Is an aircraft charter a lease when the owner insists on supplying the pilot and keeps possession and control during flight?

Plain-English summary

Levine called May 1, 1957 Annotation 105.0040 wrong and proposed deletion. As summarized, old rule treated exclusive customer aircraft use/possession for flight as lease except when owner's charter operations subject to carrier licensing/regulation. Old annotation and deletion approval absent.

Memo said certification/regulation mattered to exemptions under sections 6366/6366.1, but absolutely no relevance to lease. Possible owner regulatory violation also irrelevant. Charter classification depended solely on control retained.

Under Entremont, no transfer of possession/control meant purported lessor used property. Example: photographer insisting on taking pictures while leasing camera remained user and could not buy camera for resale.

Aircraft owner refusing plane without own controlling pilot provided charter transportation, not lease. No lease/rent meant no fair-rental-value election. Memo says old annotation should be deleted, not that completed deletion is proved.

Live 330.2650 publishes generalized possession/control rule and photographer example, noting amendment M99-1. It omits aircraft, carrier exemption, fair-value and deletion context.

Common questions

Does exclusive customer flight use necessarily create lease?

No. The customer must receive possession and control of the aircraft.

What if owner requires own pilot?

The owner retains control and provides charter transportation rather than an aircraft lease.

Does carrier certification decide lease?

No. It may affect an exemption, but not the possession-and-control classification.

What if charter operator violated regulatory requirements?

Memo says possible regulatory violation had no relevance to whether transaction was charter.

Could owner elect fair-rental-value tax?

No under stated conclusion because no lease and no rent.

Was old annotation's deletion completed?

Not proved here. Memo directs deletion, but contains no approval/digest; live 330.2650 is generalized replacement rule.

What did live amendment M99-1 change?

Live page notes amendment but provides no amendment text or explanation, so this page does not infer one.

May aircraft operator rely on this memo?

No. It is internal deletion proposal without transaction records; actual control, carrier exemptions and current law must be checked.

Citations and references

• Sections 6366/6366.1 — carrier exemptions, not lease classification
• Entremont, 13 Cal.2d 290 — possession/control and owner use
• Annotation 105.0040 — summarized but absent; deletion proposed
• Aircraft/charter/pilot/carrier/acquisition/reporting/payment evidence — absent
• Official Annotation 330.2650 — generalized replacement with unexplained M99-1 note

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.2650
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/330-2650.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

330.2650

Memorandum
To

:

Mr. Gary J. Jugum

From :

David H. Levine

Subject:

Annotation 105.0040 (5/1/57)

Date:

June 29, 1992

The above annotation is wrong, and I believe it must be deleted. It addresses the question of whether a charter can be regarded as a lease. The rule stated by the annotation is that if the customer is entitled to exclusive use or possession of the plane for a flight, then the aircraft is regarded as leased. The exception to this rule stated in the annotation is that it does not apply if the owner's charter flight operations are such that he is subject to licensing and regulation as a carrier. Under such circumstances, the flight is not regarded as a lease. This is incorrect analysis, and is not the analysis we have been applying. Whether the owner is certificated and regulated as a carrier is relevant to whether the owner is entitled to an exemption under section 6366 or 6366.1, but it has absolutely no relevance to the question of whether the transaction is a lease. If the owner will not "lease" the aircraft without providing a pilot who will maintain control of the aircraft during flight, then the flight is a charter and not a lease. That the owner doing charters may or may not be in violation of regulatory requirements has no relevance to the question of whether a charter is involved. The answer to that question depends solely on the degree of control retained by the owner. The applicable rule is set forth in Entremont v. Whitsell (1939) 13 Cal.2d 290. If possession and control of the property in question are not transferred to the purported lessee, then the transaction is not a lease. Rather, the purported lessor is actually using the property. We regularly apply this rule. For example, if a photographer "leases" his camera but insists upon taking the pictures himself, refusing to transfer possession and control of the camera to the "lessee," then the "lessor" is not regarded as leasing the camera, and would not be entitled to purchase that camera for resale. Here, if the aircraft owner will not let the purported lessee gain possession and control of the aircraft, that is, if the owner insists that the his pilot will fly the aircraft, then the owner is providing charter transportation service and is not leasing the aircraft. Such an owner may not elect to pay tax on fair rental value because there is no lease and no rentals are paid. The annotation should be deleted.