Interstate Commerce and the “In Transit Property” Tax Exemption

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I recently had a client whose corporate jet was hangared in State A for repairs as of State A’s annual property tax assessment date and remained there for 6 months after the assessment date.  Client is not a citizen of State A, but does have some business interests there (unrelated to the corporate jet).  State A was chosen by the client as a destination to repair the jet because of the specialized nature of the repairs.  The jet was being marketed for sale at the time it was hangared in State A and the repairs were being made in preparation for an anticipated sale.  State A has a law which requires owners of “storage facilities” (in this case, an airplane hangar qualified) to report property being stored at their facility (as of the annual date of assessment) to their local assessment authorities.  Aircraft are typically a subject of centralized assessment in State A and the local assessors are usually ill-equipped to place a credible market value on this type of property.  To make a long story short, the local assessor found out about the jet’s presence in State A and the market value placed on the aircraft made me visualize the assessor as a kid in a candy store.

Lucky for the client, State A also has a law that exempts “in transit” property from ad valorem taxation.  The underlying premise of the statute is lack of situs.  State A’s exemption statute for “in transit” property requires the taxpayer to show that the property was only in State A for storage purposes and was ultimately intended for a destination outside of State A’s border.  But here’s the kicker—the statute contains language that almost explicitly states the taxpayer doesn’t have to know the final destination of the property when the property enters into State A’s borders and such destination can even be determined after the property is already in the state.  State A obviously has some awesome legislators!!

On appeal, we successfully argued that the jet was “in transit” property in State A and the assessor eventually relented.  Our client got complete relief on a $135,000 property tax bill, which was really nice.  I am almost certain that this type of activity is likely occurring in a lot of states, especially those who have significant budget shortfalls.  Corporate owners of personal property should be aware and diligent in searching for those in transit property tax exemptions.  State A’s really came in handy!!



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