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Flying into tax turbulence

States are taking aim at plane owners who live and bought their aircraft elsewhere.

PORTLAND, Maine - When Steve Kahn received a $26,000 tax bill on his airplane, he thought Maine Revenue Services had made a mistake. Kahn lives, works and keeps his plane in Massachusetts.

It turns out the bill was no error. It was part of the agency's effort to collect taxes on aircraft owned by out-of-staters, even though they bought their planes elsewhere and brought them to Maine only to visit.

Florida and Washington are doing the same as they grapple with budget shortfalls and as the Internet makes it easier to track the comings and goings of aircraft.

Many pilots are outraged.

"At best what Maine is doing is underhanded and devious. At worst it is illegal," Kahn said. "Either way, it's wrong."

Maine officials say they are simply enforcing the state's tax laws when they send bills - into six figures - to out-of-state plane owners.

At issue in Maine is the state's "use tax," which applies to many goods and services bought out-of-state that are not subject to sales tax.

In the case of airplanes, tax officials say the law allows them to collect a 5 percent use tax from an owner who did not pay sales taxes on a plane that was brought to Maine for more than 20 days, excluding time for maintenance and alterations, in the first year of ownership.

"We're charged with administering the law," said David Bauer, a tax-policy analyst with Maine Revenue Services. "We didn't write it."

The use tax has been on the books for decades, but the first time Portland tax attorney Jon Block saw the state go after someone who lived and kept a plane out-of-state was three years ago.

Block represents seven people from Massachusetts, Connecticut, Maryland and Florida who received bills this year ranging from about $16,000 to $175,000. His clients for the most part fly to Maine on business or to visit vacation homes.

He argues that in addition to being unfair, the precise wording of Maine's use-tax law makes his clients exempt from the tax.

Florida assesses a 6 percent use tax on plane owners who did not pay sales tax on their planes and bring them to Florida even once within six months of the purchase date, said Louis Meiners, president of Advocate Aircraft Taxation Co. of Naples, Fla., a consulting firm for aircraft owners

Washington state assesses a use tax of up to 8.9 percent if a plane is in Washington for more than 90 days in any continuous 12-month period.

Illinois also is assessing taxes on out-of-state plane owners, Meiners said.

These days, the Internet makes it easier for tax collectors to track planes' whereabouts on the Internet or through Federal Aviation Administration records, Meiners said.

Some plane owners have gotten letters of inquiry and bills from multiple states, demanding payment or proof that they have paid sales taxes in their home states, he said.

"What we have is a real potential for double taxation and triple taxation and endless taxation in the way the states try to enforce it," he said.

Kahn, a partner in a Boston financial-services company, did not pay a sales tax when he bought his plane five years ago because Massachusetts exempts planes from such levies.

He has appealed his tax bill. If his appeal fails, he could take the case to court.

"I don't mind paying taxes when I owe them, but this is underhanded," he said.