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Fight continues over aircraft maintenance tax forgiveness plan

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Illinois

Illinois lawmakers face a political test of wills this week when they are expected to be asked to vote for an otherwise popular bill that Gov. J.B. Pritzker has vowed to veto.

Should it be enacted, private jet maintenance companies in Illinois would be forgiven sales tax tabs from the last five years and would have an exemption extended to 2024. It passed nearly unanimously in the House in October, but faces an uncertain fate in the Senate now that Pritzker has pledged to veto it.

“This bill would forgive $50 million of taxes that are owed by people who are in this private jet industry,” he said last week. “I just don’t think it’s right, given the state of our finances in the state of Illinois.”

He was responding to a question regarding a WCIA Channel 3 report that labeled the companies as “luxury jet manufacturers” getting a tax break. Other than Chicago-based Boeing, Illinois is not home to any private jet manufacturers. The legislation would affect aviation facilities whose mechanics perform routine maintenance on smaller jets to meet government standards. […]

The issue arose when companies learned that an exemption was allowed to sunset along with many others in 2014. Industry representatives estimate the amount of owed tax revenue to be nearly $50 million and would require the companies to pay about $8 million annually over the next four years.

Many companies said they were unaware that the exemption had been allowed to expire. They didn’t charge their clients and facing tax bills that supporters say could put the local aviation companies at a disadvantage to other states that offer the same exemption.

Even Illinois’ own agencies were, as of March of this year, under the impression that the tax exemption was still in place. The Legislative Research Unit’s 2019 Tax Handbook said companies that offer “(m)aterials and components incorporated into or upon an aircraft as part of its modification, completion, repair, or maintenance” are completely exempt from Illinois’ occupational sales tax.

That quote from LRU’s handbook is correct. But nobody in their right mind would rely solely on LRU for their tax obligations. And LRU is the only agency listed, so it’s likely not “agencies.”

posted by Rich Miller
Tuesday, Nov 12, 19 @ 9:46 am

Comments

Did IDOR have any instruction on the changed law, even an instruction to their auditors to look for this tax?

Comment by Anon Tuesday, Nov 12, 19 @ 9:55 am
It has been reported that atleast some of these companies have been audited by the Illinois Department of Revenue since the tax change, and the auditors didn’t tell them/were unaware of the change in the tax code.

That, to me, seems pretty compelling if it is true.

It is a very expensive mistake for the department; what they ought to do is ask for companies to assist them by providing customer names, and the department of revenue can go after the customers. After all, it is they that were supposed to be remitting the tax.

Comment by Thomas Paine Tuesday, Nov 12, 19 @ 10:15 am
where are these companies located?

Comment by Amalia Tuesday, Nov 12, 19 @ 10:30 am
Amalia,

I can tell you we have multiple entities that perform small jet maintenance (including avionics) at the Aurora municipal airport (which is surrounded by Sugar Grove. Chicago Executive Airport has some in Wheeling, the DuPage airport in West Chicago. The airport in Savoy (outside of Champaign), Galesburg (not sure if they do jets or just multi-engine prop aircraft). I am sure there are others.

Comment by OneMan Tuesday, Nov 12, 19 @ 10:40 am
Sounds like a consequence of the hollowing of state government. You’d think a computer program could of caught this when tax returns were filed.

Comment by The Edge Tuesday, Nov 12, 19 @ 10:55 am
If JB is so concerned with State Finances - Why the tier 2 giveaway on his Pension consolidation plan. God only knows the cost of enhancing tier 2 benefits because there has been no actuarial study.

Comment by Sue Tuesday, Nov 12, 19 @ 10:57 am
I am with Thomas Paine. Is there no way Illinois can also go after the companies who *should* have been billed for taxes by the maintenance company? As part of a compromise settlement perhaps? There seems to be a real question of whether the new tax was adequately notified and advertised and followed up. Mistakes were made at several levels. It’s hard to believe the maintenance companies should solely bear the brunt and perhaps be driven out of business when there seems to be so much fault and mis-management all around with respect to this.

