Could a California aircraft purchase qualify when the buyer simultaneously leased it to a noncarrier that simultaneously subleased it to a common carrier?

Plain-English summary

An Arizona corporation planned to take delivery of a new aircraft in California and simultaneously lease it to a Nevada corporation that was not a common carrier. That corporation would simultaneously sublease the aircraft to a Nevada common carrier, with no intervening use.

Tax counsel assumed the final lessee operated under qualifying authority and would satisfy Regulation 1593's common-carrier use requirements. On those assumptions, the entire simultaneous purchase, lease, and sublease structure came within section 6366.1 despite the middle lessee not being a common carrier.

The letter emphasized keeping appropriate exemption documentation. Its conclusion depended on the transactions being simultaneous and the aircraft having no other use before common-carrier operation.

Citations and references

• California Revenue and Taxation Code sections 6366.1 and 6421 (as cited)
• California Sales and Use Tax Regulations 1593 and 1667 (as cited)

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/105-0260.pdf

Original ruling text

105.0260

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

April 5, 1988

Mr. T--- N. L--L--- and L--XXXX --- ---, Suite XXXX
--- ---, CA XXX
Re:

P--- A--- S---, Inc. – No Acct.
P--- A--- U---, Inc. – No Acct.
S--- I--- A---, Inc. – SJ -- XX-XXXXXX

Dear Mr. L---:
This is in response to your letter dated February 26, 1988 regarding the application of sales and use tax to the following transactions: “The transaction involves the purchase of a new aircraft by P--- A--- S---, Inc., an Arizona corporation (“A1”), from M--- Corporation, the aircraft manufacturer. A1 will take delivery of the aircraft in California. Simultaneously with the purchase of the aircraft, A1 will lease the aircraft to P--- A--- U---, Inc., a Nevada corporation (“A2”). A2 is not a common carrier. Simultaneously with the foregoing transactions, A2 will lease the aircraft to S--- I--- A---, Inc., a Nevada corporation (“S---”). S--- is a common carrier based in [city], Nevada, which will place the aircraft in commercial operation. There will be no intervening use of the aircraft by A2 prior to its lease to S---.” Revenue and Taxation Code section 6366.1 exempts from sales and use tax the sale of and use in this state of aircraft which are leased, or sold to persons for the purpose of leasing, to lessees using such aircraft as common carriers of persons or property under the authority of the laws of California or the United States. (See also Reg. 1593.) We assume S--- operates as a common carrier under such authority and that S---’s use of the aircraft will satisfy the requirements set forth in Regulation 1593(b).

Mr. T--- N. L---

-2-

April 5, 1988
105.0260

Under the facts you present, the sale of aircraft by M--- to A1 for simultaneous sublease to A2 for use by S--- as a common carrier with no other previous use of the aircraft, we consider the simultaneous transactions to come within the exemption provided by section 6366.1. The parties should obtain , and retain in their records, appropriate documentation to support the exemption. (See Rev. & Tax. Code § 6421, Reg. 1667 (exemption certificates).) If you have further questions, feel free to write again. Sincerely

David H. Levine
Tax Counsel
DHL:ss