Sales Tax Slice: Up, Up, and Away with Tax on Sky Diving Air Transportation Services?


South Dakota recently joined several other states in making it official that those brave enough to skydive will not be taxed on the air transportation services used to get them high in the sky. The South Dakota Department of Revenue issued a release that said “effective immediately all air transportation services are not subject to South Dakota sales or use tax.”

The announcement comes six months after the U.S. Department of Transportation (UDOT) issued guidancein response to an inquiry from the United States Parachute Association (USPA) as to whether the federal Anti-Head Tax Act (AHTA) preempts states from assessing tax on gross receipts received from sales of skydiving operations. Although UDOT opted not to offer an opinion on a specific case, it did state that the AHTA prohibits a state from collecting tax on individuals traveling in air commerce or on the gross receipts from air commerce or transportation. The purpose of an individual’s air travel is irrelevant for the purpose of the AHTA preemption, UDOT said.   

In line with the guidance released from UDOT, South Dakota also noted in its release that sales or use taxes are still due on the sale of any taxable product or service that may accompany the air transportation services, such as skydiving lessons, photos, t-shirts or videos, as the AHTA does not preempt tax on those items.

 Other states, Missouri, Arizona, Wisconsin, Kansas, Washington and Maryland have also issued rulings with the same analysis and conclusion that the AHTA prohibits businesses from collecting sales and use tax on air transportation services used for skydiving or other air entertainment.  For example, in 2010, Wisconsin revised its regulations to comply with the AHTA, exempting sales and use tax on admissions charges for un-tethered hot air balloon rides, sightseeing flights or hang gliding. 

More recently, on April 15, 2014, the Missouri Supreme Court ruled that a company specializing in hot air balloon rides did not have to collect sales tax on the rides. Balloons Over the Rainbow, Inc. v. Missouri Dir. or Rev., No. SC93039, April 15, 2014.  The supreme court found that tax on sales of the rides were a tax on air commerce in violation of the AHTA and that the department should not have denied the company’s sales tax refund request.

There’s one person who may find these developments interesting—former President George H. W. Bush, who celebrated his 90th birthday June 12th by skydiving in Maine

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn : Do you think additional states will issue guidance on the application of sales and use tax to air transportation services?

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