Would contributing an aircraft to a corporation without stock, debt assumption, or other consideration be taxable?

Plain-English summary

An individual who reportedly bought an aircraft in September 1987, filed a consumer use-tax return, and paid the tax planned to contribute it to a corporation. The individual reportedly owned it alone, free of liens and encumbrances. The corporation would issue no stock or securities, assume no debt or liability, and provide no other consideration. FAA formalities might require a bill of sale reciting consideration.

California said the contribution was not a sale or purchase because no actual consideration changed hands. A formal recital in the FAA document did not change the result if it was only a regulatory formality and the parties' actual economics matched the stated facts.

The aircraft was MTE, and a proposed lease by the corporation to the individual or others would be the corporation's own use rather than a sale. Because the corporation would acquire the aircraft in a transfer that did not create use tax, that later leasing use also would not be subject to use tax. The request also mentioned a charter, but the analysis discusses only a “lease” and does not separately decide whether a contemplated charter would be a lease or a service.

Conditions, proposed sequence, and missing proof

The letter responds to a February 2 request that is not separately reproduced. Its no-consideration result depended on actual economics, not the document label: no payment to the individual or anyone else, no stock or other securities, no assumed debt or liability, and no other benefit in exchange for the aircraft.

Every proposed step after the existing ownership was prospective. The individual “plans to transfer” the aircraft; the corporation “will” furnish no consideration; the FAA “may” require a Bill of Sale; and the requester sought treatment of a “subsequent charter or lease.” The official PDF includes no completed Bill of Sale, contribution or corporate-capital record, board action, stock ledger, debt or liability evidence, closing record, charter, lease, delivery, use, or later outcome.

The prior aircraft purchase, consumer use-tax return and payment, sole ownership, and absence of liens are reported facts without the invoice, return, payment receipt, title, lien search, or aircraft record. The letter also accepts MTE status without aircraft specifications or use evidence.

The live 335.0083.750 annotation recasts the aircraft as having been transferred, while the underlying letter says the contribution and later charter or lease were planned. It preserves the no-consideration conditions and conclusions but omits the reported September 1987 purchase and tax payment, sole ownership and lien status, the potential charter or lease to the original owner or others, and the absent records.

Common questions

Did the FAA document's consideration recital create tax?

No, provided no consideration was actually paid or received.

Would the corporation owe FRV tax on the proposed lease?

No under the stated acquisition facts; FRV tax applied only when elected to satisfy an underlying use-tax liability.

Did the letter confirm that the contribution or later charter or lease occurred?

No. It analyzed planned steps, and the transaction, FAA, corporate, lease, and tax records are absent.

Citations and references

• California Revenue and Taxation Code sections 6006(a), 6006(g)(4), 6010(a), 6010(e)(4), 6023, 6092.1, and 6094(d)
• California Sales and Use Tax Regulation 1661
• Requester's February 2, 1989 letter — referenced and summarized but not included
• Aircraft purchase, use-tax return and payment, title and lien records, corporate records, FAA Bill of Sale, contribution records, and proposed charter or lease — not included

Verbatim support

From the official March 3, 1989 letter:

The completion of the Bill of Sale for FAA purposes will not change this conclusion provided there actually is no consideration paid by G--- or received by Mr. K--- in exchange for the transfer of the aircraft.

G--- will acquire the aircraft in a transfer for which G---’s use of the aircraft will not be subject to use tax. Therefore, G---’s lease of the aircraft, which is regarded as G---’s own use, is also not subject to use tax.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/335-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/335-0083-750.pdf

Original ruling text

335.0083.750

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-5550

March 3, 1989

W--- N. G--H--- and M--XXX --- ---, XXh Floor
--- ---, California XXXXX-XXXX
Re:

H--- B. K--- and
G--- B--- Corporation

Dear Mr. Greene:
This is in response to your letter dated February 2, 1989. You ask that we confirm that the transfer of an aircraft by H--- B. K--- to G--- B--- Corporation is not subject to sales or use tax, and that the subsequent charter or lease by G--- of the aircraft to Mr. K--- or others will not be subject to sales or use tax. Mr. K--- purchased the aircraft in September, 1987. He filed a Consumer Use Tax Return with respect to his purchase of the aircraft and paid the use tax. Mr. K--- is the sole owner of the aircraft, free and clear of all liens and encumbrances. He now plans to transfer the aircraft to G---. G--- will not pay any consideration to Mr. K--- or any other person in exchange for the contribution of the aircraft to its capital and, in particular, will not issue any stock or other securities or assume any indebtedness or other liability in connection with the transfer. However, you note that in order to make an effective transfer of the aircraft for federal regulatory purposes, Mr. K--- may be required by the FAA to execute a document entitled “Bill of Sale” which recites formalities of consideration. You state that any such recital of consideration in the Bill of Sale would be made only for purposes of complying with FAA requirements and, in fact, G--- will furnish no consideration to Mr. K---. You cite Revenue and Taxation Code sections 6006(a) and 6010(a) for the proposition that a transfer of tangible personal property that is not in exchange for some consideration is not a sale or purchase under the Sales and Use Tax Law. We agree. The completion of the Bill of Sale for FAA purposes will not change this conclusion provided there actually is no consideration paid by G--- or received by Mr. K--- in exchange for the transfer of the aircraft. Since the transfer will not be a sale or purchase, there is no sales or use tax with respect to the transfer.

W--- N. G--H--- and M---

-2-

March 3, 1989
335.0083.750

We also agree that the aircraft is mobile transportation equipment (MTE) under Revenue and Taxation Code section 6023, and that its lease is not a sale or purchase under the Sales and Use Tax Law (Rev. & Tax. Code §§ 6006(g)(4), 6010(e)(4)). That is, the lessor is the consumer of leased MTE. Tax is due on the fair rental value of lased MTE Only when the lessor elects to pay its use tax liability in this manner. (See Rev. & Tax. Code §§ 6092.1, 6094(d), Reg. 1661.) G--- will acquire the aircraft in a transfer for which G---’s use of the aircraft will not be subject to use tax. Therefore, G---’s lease of the aircraft, which is regarded as G---’s own use, is also not subject to use tax. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Tax Counsel

DHL/smt