Was a helicopter used as a common carrier when its Part 135 lessee dedicated it exclusively to transporting one corporate client's personnel and guests?

Plain-English summary

An investor bought a $100,000 helicopter and leased it back to its former owner, a Part 135 air-taxi operator. The helicopter's use did not change after the sale and leaseback.

The lessee used the helicopter principally under a contract to transport one company's personnel and guests. The insurance policy described its use as air taxi commercial exclusively in that company's business.

The Board concluded that holding a Part 135 certificate showed the lessee was qualified to conduct common-carrier operations, but did not prove this helicopter was actually used that way. Because it was dedicated to one client, it was not available to the public for carriage of persons or property.

The January 1981 statement records that the Board treated the service as contract carriage and ordered redetermination without adjustment.

Citations and references

• California Revenue and Taxation Code sections 6366 and 6366.1 (as cited)
• California Civil Code section 2168 (as cited)
• Sales and Use Tax Annotation 105.0060 (quoted and distinguished)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/105-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/105-0064.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Petition Unit (HKL)

From:

Tax Counsel (RHA)

Subject:

G--- W. B---

105.0064

January 13, 1981

SP -- XX XXXXXX-010

This matter was heard by the Board in San Diego on December 2, 1980, at which time it was taken under consideration. Following is a suggested statement of Board action: Statement of Board Action The Board finds that petitioner purchased a helicopter and leased it back to a person holding a Part 135 air tax operator’s certificate issued by the Federal Aviation Administration. The Board finds that petitioner’s lessee used the helicopter principally in its work for the N--- B--- Company under a contract with that company. The Board finds that petitioner’s lessee was required to hold a part 135 operating certificate in its conduct of business with N---. The Board concluded that contract carriage of persons or property does not qualify the lessee’s use as a common carrier or persons or property as required for the exemption under Section 6366.1 of the Sales and Use Tax Law. The Board ordered the matter redetermined without adjustment. RHA:ss

STATE OF CALIFORNIA
BOARD OF EQUALIZATION
In the Matter of the Petition
for Redetermination of State of California
and Local Use Tax;
G--- W. B---,

Petitioner.

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DECISION AND RECOMMENDATION

No.

SP -- XX XXXXXX-010

The above-entitled matter came on regularly for hearing on Wednesday, April 23, 1980 in Santa Ana, California, before Robert H. Anderson, Hearing Officer. Appearing for Petitioner:

Mr. G--- W. B---

Appearing for the Board

Mr. G. N. Highland
Field Audit Supervisor
Orange County District

Protest
Mr. B--- protests the assessment for use tax on an aircraft purchased for $100,000. determination for the tax was issued on October 29, 1979.

A

Contentions
1.
The aircraft isunder lease to a F.A.R. part 135 (air taxi) operator and is exempt from the use tax. 2. California Sales and Use Tax Annotation 105.0060 classifies the lessee as a common carrier under Sections 6366 and 6366.1 of the Rev. & Tax. Code. Lessee is a common carrier. Summary Mr. B--- purchased the aircraft in question, a helicopter, from the party to whom it is presently leased as an investment, to get an investment tax credit among other things. He never flew it himself. The former owner and current lessee holds an air taxi certificate and had purchased the helicopter tax paid. The tax, however, was refunded on the ground that the former owner was operating the helicopter as a common carrier. The former owner of this helicopter also purchased another aircraft and on the second one paid no sales tax for the same reason that the tax was refunded on the first one purchased. The operational use of the helicopter remained unchanged; it was the same before the sale as after the sale to Mr. B---.

G--- W. B--SP -- XX XXXXXX-010

-2-

August 19, 1980
105.0064

The lessee of the helicopter is A--- V--- S--- Corp., who is engaged in the business of transporting personnel/guests of N---. The use of the helicopter, as shown on the insurance policy, is “Air Taxi Commercial Exclusively in the Business of N---. In order for the lessee to operate the helicopter in the business, the lessee has to be an air taxi operator licensed with the Federal Aviation Adminstration, and the operator of the helicopter is so licensed. A copy of the operating certificate was submitted and is in the petition file. The claim for exemption from use tax was based on the conclusion that the common carrier use was exclusively with N--- who had a contract with the lessee to supply the common carrier service to it exclusively, and thus, the use was deemed not furnishing any air transportation to the public. The foregoing conclusion was based on the language in the annotation numbered 105.0060 which reads: “105.0060 Common Carrier. A company operating under an “air taxi/commercial operator” certificate issued by the Federal Aviation Administration, providing air transportation to the public in an aircraft under control of the company’s pilot at a rate based on mileage plus standby and other charges, on a nonscheduled basis, is a common carrier within the meaning of Sections 6366 and 6366.1.” Conclusion In order to qualify for the exemption under Section 6366.1 of the Sales and Use Tax Law, the aircraft must be used as a common carrier of persons or property. The fact that the lessor holds an air taxi operating certificate is acceptable evidence that it is qualified to engage in common carriage operations. However, the evidence at hand indicates that it was not used in common carrier operations, even though an air taxi operating certificate may have been required for the use to which the lessee made of the helicopter. The common carrier concept is clear in principle, as stated in Civil Code Section 2168 “….Every one who offers to the public to carry persons, property, or messages, excepting only telegraphic messages, is a common carrier of whatever he thus offers to carry.” The helicopter in question was dedicated to use as “air taxi commercial exclusively in the business of N---” according to the insurance policy covering its operations.

G--- W. B--SP -- XX XXXXXX-010

-2-

August 19, 1980
105.0064

Accordingly, the helicopter could not have been available “to the public” for carriage of persons or property. The evidence at hand does not indicate that the helicopter was used as a common carrier of persons or property as required under Section 6366.1 of the law. Recommendation Redetermine without adjustment.

Robert H. Anderson, Hearing Officer

AUG 19, 1980
Date