In an effort to close the state’s budget deficit, Gov. Dannel P. Malloy has recommended eliminating some of the state’s tax exemptions while also imposing new taxes. But both Tom Foley — who owns an aviation company — and a representative of a national aviation group said Friday that the impact of two such proposals aimed at aircraft owners would be “nothing short of catastrophic” for the industry.
One bill would remove a sales tax exemption on repairs and services to aircraft, and the other would add an annual registration fee to planes stored in the state.
But Mark Kimberling of the Aircraft Owners and Pilots Association said that the measures proposed less than a month ago already have some aircraft owners and businesses making plans to park their planes outside the state.
For obvious reasons, aviation is a highly mobile industry, Kimberling said. If passed, the new measures would leave Connecticut in a less-than-competitive position. According to testimony submitted by several aviation groups the state already has the highest aircraft registration fee in southern New England and the additional tax will make it less competitive than other states in the region.
“So these aircraft are going to migrate and with them is going to go the revenue they’re collecting now — the revenue they’re collecting on fuel tax and the revenue they’re collecting on corporate tax income, because there’s lots of high paying jobs in this sector,” he said.
Kimberling said he understands the governor’s position and knows that many industries have been asking him to rethink some of his new tax proposals. But in the case of aviation, he said, it comes down to an industry that can easily pack up and leave. In this case the flexibility is such that while the legislation may have been designed to raise revenue, Kimberling said it would almost certainly have the opposite effect.
And they may not have to go far. Kimberling used a Cessna Caravan as an example to demonstrate how Connecticut’s tax rates would stack up against nearby states in terms of aircraft fees.
As it stands now, a Cessna Caravan owner pays $1,500 to base the aircraft in Connecticut, he said. Under the new proposal that owner would pay an additional $11,130, he said. That’s a total of $12,630 per year just to base it here.
In New York, Kimberling said, there are no such fees — neither for registration or personal property tax.
“That’s done intentionally because they want to attract aircraft because they realize all the associated economic activity, jobs, and revenue collected in other areas,” he said.
Massachusetts and Rhode Island both impose low annual aircraft registration fees of $175 and $160 respectively, he said. Those fees are not enough to deter aircraft owners from a state, but $12,630 certainly is, he said.
Kimberling said the two proposals combined represent the largest and most extreme attempts to raise costs for the aviation industry that he has ever seen.
But he also said he has been in contact with the governor, who seemed at least receptive to listening to his case. He also seemed to want to learn more about the impact of the bills, he said.
“I didn’t want to say that he admitted there’s a possibility he made a mistake, but he kind of insinuated that the nature of this is you don’t always see the full picture when you put forth a proposal, even when you have the best of intentions. In his case he’s doing the best he can to patch a budget shortfall,” he said.
Ben Barnes, Malloy’s budget director, said Sunday that his office is indeed looking into what the potential impact of the two measures would be with an eye toward altering them if they would cause a mass aviation exodus from the state.
“If in fact it does create such a dramatic incentive to leave, and we thought they would, then we would reconsider that,” Barnes said.
But he also said at this point in the budget debate he’s taking rhetoric about industry-decimating taxes with a grain of salt.
“The fact that the people who would be subject to the tax are upset by it is frankly to be expected for me,” Barnes said. “At this point that’s been the case with all the taxes being proposed.”
Similar appeals have come from the trucking, boating, and auto sales industries as well as yoga studios and any number of other industries taking a hit in the proposed budget, Barnes said.
And some of the concerns he’s heard from Kimberling and others in the aviation industry haven’t been all that convincing, he said, adding the question: What is the point of owning your own aircraft and storing it out of state?
“Isn’t the whole purpose of having a plane so you can travel more quickly? If you have to drive three hours to get to your plane, what’s the point?” he said.
Barnes said that even now Connecticut doesn’t have a tax advantage over surrounding states in regard to aviation, something he credits to effective advocacy.
“The industry really has undertaken a long-term effort to have their business not be subject to sales tax. That’s a business advocacy success, I’m sure,” he said.
But because the industry has been so successful in securing a favorable tax climate in the Northeast, it’s easy to argue that when one state has a less favorable policy aircraft owners will leave for a neighboring state, he said.
Barnes applauded their successful advocacy strategy but said he’s not sure this state has the luxury of maintaining that right now.
But Foley, the former Republican gubernatorial candidate who also is owner of Stevens Aviation, said that eliminating the sales tax exemption on repairs may have a bigger impact on Connecticut jobs than the Malloy administration realizes.
“With mobile equipment like aircraft, it doesn’t make sense to put a sales tax on repairs because people simply won’t have their repairs done here in Connecticut,” he said.
Foley said the businesses themselves would probably end up relocating to states where the exemptions exist and they would take the jobs with them.
“Anybody who says that that’s not going to affect the amount of maintenance that’s done here, and affect Connecticut jobs, doesn’t know what they’re talking about,” he said.
Kimberling said he’d like to see the two provisions affecting aircraft be killed sooner rather than later.
“This is such a large amount of money that we’ve already got aircraft owners and business making plans to go to other states. My concern is not just to get this resolved but to get it resolved quickly because just having it out there could possibly damage the industry,” he said.
Both bills will be discussed at a Finance, Revenue, and Bonding Committee public hearing Monday at 10:30 a.m. in the Legislative Office Building, Room 2E.