Comment by Responsa Tuesday, Nov 12, 19 @ 11:10 am
Sue, I am confused by your post. What did JB do for Tier 2?

Comment by R A T Tuesday, Nov 12, 19 @ 11:24 am
To obtain the police union support - the consolidation bill will include an enhancement to tier 2 benefits as was posted on Cap Fax friday

Comment by Sue Tuesday, Nov 12, 19 @ 11:27 am
Rich people will just fly their aircraft to other states to get maintenance. Illinois companies will go out of business, workers will lose jobs and government will lose the taxes they currently pay. Good plan.

Comment by Poster #56 Tuesday, Nov 12, 19 @ 11:41 am
How was this discovered? From the prior reports it sounds like the companies might have discovered the lapse themselves, but I have not seen a definitive account.

Comment by C Ball Tuesday, Nov 12, 19 @ 11:44 am
Right around 1994 or 1995, the GA passed legislation that put an automatic 5-year sunset on new tax exemptions, deductions, and credits. Now, people generally draft around it by exempting their exemption from the sunset, but every once in a while, one gets by like this.

Comment by SAP Tuesday, Nov 12, 19 @ 11:45 am
= Illinois companies will go out of business, workers will lose jobs and government will lose the taxes they currently pay. Good plan.=

That same philosophy (paranoia) can be applied to all business and every resident.

Taking it a step farther- no taxes for everyone but lots of services and all for free.

Good plan.

Comment by JS Mill Tuesday, Nov 12, 19 @ 12:32 pm
JB is using political capital (veto threat) to call out one industries sales tax exemption when there are many others. Good luck with that.
https://tinyurl.com/yfm4cmy9

Comment by Donnie Elgin Tuesday, Nov 12, 19 @ 12:36 pm
=== Rich people will just fly their aircraft to other states to get maintenance. Illinois companies will go out of business, workers will lose jobs and government will lose the taxes they currently pay. Good plan.===

… and yet Chicago is the number one, again, city for foreign investments in North America.

Hmm.

Comment by Oswego Willy Tuesday, Nov 12, 19 @ 12:42 pm
~~Rich people will just fly their aircraft to other states to get maintenance.~~

Some possibly. But I find it very difficult to imagine that a Cessna owner is going to fly a few hundred miles to get work done. Figure out how to get back home and then do it again in reverse when the plane is finished over sales tax.

Comment by bo Tuesday, Nov 12, 19 @ 12:49 pm
There are two separate issues here. One is whether to have an exemption going forward. The second is whether to waive taxes retroactively. I’ve yet to see any indication that anyone - from the state legislature, LRU, IDOR, or affected industries - was even aware the exemption had lapsed. Given the clear harm in trying to collect that tax now (let alone the penalties), the waiver seems appropriate.

Comment by Anon Tuesday, Nov 12, 19 @ 1:21 pm
The mission statement of DCEO says it all. I have lobbied for the end of this waste of taxpayer money for years. This failing only reinforces my opinion.

Comment by Blue Dog Dem Tuesday, Nov 12, 19 @ 1:30 pm
=Rich people will just fly their aircraft to other states to get maintenance.=

This sounds like the arguments raised around the gas tax. But the cost of flying your plane to another state makes about as much sense as driving 30 miles round trip to save a nickel a gallon on gas.

Comment by Pundent Tuesday, Nov 12, 19 @ 1:36 pm
Communities that have municipal or regional airports with leases to FBOs are going to be the real losers here. Despite the fact that their line of business is making repairs to “luxury private jets”, these FBOs are not swimming in cash and having to pay back millions in uncollected sales taxes is going to kill a number of them.

…Which means a lot of small airports around the state are going to be stuck with empty hangar space for lease. I’m guessing that is why the House bill had such huge support - this is pretty bad for everyone involved.

Comment by sulla Tuesday, Nov 12, 19 @ 2:01 pm
@OneMan, thank you.

Comment by Amalia Tuesday, Nov 12, 19 @ 2:24 pm
Maybe jb can find middle ground.

