Introduction

This Directive states rules for the Massachusetts personal income taxation of non-residents who are engaged in providing services on aircraft during flight ("flight crew members"). The Directive first explains the federal limitation on state taxation that applies to certain flight crew members who perform services on "air carriers." The Directive then provides special apportionment rules for determining the Massachusetts tax on the compensation of all non-resident flight crew members subject to Massachusetts taxation, that is, those "air carrier" employees who are not covered by the federal limitation as well as all other flight crew members who are not treated as "air carrier" employees.

Issue 1

How does federal law limit the Massachusetts income taxation of certain non-resident flight crew members, and how is that limitation applied?

Directive 1

Massachusetts taxes non-resident flight crew members to the extent allowed under federal law, notably 49 USC § 40116(f). Specifically, Massachusetts taxes (i) those non-resident "air carrier" employees, as defined, who earn more than 50% of their pay in Massachusetts, and (ii) all other non-resident flight crew members who perform services in Massachusetts.

Discussion 1

A. Taxation of non-resident flight crew members who are subject to federal rules limiting state taxation of air carrier employees.

For purposes of this Directive, "flight crew member" is a generic term that applies to all individuals who are engaged in providing services on aircraft during flight, such as pilots and flight attendants. Federal rules limit a state's ability to tax a subset of this group, namely "air carrier" employees. The term "air carrier" refers to those operators who because of their commercial flight activities or the size of their aircraft are required to obtain an air carrier certificate as set forth in 49 USC §§ 41101 - 41112. See 49 U.S.C. § 41101(a)(1). The federal statutes allow a state to tax a non-resident air carrier employee only if the employee earns more than 50% of his or her pay in the state. 49 U.S.C. § 40116(f)(2). An employee is deemed to have earned 50% of his or her pay in a state in which the scheduled flight time of the employee in the state is more than 50% of the total scheduled flight time of the employee when employed during the calendar year. [1] If the employee meets this threshold, the amount of his or her income that is taxable in Massachusetts is determined in accordance with Directive 2.

B. Taxation of non-resident flight crew members who are not "air carrier" employees within meaning of the federal rules.

The federal limitation on state taxation does not extend to flight crew members of aircraft operators that do not have air carrier certificates. Such non-resident flight crew members are subject to the general rules of Massachusetts taxation for non-residents at G.L. c. 62, § 5A, and if subject to tax should allocate and apportion their income according to the provisions of Directive 2.

Issue 2

How should non-resident flight crew members who are subject to Massachusetts taxation allocate or apportion their income?

Directive 2

A non-resident flight crew member who departs from a Massachusetts airfield and flies in and out of more than one state should allocate, when possible, his or her income to Massachusetts according to the general rules at 830 CMR 62.5A.1. When a flight crew member is unable to establish the exact amount of pay received for services performed in Massachusetts, the employee should apportion his or her income to Massachusetts by multiplying the gross income related to his or her employment, wherever earned, by an apportionment factor, that is, a fraction, the numerator of which is Massachusetts workdays and the denominator of which is total workdays. For purposes of this Directive, a Massachusetts workday is any workday that a flight crew member flies out of Massachusetts. For workdays on which a flight crew member does not fly out of Massachusetts, the general rule at 830 CMR 62.5A.1(5)(a) applies, and any day part of which is spent in Massachusetts will be treated as a Massachusetts workday, unless the taxpayer can prove that he or she worked outside of Massachusetts for more than half the day. The term "total work days" is the sum of all days that an employee is either flying or is required to be on duty (non-flight workdays).

Discussion 2

Because of the unique circumstances that apply to flight crew members whose workday can be in the air over multiple jurisdictions, the Department has developed the special apportionment rule stated in Directive 2. This special apportionment rule will apply to non-resident flight crew members who are subject to Massachusetts taxation, including employees of air carriers who are taxable in Massachusetts, after taking into account the federal limitation described in Directive 1.

Example

Calculating tax liability for non-resident flight crew members.

Non-resident Flight Attendant works for a corporation that operates two small corporate jets that fly out of Massachusetts. The corporation is not required to obtain an air carrier certificate under federal law. Because the federal limitation on state taxation does not extend to such aircraft operators, Flight Attendant is subject to Massachusetts taxation. Flight Attendant flies on 180 flights per year. 120 of those flights depart from the corporate headquarters state of New York; 35 have their departures in Illinois; 25 depart from Massachusetts. During the year, some of the trips require Flight Attendant to stay in the destination city for several days while passengers conduct business. Those days are considered to be non-flight workdays. The employee has a total of 14 non-flight workdays, during 2 of which the employee is staying at a hotel in Massachusetts. The apportionment factor Flight Attendant should use in calculating the portion of his compensation taxable in Massachusetts is 25 (the number of workdays the employee flew out of Massachusetts) + 2 (the number of non-flight workdays spent in Massachusetts) / 194 (180 flight days + 14 non-flight days) = 0.1392, which expressed as a percentage is 13.92%.

Effective Date

With respect to the special apportionment method in Directive 2, this directive is effective upon issuance. Other provisions, namely those that treat the general taxability of flight crew members, are restatements of current law and continue in effect.

/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue

NKB:MTF:dt

April 2, 2008

DD 08-2



[1] See 49 USC 40116(f)(1)(C).