The sales tax on parts and labor for maintenance of privately owned aircraft in Wisconsin is sending potential customers flying off to other states where such work is tax-exempt, hindering job growth here, aviation and business interests say.
Efforts to exempt the aircraft work from sales taxes date back at least six years, but the issue surfaced again this month when the Legislature’s Joint Finance Committee again considered a sales tax exemption for the work.
Instead, legislators put forth a proposal for a $2 million aviation grant program to be administered by the problem-riddled Wisconsin Economic Development Corp.
While those in the industry say they appreciate the grants, they also say that anyone who needs a federally mandated inspection or overhaul of a privately owned aircraft is flying past Wisconsin because they can avoid sales taxes on the work in places such as Michigan, Ohio, Missouri or Indiana.
The sales taxes do not apply to commercial aircraft or aircraft used to transport passengers — so-called air taxi service. “If it’s a non-commercial airplane, we have to charge sales tax on parts and labor,” said Bruce Botterman, owner and founder of NewView Technologies, a family-owned aircraft maintenance business in Oshkosh.
“There’s millions of dollars at stake,” Botterman said.
Aviation companies say the tax policy puts Wisconsin at a competitive disadvantage to neighboring states.
“It puts companies such as ours, but primarily the larger ones such as Gulfstream in Appleton and Citation Service Center in Milwaukee, at a distinct disadvantage, because some of your bigger inspections on some of your larger aircraft, your jet aircraft, can run you $100,000,” said Jeff Baum, president and CEO of Wisconsin Aviation in Watertown.
“Engine changes can cost a half-million dollars or more,” he added. “You throw on a 5.5% sales tax, and it can really put you at a disadvantage.”
A 5.5% tax would add an extra $27,500 to a $500,000 airplane overhaul bill.
The mode of transportation makes it fairly easy to take the business elsewhere.
“These airplanes travel at high rates of speed. It’s not hard to jump across the state line with them and have somebody else do the work and create the jobs and revenue in that state,” Baum said.
“So the airplane doesn’t come to Gulfstream in Appleton. It goes to Gulfstream somewhere else, or the work doesn’t come to the Citation Service Center in Milwaukee,” Baum added. “Who loses out? I mean, are the top dogs at Cessna and Gulfstream going to have their salaries cut? No. It’s the hourly workers on the floor who don’t have that work.
“That’s where the impact is.”
Damper on competition
Wisconsin Manufacturers & Commerce, the state’s largest business lobby group, says it has been asking legislators for a sales tax exemption on such work because the tax is limiting the ability of companies to grow and add jobs in Wisconsin.
“It seemed like a reasonable request to make to keep us competitive with these other states,” said Jason Culotta, director of tax and transportation policy for WMC.
Senate President Mike Ellis (R-Neenah) said members of the budget-writing Joint Finance Committee discussed including a tax exemption but at the last moment decided to go with a grant program instead. Ellis, whose district includes the Gulfstream Aerospace facility in Appleton, said he didn’t know why lawmakers went with a grant program and said the tax exemption would have been better.
“We’re losing business to other states,” he said. “This tax credit would have alleviated that problem.”
“We’ve been trying to get (Gulfstream) to expand, and this is absolutely a wet towel on competitiveness,” he added. “When you tack on that extra expense, you’re literally driving jobs out of Wisconsin and out of the Fox Valley.”
Gulfstream, a division of defense conglomerate General Dynamics, operates nine service centers worldwide, including the Appleton facility. The Appleton site handles final manufacturing for certain aircraft models and also does major service and modification work on large-cabin aircraft.
The facility employs 840 people and has another 50 contract employees. The company says its annual payroll at the Appleton facility is $60.4 million. It has three hangars with slots for 21 aircraft and 275,200 square feet of space.
“Because Wisconsin has a tax on the parts and equipment used in the repair and maintenance of aircraft, while nearby states don’t, it’s easy for operators to neglect visiting Wisconsin for maintenance in favor of Minnesota, Michigan or Illinois, where they can just as easily have service work performed and won’t incur the tax,” said Gulfstream spokeswoman Heidi Fedak. “This tax does have an impact on our (Appleton) service center operations.”
The state’s Legislative Fiscal Bureau estimates that the sales tax generates $2million to $3 million annually for Wisconsin.
Tax revenue vs. jobs
The grant program passed by the Joint Finance Committee doesn’t address the competitiveness issue, WMC’s Culotta said.
“The concern is that, if we don’t keep up with what the other states are doing, we’re going to lose investment and we might have disinvestment at some point,” he said.
But some argue the tax exemption would be nothing more than corporate welfare at a time when states, including Wisconsin, are trying to cut costs and bring in every dollar they can.
“We sometimes hear concern about the impact of such policies on state revenue. That’s an understandable concern,” said Dan Hubbard, spokesman for the National Business Aviation Association in Washington. “What we have found is, when the exemption is put in place and the businesses involved can remain competitive, jobs at those businesses are retained or added. Those workers pay taxes and we find that revenue generation meets or more than offsets any concern about revenue” lost to a sales tax exemption.
Still, if you can afford a corporate jet, shouldn’t you be able to afford the sales taxes on the work done to maintain it?
If an aircraft owner is doing a complete overhaul — a new interior, new paint, new engines or maybe putting in new generation radio navigation equipment, “that bill could get very big,” Baum said.
“You might be talking $1million or more. Now you start adding on $55,000 in sales taxes and people say ‘I think it looks a lot better down in Indiana'” to have the work done.
“I mean, we get hung up on these clichés, that if they are wealthy enough to own the airplane they can afford the sales tax,” Baum added. “That may or may not be true. But that’s not the point.
“Nobody throws away money, and especially, nobody likes to throw money at the government if they don’t have to. Therefore, many people will say, ‘OK, look. If I can get this same job and I can get it done for $23,000 less by simply moving the airplane to Indiana instead of Wisconsin for this work, I’m going to do that, all things being equal.'”