Aircraft Used as Unscheduled “Air Taxis” Held Fully Taxable in California

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Several states have eliminated or severely restricted personal property taxes but California still imposes them on many assets, including aircraft. California’s Constitution requires local governments to collect these taxes which, along with fuel taxes and sales and use taxes, account for millions of dollars of tax revenue annually in California derived from the aviation industry.

Taxation of personal property that moves beyond a state’s borders, such as aircraft and railcars, is tricky because it implicates the federal due process clause. Due process constrains states from projecting their taxing powers beyond their borders. Courts originally analyzed taxation of such assets under the “home port doctrine,” which permitted the state where the property owner was domiciled to receive all of the taxes. The due process analysis evolved in the latter part of the twentieth century such that a state with situs over personal property may now tax the full value of the property unless one or more other states also have situs over the property, in which case apportionment is required. Property typically has situs in a state in which it is “habitually employed” or “habitually situated,” regardless of whether the state actually taxes the property.

For purposes of personal property taxes, California divides aircraft into four categories: 1) certificated aircraft (federally regulated aircraft that offer commercial transportation), 2) general (privately owned) aircraft, 3) fractionally owned aircraft, and 4) air taxis (aircraft with a maximum of 60 passenger seats and a maximum payload capacity of no more than 18,000 pounds, operated by a carrier). Air taxis are further divided into those that operate scheduled flight service (which are assessed in the same manner as certificated aircraft) and those that operate on-demand (assessed in the same manner as general aircraft).

With the exception of fractionally owned aircraft, California determines situs by looking to where the aircraft normally makes physical contact or is habitually situated. For fractionally owned aircraft, the California legislature adopted a special rule providing for situs over an entire fleet of fractionally owned aircraft if any of the planes in that fleet make a single landing in the state. In such a case, taxes are apportioned among the counties based on a fraction, “the numerator of which is the total number of landings and departures made by the fleet type in the county during the previous calendar year and the denominator of which is the total number of landings and departures made by the fleet type worldwide during the previous calendar year.” Cal. Rev. & Tax. Code, § 1161(c).

In a decision issued on October 10, 2017, the California Court of Appeal, in JetSuite, Inc. v. County of Los Angeles, upheld the County’s assessment for the 2010 year based on the full value of all six jets owned by JetSuite. The jets were used in JetSuite’s unscheduled air taxi business. JetSuite, based out of Long Beach, California, argued that the County should not have assessed the tax based on the full value of the jets because the jets could have been taxed by other states. JetSuite estimated that one of the jets (representative of its other aircraft) flew in 2010 to 309 airports located in 42 different states and spent only 60.88 percent of its time in California.

The JetSuite court held there was sufficient evidence to uphold the County Assessment Appeals Board’s determination. The Court stated that while JetSuite estimated the representative jet spent only 60.88 percent of its time in California in 2010, JetSuite nonetheless failed to establish situs in any other state (none of which sought to tax any of the aircraft). As to those other states, JetSuite conceded the planes were “just passing through” to “drop off passengers and fly elsewhere at the earliest opportunity.” The Court rejected JetSuite’s argument that situs was nonetheless established in the other states because those other states provided fire and airport services. The JetSuite Court also rejected JetSuite’s contention that the “single-landing rule” used for fractionally owned aircraft should be applied to air taxis.