New Uber CEO Dana Khosrowshahi made headlines at the DLD conference in Munich on Jan. 22, 2018, when he suggested that the flying cars we have all been promised since the Jetsons premiered will be available within the next decade. While the idea of soaring around town (and over rush hour traffic) is certainly appealing, here at Bloomberg Tax we are most interested in figuring out how sales tax will apply to the cutting-edge transportation technology if it takes off.
Currently, many states approach the purchase of airplanes and motor vehicles differently for sales and use tax purposes. Some states, like Iowa, Maryland, and New Mexico, apply sales tax to aircraft but exempt sales of cars. In lieu of sales tax, a registration fee or excise tax is generally imposed on the motor vehicle. In Iowa, classifying flying cars as motor vehicles rather than aircraft would end up being advantageous for the owner―the motor vehicle registration fee is 5 percent of the purchase price, while aircraft are taxed at the full sales tax rate of 6 percent.
In Connecticut, buyers of hypothetical flying cars would reach an opposite result under the current tax regime. Motor vehicles with a purchase price of more than $50,000 are subject to an increased sales tax rate of 7.75 percent. There is no such limitation on aircraft purchases, and a flying car categorized as an airplane would be taxed at the standard rate of 6.35 percent, regardless of the sales price.
How to tax the sale of a flying vehicle is not the only quandary ahead for taxing authorities. Uber’s pursuit of flying cars has an end goal of using the technology for its ridesharing services. States already struggle with how to tax Uber’s services when provided in standard passenger vehicles. If those services are provided in something that looks more like a spaceship than a minivan, would the charge for your commute to work be more analogous to a taxi fare or an airplane ticket? The distinction could make a major difference for consumers in some parts of the country. Rhode Island imposes sales tax on both taxi fares and charges for ridesharing services by companies like Uber. Air passenger transportation, however, is not subject to sales tax in the state. In contrast, New York and Oklahoma subject any intrastate air travel to tax but do not tax ground transportation for passengers. Thus, charges for flying car service would be taxable if flying cars were considered airplanes, but customers would ride tax free in a flying car classified as a motor vehicle.
Ultimately, it remains to be seen whether flying cars will actually come to fruition by 2028. In the meantime, states and taxpayers alike have a lot of things to consider as technology advances beyond the scope of current sales tax statutes.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will states treat flying cars as motor vehicles or aircraft for tax purposes? Or will we see the creation of new property categories to address such a large innovation in transportation?
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