October 5, 2015

Kentucky’s Highest Property Tax Rate Applied to “Private” Aircraft

Written By

Stephen A. Sherman
Counsel, Stoll Keenon Ogden PLLC

By Stephen Sherman

In BHC Financial, LLC v. Dept. of Revenue [1], the Kentucky Board of Tax Appeals (the “Board”) determined Kentucky was the taxable situs of a Cessna Citation II aircraft.  The Taxpayer argued that it was a Delaware company not doing business in Kentucky and thus, property taxation of the aircraft by Kentucky was improper.  The Board disagreed.

The Board began its analysis with a recitation of the standard for determining taxable situs in Kentucky.  Citing Marina Property Services, Inc. v. Owens [2], the Board stated, “if the property is present in [Kentucky] and being used and employed with a constant continuity and not spasmodically and temporarily” it has a Kentucky situs.  Turning to the evidence, the Board found the following:  (i) five of the six members of the taxpayer were residents of Kentucky; (ii) the aircraft was purchased for the pleasure of the members and picked them up in their state of residency (primarily Kentucky); (iii) the taxpayer paid monthly hangar rental rates (rather than daily rates) to a hangar in Somerset, Kentucky; (iv) the aircraft was mostly hangared in Somerset; and (v) the aircraft logs showed that in 2007 (and similarly in the other years) the aircraft departed from or arrived in Kentucky 76 out of 83 flight days.  Accordingly, the Board held the aircraft was properly subject to property tax in Kentucky.

After resolving the question of taxability, the Board considered whether the aircraft was “noncommercial aircraft” subject to tax at a rate of $0.015 per $100 of value, or a commercial aircraft, i.e., used in the business of “transporting persons or property for compensation or hire”, and taxable at a rate of $0.45 per $100 of value.  The Kentucky Department of Revenue (“KDOR”) introduced evidence revealing the aircraft had been leased to different businesses on multiple occasions, including to coaches of the University of Kentucky’s athletics teams.  Evidence of the latter was obtained by the KDOR through an open records request to the University of Kentucky.  As a result of the leasing activity, the Board found the aircraft was a commercial aircraft and subject to the higher tax rate of $.045 per $100 of value. 


[1] KBTA File No. K13-R-22, Final Order No K-24874 (June 30, 2015).

[2] 66 S.W.3d 698 (Ky. App. 2001).

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