ten days before removing it from Minnesota.
Aircraft leased to out-of-state residents are exempt if the aircraft is based and used outside Minnesota.
Examples of taxable sales
Selling or leasing aircraft
Repair and replacement parts and materials for air- craft. Beginning July 1, 2013, Minnesota law pro- vides an exemption on the sale or purchase of equipment and parts necessary for repair and maintenance of aircraft and equipment or parts to upgrade and improve aircraft, and their associated installation charges. To qualify for this exemption, the aircraft must be operated under Federal Aviation Regulations, parts 91 or 135.
Aviation oil
Installation labor to add something new or different to an aircraft, i.e. upgrades and improvements
Rentals of aircraft to students for instruction and solo flights when the rental is stated separately from other flight instruction fees
Rentals of aircraft to instructors for both instructional flights and solo flights when the student’s use of the aircraft is included in a lump sum fee for flight in- struction
Books and manuals sold to students if billed separate- ly from tuition
Books and manuals sold to instructors who give them to students without charge, as part of instruction fees
Repair labor if separately stated
Flight instruction fees
Rentals of hangar space
Flight transportation charges for cargo or passengers
Aerial crop spraying charges
Charter services (providing an operator along with an aircraft). The charter operator must pay tax on the purchase or lease of the aircraft used to provide char- ter service.
IRC Section 351 transfers from one corporation to another corporation for stock are not taxable only if the seller, after the transfer, is in control of the corpo- ration (owns at least 80% of the stock)
IRC Section 721 transfers—nonrecognition of gain or loss on contribution (partnerships)
Transfers on death: revocable trusts, wills, and inher- itance. You must furnish court documents.
Guidelines for lease-backs between owners and fixed-base operators
If you buy an aircraft solely for leasing it back to a fixed-base operator (FBO), both you and the FBO must be registered with the Minnesota Department of Revenue for sales tax.
Remitting the proper amount of sales or use tax.
Detailed documentation must be kept by both the owner and the FBO in lease-back transactions.
The FBO must collect sales tax on amounts received from leasing the aircraft to others and report the sales tax collected as General rate sales, on the Minnesota Sales and Use Tax Return.
The FBO must remit use tax on amounts paid to the owner for its own taxable use as Purchases – use tax due. (For example, FBO’s use of aircraft during flight instruction or for personal use).
If the FBO leases an aircraft to the owner, tax may be handled in either of the following ways:
The FBO collects sales tax from the owner, and includes tax collected as General rate sales. The lease price should be based on amounts charged to other lessees or the fair mar- ket rental value.
The owner reports use tax directly to the state on the own- er’s own return as Purchases – use tax due. In the event of an audit, it is important that the FBO has documentation that the owner is paying the tax.
Because the owner and the FBO have an ongoing rela- tionship, we recommend there be a legal contract detailing each party’s responsibilities, liabilities, and understand- ings to ensure that the proper amount of sales and use tax is remitted by the owner and the FBO.
Examples of exempt sales
Beginning July 1, 2013, Minnesota law provides an exemption on the sale or purchase of equipment and parts necessary for repair and maintenance of air- craft and equipment or parts to upgrade and im- prove aircraft, and their associated installation charges. To qualify for this exemption, the aircraft must be operated under Federal Aviation Regula- tions, parts 91 or 135 (This exemption does not ap- ply to tools or equipment used to perform the re- pair).
Aircraft and aircraft parts bought solely for resale or leasing. The buyer must give the seller a Form ST3, Certificate of Exemption, claiming the resale exemp- tion.
Aircraft and aircraft parts bought by a qualifying ex- empt organization. The organization must give the seller Form ST3, Certificate of Exemption, claiming the Exempt Organization exemption.
Aviation fuel (subject to petroleum tax)
Wash jobs on aircraft
Repair labor if separately stated
Flight instruction fees
Rentals of hangar space
Flight transportation charges for cargo or passengers
Aerial crop spraying charges
Charter services (providing an operator along with an aircraft). The charter operator must pay tax on the purchase or lease of the aircraft used to provide charter service.
IRC Section 351 transfers from one corporation to another corporation for stock are not taxable only if the seller, after the transfer, is in control of the corporation (owns at least 80% of the stock)
IRC Section 721 transfers—nonrecognition of gain or loss on contribution (partnerships)
Transfers on death: revocable trusts, wills, and inher- itance. You must furnish court documents.
References
M.S. 297A.668, Subd. 4. Sourcing rules for the lease or rental of aircraft
M.S. 297A.82, Aircraft; flight equipment; payment of taxes; exemp- tions.
MN Rule 8130.6000, Airflight Equipment
MN Rule 8130.6500, Aircraft Commercial Use Permit
Revenue Notice 96-5, Sales of Ultralight Planes
Other fact sheets you may need:
Fact Sheet 164, Local Sales and Use Taxes