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Airplane owners land in tax trouble

Maine and other states facing budget gaps are putting a special levy on some visitors. One bill tops $175,000.

January 22, 2008|Clarke Canfield | The Associated Press

PORTLAND, MAINE — When Steve Kahn got a $26,000 tax bill on his airplane, he thought Maine Revenue Services had made a mistake. Kahn lives, works and keeps his plane in Massachusetts.

It turns out the bill was no error. It was part of the agency's efforts to collect taxes on aircraft owned by out-of-staters even though they bought their planes elsewhere and brought them to Maine only to visit.

A number of other states, stretching from Florida to Washington, are doing the same as they grapple with budget shortfalls. The Internet makes it easier for state officials to track the comings and goings of aircraft.

Many pilots are outraged.

"At best what Maine is doing is underhanded and devious. At worst it is illegal," Kahn said. "Either way, it's wrong."

Maine officials say they are simply enforcing the state's tax laws when they send bills -- into six figures -- to out-of-state plane owners.

At issue in Maine is the state's use tax, which applies to many goods and services bought out of state that are not subject to sales tax. In the case of airplanes, tax officials say the law allows them to collect a 5% use tax from people who didn't pay sales taxes on their planes if they brought their plane to Maine for more than 20 days, excluding time for maintenance and alterations, in the first year of ownership.

"We're charged with administering the law," said David Bauer, a tax policy analyst with Maine Revenue Services. "We didn't write it."

Use taxes have been on the books for decades, but the first time tax attorney Jon Block saw the state go after somebody who lives and keeps their plane out of state was three years ago.

Block, of law firm Pierce Atwood in Portland, represents seven people from Massachusetts, Connecticut, Maryland and Florida who received bills this year ranging from about $16,000 to $175,000. His clients for the most part fly to Maine on business or to visit vacation homes.

"These people are dumbfounded," Block said. "They feel like they've been taken to the cleaners."

He contends that in addition to being unfair, the precise wording of Maine's use-tax law makes his clients exempt from the tax.

Other states are also stepping up efforts to collect use, lease and property taxes from out-of-state plane owners, said Louis Meiners, president of Advocate Aircraft Taxation Co. of Naples, Fla., a consulting firm for aircraft owners with 1,600 clients nationwide.

Florida assesses a 6% use tax on plane owners who didn't pay sales tax on their planes and bring them to Florida even once within six months of the purchase date. Washington state assesses a use tax of up to 8.9% if a plane is in Washington for more than 90 days in any continuous 12-month period. Illinois is assessing taxes on out-of-state plane owners as well, Meiners said.

These days, the Internet makes it easier for tax collectors to track planes' whereabouts on the Web or through FAA records, Meiners said. Some plane owners have received letters of inquiry and bills from multiple states demanding payment or proof that they have paid sales taxes in their home states, he said.

"What we have is a real potential for double taxation and triple taxation and endless taxation in the way the states try to enforce it," he said.

Kahn, a partner in a Boston financial services company, didn't pay a sales tax when he bought his plane five years ago because Massachusetts exempts planes.

He often flies to Rockland, Maine, to visit his vacation home. He also flies as a pilot in the national Angel Flight program to pick up patients in rural Maine and bring them to Boston-area hospitals free of charge.

He has appealed his tax bill. If his appeal fails, he could take the case to court. "I don't mind paying taxes when I owe them, but this is underhanded."

Out-of-staters who fly to Maine for business have also received hefty bills.

Brian Cleary of Longboat Key, Fla., flies to Bethel, Maine, on business to tend to his timber and property management company, Saddle Ridge Holdings. When he got a bill for more than $175,000, it seemed so farfetched that he thought the state had made a clerical error.

Now, he is so angry that he said he has stopped buying land and timber in Maine and is preparing to move his holdings to New Hampshire. Maine, he said, should embrace people like him who want to invest in the state.

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