By Michael Parker
Arkansas has a history of encouraging the growth of local aircraft-related industries. The latest example comes in the form of a Revenue Legal Counsel opinion issued to Dover Dixon Horne on January 25, 2018.
The Arkansas Department of Economic Development advertises that the state is: “home to nearly 180 well-known companies in the industry,” and that aerospace/aviation is “Arkansas’ second leading export, in part because the state offers very competitive environment for aerospace and aviation companies to operate.” The Dassault Falcon Jet Corporation completion and service centers in central Arkansas are among the most prominent examples, and attract a number of aircraft-related business transaction to the state.
Arkansas’ “competitive environment” was improved significantly in the 2015 and 2017 general legislative sessions through expansions of the Arkansas “fly-away exemption” sponsored by House Revenue and Tax Committee Chairman and aviation enthusiast Joe Jett. Fly-away exemptions generally provide that sellers and purchasers will not be subject to sales or use tax on transactions closed within a state if an aircraft is removed from the state within a certain period of time, or subject to other conditions.
In 2015, Arkansas adopted its first broad fly-away exemption for sales of aircraft between sellers and purchasers that are residents of other states. The exemption was not limited by aircraft size, and an aircraft may remain the state for whatever period of time is necessary to complete maintenance and modification following the closing (Arkansas Act 1182 of 2015, codified at Ark. Code Ann. §26-52-451).
In 2017, the Legislature expanded the exemption to protect certain sales by owners located in Arkansas as well. This broader exemption applies to owners of aircraft with a certified maximum take-off weight (MTOW) of more than 9,500 pounds (4,310 kg), or roughly the size of a Beechcraft King Air. (Arkansas Act 595 of 2017, amending Ark. Code Ann. §26-52-451, cited above). Once again, an aircraft may remain in Arkansas for whatever period of time is necessary to complete maintenance and modifications at an Arkansas service center.
These changes are redirecting many closings to Arkansas that previously occurred in other states, for the convenience of many owners and to the benefit of the service centers and facilities equipped to perform flight checks, certify aircraft condition, and perform pre-closing and post-closing repairs and modifications. In the case of long-range aircraft, sellers and purchasers located outside of the United States have found closings in central Arkansas to be particularly advantageous, due to the “big-name” facilities located at the Bill and Hillary Clinton National Airport. But the parties to these transactions have sought assurances that the statutory references to sellers and purchasers that are “residents of other states,” apply to parties located in jurisdictions outside of the US.
The Department of Finance and Administration’s (DFA’s) Office of Revenue Legal Counsel provided informal assurance to this effect to the sponsor of the legislation during the 2017 Legislative Session, and our firm followed up with a request for a formal legal opinion after the Session ended. The Department’s Office of Revenue Legal Counsel has now confirmed that the term “resident of another state” refers to residents of other U.S. states and residents of foreign political jurisdictions as well. The particular facts of the latest opinion involved a sale of a Falcon 2000LX Model long-range aircraft with a MTOW in excess of 40,000 pounds by a Swiss owner to a company headquartered in Canada. (Aircraft Sale Transactions Opinion No. 20170725 issued January 25, 2018).
Under DFA Regulation GR-75, legal opinions may only be relied upon by the parties to whom they are issued, and then only for 3 years. However, such opinions serve as handy guidance documents for the general public as well as templates for reliance opinions that can quickly be issued to the individual parties to large aircraft transactions where additional due-diligence may be indicated.
Our law firm has advised clients on the Arkansas tax aspects of aircraft and similar transactions for many years, through opinion practice as well as drafting and supporting new legislation, including the 2017 Act. We appreciate these latest opportunities to serve as a reliable resource for the aviation community.