PORTLAND, Maine (AP) — A new law eliminating sales taxes on aircraft and parts should give aviation businesses a boost and improve Maine's image as a tax-hungry state prowling after out-of-staters who fly in for visits.
Buried deep in the state's new 620-page budget is a single sentence that provides tax relief for plane buyers, pilots who fly to Maine and people having their aircraft worked on in the state. The exemptions go into effect July 1.
The tax breaks put Maine on a level playing field with other states, said Mark Goodwin, vice president of Northeast Air, an aircraft maintenance company in Portland. No other New England state has a sales tax on aircraft parts, according to the Aircraft Owners and Pilots Association, in Frederick, Md. Other than Vermont, all other New England states have tax exemptions on aircraft sales.
"It's just a breath of fresh air for us trying to make business go in the state of Maine when all the states below us all have had exemptions for all those same things for years," Goodwin said. "We've been battling as an island on our own with a sales tax that's kept aircraft owners from coming to Maine because they can have the work done cheaper elsewhere."
Now that the taxes are being eliminated, Maine Aviation Corp. in Portland is planning to build two new hangars for the increased business it anticipates, said owner Allyn Caruso. He expects his work force to expand from 60 to 100 in the next two years, and for the aircraft sales arm of his business to grow.
"This is going to push us over the top," Caruso said. "We know our business is going to go up."
Maine has long had a poor reputation among plane owners for its aggressive tax collectors who tracked down out-of-state plane owners and sent them hefty bills — some topping $100,000 — demanding payment of the state's "use" tax.
For planes, state law allowed Maine Revenue Services to collect a 5 percent use tax from people who didn't pay sales taxes on their planes they bought elsewhere if they brought their planes to Maine for more than 20 days, excluding time for maintenance, in the first year of ownership.
At the same time, companies that work on planes have had to charge aircraft owners 5 percent for parts, putting their businesses at a competitive disadvantage with companies in nearby states.
Aircraft parts are expensive. A heated windshield on a small jet or midsized propeller plane can run almost $30,000, meaning the owner could save $1,500 in taxes by having the work done elsewhere, Goodwin said. An engine overhaul on a small jet can cost $350,000 in parts alone, which would result in $17,500 in taxes — enough to drive people to bring their plane elsewhere to have work done, he said.
"They'll bring it to New Hampshire or Massachusetts or Rhode Island," Goodwin said.
The new tax law should also benefit the former Brunswick Naval Air Station as it undergoes redevelopment. The former base, which shut down for good this spring, has attracted an aircraft manufacturing company and hopes to lure other aviation-related businesses, said Jeff Jordan, deputy director of the Midcoast Regional Redevelopment Authority, which is responsible for the site.
The tax exemptions will cost the state about $608,000 a year in taxes that otherwise would have been collected, according to the Office of Fiscal and Program Review.
Studies show that other states that have enacted tax exemptions on aircraft sales and parts have benefited, said Mark Kimberling, director of state government affairs for the Aircrafts Owners and Pilots Association. AOPA has more than 400,000 members nationwide and 2,100 in Maine.
After Connecticut exempted aviation parts from sales taxes, it became a hub of aircraft maintenance, he said. The state now has 101 aircraft maintenance companies and 7,000 aircraft mechanics, he said.
"Now you have more companies, more jobs, more revenues and more places for people to work with good livable wages," Kimberling said.
With Maine Revenue Services no longer collecting use taxes from out-of-state plane owners, more pilots should feel free to fly to Maine without the fear of getting a tax bill in the mail, said Portland attorney Jon Block, who has represented out-of-state plane owners who contested the tax bills over the years.
"This should change Maine's image in aviation circles," he said. "Maine's gotten a very negative reputation. People were afraid to fly their planes here. And this will totally change that."
Copyright 2011 The Associated Press.