Aviation industry might take off with tax relief

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Business > Some say enterprise repressed by burdensome GRT, others not so sure

By Tris DeRoma

Pilots in New Mexico may have a fantastic views to look at when they are airborne and no doubt, the arid climate is a plus when it comes to preserving a plane’s condition. However, that’s just about all most pilots — and anyone else connected to the aviation industry in New Mexico — believes it has going for them.

According to some, the tax structure really comes down hard on a type of business that has yet to blossom in the state. Many of those in the aviation business find the state’s seven percent gross receipts tax on aviation supplies and services oppressive, especially when it comes to maintenance.

When the hail storm hit Los Alamos last October, all of the pilots affected had to ship their damaged planes out of state to a facility in Colorado because there is no aviation repair facility in New Mexico equipped to handle it — or at least one that would repair the hail damage for the right price, which is typically dictated by what an insurance company is willing to pay.

According to Los Alamos Airport Manager Peter Soderquist, 18 airplanes were damaged in the storm and many of those were considered a total loss. To his knowledge, not one of the aircraft was repaired in-state.

“If you wanted to expand your business, why would you, when you can go to a nearby state and get a tax break or benefit for doing so,” Soderquist said. “For that reason, it’s kind of hard to find the services you need or find the type of aviation services to do this work in the state of New Mexico.”

And that’s the problem, some mechanics said. Right next door, in Colorado, there are companies that can do the work for far less than a New Mexico company could. Time and time again, aircraft mechanics have had to watch their local pilots go elsewhere.

“It really puts a damper on business,” Ron Hyer said. Hyer, owner and operator of Hyer Aviation LLC said the gross receipts tax, which is applied to the buying and selling of aviation services, fuel, parts and everything aviation-related, really hurts. “I know some people who don’t want to put up with it anymore, they tell me flying’s just too expensive,” he said.

According to Hyer, while the tax is not all that high, it’s just another obstacle that adds a big disadvantage when it comes to competing with aviation maintenance companies out of state.

“Personally, I just wish they’d get rid of the gross receipts tax, “Hyer said. “It’s an insidious tax, not just for this kind of business, but for every other kind of business as well.”

Some Los Alamos pilots said New Mexico would have a far better economy if they got rid of the tax. Some said that would create a lot more local aviation maintenance jobs here in the state, and be a big shot in the arm to the state’s aviation industry overall.

Local pilot Dan Gabel said because there is no aviation facility skilled enough and inexpensive enough to handle hail damage in New Mexico, he has no choice but to take his plane out of state to get repaired when hail strikes.

“My airplane is scheduled to go to Greeley, Colo., in February for repairs. The same facility that fixed it three years ago will work on it again,” Gabel said. “Three years ago, Colorado got $18,000 in business fixing my airplane. This time the job comes to $46,000. It is a shame that revenue couldn’t go into the New Mexico economy. Because we don’t have adequate local repair facilities I’m also out the use of my aircraft for about six months. That’s lost revenue for me and, of course, the local economy.”

Some in the aviation industry view the situation differently, such as local flight instructor and former county councilor Robert Gibson.

“You can focus on a sales tax or a gross receipts tax and I don’t even remember what the Colorado situation is, but every state gets revenue,” he said. “If their sales tax is low, then their property tax may be higher or their income taxes may be higher which means they have to pay their employees more... one way or another they are going to extract money from the citizens to run the local government.

“There are many factors as to where a business locates, of which taxes and the regulatory environment are one,” Gibson said. “Overall, I think gross receipts tax is a very small factor as to where an aviation business would locate.”

Gibson also said pilot population also plays a part and notes New Mexico just may not have enough pilots in the state to sustain a repair business.

“Another factor in where a business locates is where its customers are. There aren’t a huge number of airplanes in New Mexico because there aren’t a huge number of people here,” Gibson said. “We have a lot of small shops here, but not a lot of big ones because they can’t generate the activity to support themselves.”

If tax reform is to come, then Gibson thinks it should happen for all businesses in New Mexico.

“We really should be considering or looking at the tax and regulatory environment for all business in New Mexico, not just the ones that are specifically for aviation.”

Soderquist believes help is on the way for the local aviation industry however. He points to a bill currently in committee in the New Mexico Legislature called “HB 29.” Sponsored by State Rep. James White and one of Los Alamos’ local legislators, Sen. Carlos Cisneros, the bill seeks to do reduce the gross receipts tax for New Mexico aviation repair and parts suppliers.

Cisneros said the bill is geared mainly toward small airports like the Los Alamos Airport, who typically have a number of small aviation parts suppliers, repairers and manufacturers that cater to it.

“It also helps those pilots and purchasers of aircraft to facilitate their buying and selling of parts and maintenance,” Cisneros pointed out. “This bill would make these types of facilities exempt from the gross receipts tax.”

He noted that it would also go a long way toward helping pilots getting through “catastrophic events like what happened in Los Alamos with the October hail storm.

“It would certainly ease some of the costs of maintenance and purchasing parts,” Cisneros said.

The bill is still in committee, but if approved in both houses as is, it could become law and go into effect in July of 2013.