Comment by Blue Dog Dem Tuesday, Nov 12, 19 @ 3:02 pm
Excise taxes on businesses that compete directly with companies not subject to the tax are almost always bad ideas. They generate little or no revenue because the business moves. To use the gas station analogy, it is as if the gas stations are on opposite sides of the street. No cost to consumers to avoid the tax.

Companies that fly to several states will schedule maintenance where it is cheapest, if they can do so without causing other problems with their operations.

Comment by Last Bull Moose Tuesday, Nov 12, 19 @ 4:36 pm
A little known fact is that the “sunset provision” was originally known as the “ensuring future campaign contributions provision”. It was changed to be politically correct. The people who made that change are the ones that should pay the tax. If they had kept the original name, these companies would have known to get out the checkbook before their exemption expired. /s

Comment by Pelonski Tuesday, Nov 12, 19 @ 6:31 pm
@Amalia - The largest are Cahokia, East Alton, Springfield, Quad Cities/Milan, & Savoy/Champaign. Then you have Peoria, West Chicago, Bloomington, Sugar Grove/Aurora, Wheeling, & Rockford.

@Responsa - Not really. It is a wide range of work for a variety of situations and each could easily be fight - which would likely ruin relationships with regular customers. We’re talking about overhauls on planes pre/post sale, regular maintenance/repair, international work, leased aircraft, equipment upgrades to comply with new FAA requirements… it just isn’t feasible.

@Poster #56 - Not even “fly to other states,” the vast majority of the work is from out of state. They simply won’t land here. Even if they love their particular repair company, say West Star Aviation, there is another (tax exempt) West Star 100 miles over. When you’re going 500 mph, that’s about 15 minutes.

@C Ball - It was discovered during an audit in July. Initial reaction was that this had to be some mistake on the auditor’s part. There was an industry conference call a week or so later. After doing some research and realizing this was likely true, a meeting was requested with Dept of Revenue. Dept of Commerce was notified next, then legislator outreach…

@JS Mill - This IS different. Only applies to Class IV maintenance and repair shops (all metal airframe, over 12,500 lbs). With only a couple exceptions, nearly every state with large Class IV competitor is exempt. These planes are made to fly across the country. They will simply schedule their maintenance at the other end of flight. Also, they pay many other taxes. In East Alton, they’ve gone from 150 to 500 since the exemption passed. The Quad Cities has gone from 175 to 275. There are 400 employees in Cahokia, 300 in Springfield, 150 in Savoy… that’s a lot of payroll tax that the state is collecting, and it’s a problem if the hangars are empty.

@Oswego - There’s A LOT of aircraft maintenance and repair in Chicago as well - but this particular lapse didn’t include commercial airlines. Those airliners are all covered under separate sections… this is only for general aviation (part 145 shops).

@bo - Cessna’s are Class III (less than 12,500 lbs). For Class IV, think of the MD-11, Airbus A320, and Sikorsky S-70 helicopters.

@Anon - And followed up with legislators in subsequent years to verify things were still in place. The original bill sponsor even worked with the industry to introduce legislation to expand the exemption, not knowing it had already lapsed - making the bill invalid. (99th GA - SB1280)

@Pundent - Mostly covered above. Only thing I’ll add is that in the 2009 bill, engines were not included (still taxed). Since that time, the engine work in Illinois DID dry up. Springfield had a healthy engine shop, but it was shut down. Today it’s cheaper to take the engines off the planes and ship them out of state. (The bills for some engine work is in the millions.)

@Rich - The case was being made that “the industry should have known, and therefore must pay.” I don’t believe it was ever the intent of these companies to “blame” others, but instead illustrate the situation they found themselves in. That their financial advisors had it wrong (Bloomberg Tax, and other national tax databases were incorrect), the national association’s tax guide was incorrect, the Statehouse missed the fact they were attempting to amend an already expired exemption in 2015, and yes, the COGFA tax guidebook for legislators had it incorrect. It isn’t that there is a hunt for a scapegoat, just acknowledgement that this is an unusual situation.

Comment by Supplemental Info Wednesday, Nov 13, 19 @ 1:36 am
Nice info

Comment by Blue Dog Dem Wednesday, Nov 13, 19 @ 7:44 am