Aircraft flat tax delayed

Assembly sets more hearings on code change

Posted: Friday, January 23, 2004

Pilots who use their planes and helicopters in business ventures like air taxi and charter services turned out in force at Tuesday's Kenai Peninsula Borough Assem-bly meeting and testified in favor of a proposed flat tax on aircraft registered in the borough, saying it would lower their property tax liabilities dramatically, often by tens of thousands of dollars annually.

Ordinance 2003-45 would amend the borough code, replacing the personal property tax based on value, an "ad valorem" tax, with a flat tax of $75 a year per aircraft engine. Its prime sponsor, assembly member Chris Moss of Homer, said he believes it is logical and fair to tax planes under a flat-tax scheme, the same way the borough now taxes automobiles and watercraft. In addition, lowering the tax burden would encourage more owners to base their aircraft in the borough, bringing with them a growth in the aircraft service industry.

The flat-tax proposal would apply to all aircraft, whether used in business or not, but would not apply to planes operated by scheduled airlines, which would continue to pay the ad valorem tax. That tax is prorated based on how much time those planes actually spend at airports within the borough.

Not everyone who testified supported the proposed flat tax. Aircraft currently used strictly for pleasure and not profit enjoy a property tax exemption on the first $100,000 of their values. Several such owners, most of who avoid any property taxes because their planes are valued at less than $100,000, said requiring them to start paying the $75-per-engine tax is unfair because it shifts the burden from the for-profit outfits.

Others said the flat tax would put multimillion-dollar high-tech corporate jets on the same footing as small, single-engine personal prop planes.

A couple of those testifying against the flat tax said they no longer fly their planes and see no justification for paying the per-engine tax.

However, until the borough created the $100,000 exemption in the late 1990s, small-plane owners were paying an ad valorem tax, and so, have enjoyed a significant tax break for several years.

The assembly eventually voted to postpone final action on Ordinance 2003-45, instead adding two more public hearing dates, Feb. 6 and March 16. Meanwhile, Moss said he would meet with aircraft owners and work on possible amendments, including one that would create a graduated flat tax.

Among those who testified was George Mandes of Homer, who said he moved to Alaska from Connecticut about a year and a half ago. He is an executive with a $32-million health care firm doing business in 12 states.

After coming here, he said, he learned about the ad valorem tax on aircraft and wanted clarification that the firm's corporate jet, based in Connecticut, would not be taxed.

"On advice of counsel, we were given the advice to never let the plane be in the borough more than 90 days," he said. "What we do is take it to Anchorage (which imposes a flat tax) and whenever possible buy hangar services and gas up there."

Mandes called the borough's tax unfair.

"If we were to register the aircraft in Anchorage, it would be $150," he said. "If we register in the borough, the taxes would be $70,000 for one aircraft."

In Connecticut, the company pays $1,250 a year.

Clair McCann, owner of Smokey Bay Air, said she is all for the flat tax.

"What we all want is a level playing field," she said. "A flat tax would support long-term business planning."

As other costs rise, she said, business owners will look for areas to cut costs.

"If people need to move their aircraft out of the borough to maintain their business, they're going to do it," she said.

Gary Hebert of Soldotna said he came prepared to oppose the flat tax, but has some sympathy for those owners paying ad valorem taxes. He suggested a graduated tax.

"I hope this proposal isn't concrete," he said. "It would be nice if there was a graduated tax that gave the commercial people a break."

Hebert said he doesn't want to pay more taxes, but could accept a $75 tax. He just wants it recognized that he isn't "on the same level as someone with $2.5 million worth of airplane and making money off it."

Scott Bremer of Kenai owns a small avionics shop. He said he supports the flat tax.

"A lot of the aircraft we work on during the summer are the core of our business," he said, "and during the winter time, they're gone to Anchorage.

"A lot of the heavy maintenance done on these aircraft is done in the winter months."

A flat tax could lure much of that business back to the peninsula, he said.

Noting that others who testified reported owning multimillion-dollar aircraft, Sterling resident Terry Moxey said he and other "little guys" aren't in the same league as those making money with their aircraft.

"I own a $30,000 aircraft, and I'm struggling with it," he said. "You're going to charge him $150 for his multi-engine jet and me $75 for mine. I don't think so. We need a sliding bracket."

Assembly member Moss said Thursday he hopes to meet with aircraft owners to work out the fairest taxing system possible, but noted a $75 flat tax per engine is not a great expense.

Under the current proposal, a flat tax would cut borough revenues significantly.

According to an estimate provided by borough assessor Shane Horan, aircraft taxed by the borough in 2003 brought in roughly $218,770 based on the borough's 6.5-mill tax levy.

Had a flat tax been in place, it would have covered more total aircraft because it would have included planes worth less than $100,000, but generated just $39,000, a difference of about $179,770 in tax revenue.

In other business this week, the assembly:

n Approved a resolution transferring the Nikiski Elementary School building to the borough and granting management authority of the facility to the North Peninsula Recreation Service Area.

n Introduced Ordinance 2003-19-34 that would authorize a $50,000 intergovernmental loan to the Seward-Bear Creek Flood Service Area to provide start-up funds for developing a flood-control plan. A public hearing is scheduled for Feb. 17.

n Introduced Ordinance 2003-19-36 that would appropriate $55,000 to cover costs of the March 30 special election on funding co-curricular school activities.

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