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Vedder Thinking | Articles New Test in Illinois for Aircraft "Rolling Stock"

Newsletter/Bulletin

Pursuant to Public Act 098-0584, enacted August 27, 2013, an aircraft acquired on or after January 1, 2014 must be operated as rolling stock in interstate commerce for hire for more than 50 percent of the aircraft's total trips or miles during any 12-month period of ownership in order to be exempt from Illinois sales or use tax.

Beginning next year, a person claiming the rolling stock exemption for a newly acquired aircraft must elect to use either a "trips" or a "mileage" methodology for purposes of determining whether more than 50 percent of the aircraft use is in interstate commerce for hire. Under the trips test, for any 12-month period, more than 50 percent of the aircraft's total trips must be made in interstate commerce for hire. The new law does not define what constitutes a "trip" for aircraft. However, with respect to motor vehicles used as rolling stock, the Illinois Department of Revenue has defined a "trip" to mean "movement from one location to another" (ILL. ADMIN. CODE tit. 86, ยง 130.340(h)(1)(c)). This definition may also apply to aircraft.

Under the mileage test, for any 12-month period, more than 50 percent of the aircraft's total miles must be accumulated in interstate commerce for hire. The legislation provides that an aircraft owner may substitute flight hours in lieu of mileage. The aircraft owner makes the trips or mileage election at the time of purchase and documents the election in its books and records. Once the election is made, it remains in effect for the duration of ownership of the aircraft. If no election is made, the mileage test (which presumably includes flight hours) is used.

This new law also applies to aircraft components. Accordingly, an aircraft component acquired on or after January 1, 2014 to be affixed to an aircraft used as rolling stock will not be exempt from Illinois sales or use tax unless the aircraft to which such component is affixed has a total of greater than 50 percent of its use in interstate commerce for hire, regardless of when the aircraft was purchased. Accordingly, to claim a rolling stock exemption for aircraft components purchased on or after January 1, 2014, owners of aircraft acquired prior to that date must also comply with the greater-than-50-percent threshold and make an election in their books and records to use either the trips method or the mileage method.

The new greater-than-50-percent threshold also applies to watercraft used as rolling stock in Illinois.

If you have any questions about this new law or the taxation of aircraft in Illinois, please contact Timothy W. O'Donnell, David P. Dorner, or any other Vedder Price attorney with whom you work.