PORTLAND (AP) – When Steve Kahn got a $26,000 tax bill on his airplane, he thought Maine Revenue Services had made a mistake. Kahn lives and works in Massachusetts.

But 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.

Many pilots are outraged.

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

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.

A number of other states, stretching from Florida to Washington, are doing the same as they grapple with money shortages and the Internet makes it easier to track the comings and goings of aircraft.

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 percent 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 Maine go after somebody who lives and keeps their plane out-of-state was three years ago.

Block, with Pierce Atwood law firm in Portland, represents seven people from Massachusetts, Connecticut, Maryland and Florida who got 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 argues 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 percent 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 percent 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 Internet or through FAA records, Meiners said. Some plane owners have gotten letters of inquiry and bills from multiple states demanding payment or proof that they’ve 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,” he said.

Out-of-staters who fly to Maine for business have also gotten 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 far-fetched 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.

“Instead, what the state is doing is the exact opposite,” he said.

Daniel Cross of Washington, D.C., is appealing a $26,000 bill he got this year for the time his plane was in Maine three years ago.

Cross owns a company with investment real estate holdings in Maine, but he has put his Maine business dealings on hold pending the outcome of his appeal.

“Do you really want to preclude business people from coming into Maine because of this tax?” he said. “I think it’s bad tax policy.”

Phil Boyer, president of the Maryland-based Aircraft Owners and Pilots Association, wrote to Maine Gov. John Baldacci, saying the tax policy risks alienating 130,000 visitors that arrive in Maine on general aviation aircraft each year. His letter said the tax jeopardizes the health of the state’s 54 public-use general aviation airports, which have a total economic impact of more than $100 million. A meeting is scheduled in January.

Democratic Sen. Joe Perry, co-chairman of the Legislature’s taxation committee, said tax bashers too often make the argument that Maine has an antibusiness economic climate and in the case of out-of-state plane owners, it might be justified. Perry said he would probably support changing existing law.

Dr. Alan Sugar, a physician from Wellesley, Mass., decided to pay the $16,000 use tax bill he got – but he’s not happy about it. He flies to the Trenton, Maine, airport on a regular basis to get to his family’s second home on Swan’s Island off Mt. Desert Island.

“Massachusetts has the reputation for taxing people. But this is far worse than anything Massachusetts has done,” Sugar said.

AP-ES-12-28-07 1224EST

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