The House will once again consider HB 1100, which would eliminate sales and use tax on the purchase of private jets, jet parts, and the maintenance and repair of fixed wing aircraft an exemption that would cost the Commonwealth between $10 million and $14 million annually. Research from The Pennsylvania Budget and Policy Center, and that of the Independent Fiscal Office, clearly indicates that this exemption is costly, will not pay for itself and may not have the desired effect of increasing employment in the small aircraft repair industry.
To: Members of the Pennsylvania House of Representatives
From: Sharon Ward, Director, and Michael Wood, Research Director, Pennsylvania Budget and Policy Center
Date: April 15, 2013
Re: House Bill 1100, Elimination of Fixed Wing Aviation Sales and Use Tax
The House will once again consider HB 1100, which would eliminate sales and use tax on the purchase of private jets, jet parts, and the maintenance and repair of fixed wing aircraft—an exemption that would cost the Commonwealth between $10 million and $14 million annually.
Given the state’s fiscal situation, the legislation has to be reviewed from a cost/benefit perspective. Our research and that of the Independent Fiscal Office clearly indicates that this exemption is costly, will not pay for itself and may not have the desired effect of increasing employment in the small aircraft repair industry.
The chief argument made by proponents of the legislation—that Pennsylvania has lost aviation manufacturing plants—is not borne out by the facts. The recent analysis by the Independent Fiscal Office, “Proposed Sales Tax Exemption, Parts, Use and Sales” Press Released on January 4, 2013, makes clear that Pennsylvania aircraft manufacturing has done exceedingly well without this exemption. Since 2003, aircraft manufacturing employment grew by 47.7% in Pennsylvania, compared to 10.8% nationally. In 2011, Pennsylvania had 10,382 individuals employed at 50 manufacturing establishments.
Proponents point to three specific cases where Pennsylvania “lost” jobs. In two of those cases, the manufacturing plants were lured to specific states, Florida and New Mexico, by targeted local tax breaks. In Florida, the cost for the plant was $45,000 per job. In New Mexico, the plant opened after a bankruptcy and created many fewer jobs than originally promised. In the third case, a Honda Jet plant promised for New York never happened, with Honda expanding its North Carolina facility instead. North Carolina does not have a sales tax exemption for aircraft.
A second argument, that a company with several aircraft that relocates to Pennsylvania would owe use tax on that fleet, is incorrect. Aircraft brought into the state by a non-resident in connection with the establishment of a permanent place of business or residence is specifically exempt from the tax. (See DOR form REV-832 EP.)
A final argument that the exemption would create new jobs in airport maintenance, operations and repair fields is, again, not borne out by the facts. The Independent Fiscal Office analysis compared employment growth among states that had recently enacted sales and use tax policy changes with those that did not and found no discernible pattern. In fact, two of the four states that enacted these exemptions, New York and Connecticut, actually lost jobs in aircraft maintenance and repair and airport operations since the exemption was enacted.
The aircraft maintenance and operations field employs a very small number of people—3,153 out of 5,708,000 total non-farm employment, or just 0.06% of total state employment.
The Independent Fiscal Office estimates that to recover the $14 million in lost revenue from the tax exemption in HB 1100 would require an increase in direct and indirect employment of 4,700 jobs, which is highly unlikely.
This legislation would, in effect, be throwing a great deal of money very small problem. At the end, a few jobs might be improved, but at a high cost to the taxpayer. The real beneficiaries of this exemption are the owners of corporate jets and other private aircraft, who will receive a substantial reduction on the cost of their airplane maintenance and repair.
The substantial inequity in this proposal must be considered. Across the Commonwealth, individuals who need cars to get to work are paying sales tax on those purchases and repairs, while individuals who use aircraft for pleasure get a break.
Tax exemptions are not the answer to everything. Pennsylvania has been adding aircraft manufacturing jobs at a robust pace for a variety of reasons that appear to have nothing to do with its tax policies. Similarly, states that have gone the route of tax exemptions have lost both tax revenue and jobs. This legislation is a gamble with taxpayer dollars and drains funds that we can ill afford to lose in a roll of the dice.