Reed Smith Client Alerts

Welcome to the Reed Smith’s 2018 mid-year update on recent developments in state and local tax affecting the aviation industry. In this update, we will focus on some noteworthy sales and use tax law changes, cases, rulings, and secondary legal guidance, as well as review a newly filed New Jersey corporate income tax case involving transfer pricing adjustments to the payments under an intercompany aircraft lease.
Cargo being loaded on a plane


Arkansas exemption for parts applies to sale of aircraft for dismantling. On January 8, 2018, the Arkansas Department of Finance and Administration (DFA) ruled that the sale of an aircraft that was delivered in Arkansas to be dismantled and parted out was exempt from sales and use tax under the state’s statutory exemption for commercial jet aircraft parts. This ruling follows a prior ruling (Opin. No. 20170630, July 3, 2017) reaching the same conclusion.

The transaction involved a nonresident leasing company, which sold a commercial aircraft to a nonresident domestic airline. The aircraft was delivered to a maintenance facility in Arkansas where title was transferred from seller to buyer. Once title transferred, the buyer entered into an agreement with the maintenance facility to dismantle the aircraft for its useable parts. The aircraft engines were immediately shipped out of Arkansas. The other useable aircraft parts were either (i) stripped from the aircraft and then shipped to the buyer outside of Arkansas, (ii) left at the maintenance facility for refurbishment or repair, or (iii) stored at the maintenance facility until the aircraft parts were needed by the buyer.