Could an airframe sale qualify as an exempt aircraft sale when the carrier supplied its own engines or temporarily used the seller's engines?

Plain-English summary

The proposed sales qualified as exempt aircraft sales to a common carrier under section 6366 in all three delivery structures.

The purchaser could take delivery after the manufacturer installed purchaser-owned engines, after another contractor installed those engines, or with seller-loaned engines installed before the purchaser later substituted its own and returned the loaned engines.

In each case, the delivered airframe had installed engines and met the statutory aircraft concept as a contrivance designed for powered navigation in the air. The opinion followed an earlier analysis that treated an airframe with leased installed engines as an aircraft sale.

Common questions

Did the manufacturer have to sell the engines?

No. The carrier could supply its own engines or temporarily use loaned engines.

Did it matter who installed the carrier's engines?

No. Installation by the manufacturer or a different contractor both qualified on the proposed facts.

Was delivery of a bare airframe analyzed?

No. Each approved scenario involved installed engines at delivery.

Citations and references

• California Revenue and Taxation Code section 6366 — aircraft sales exemption applied
• California Revenue and Taxation Code section 6274 — statutory aircraft definition quoted

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/500-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/500-0145.pdf

Original ruling text

500.0145
STATE OF CALIFORNIA
WILLIAM K. BENNETT
First District, Kentfield

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 1799, SACRAMENTO, CALIFORNIA 95808)
(916) 445-8485

CONWAY H. COOLIS
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
RICHARD NEVINS
Fourth District, Los Angeles

April 28, 1986

Dear __,

KENNETH CORY
Controller, Sacramento

DOUGLAS D. BELL
Executive Director

This is in response to your letter of March 17, 1986. We understand that __ Company is a manufacturer of aircraft parts which is presently contracting with a common carrier for the sale of an "aircraft". The common carrier will purchase the "aircraft" without any engines being furnished by _ and, instead, will furnish its own engines. Your letter stated that delivery of the aircraft in California will occur under one of the following three fact patterns: "A. The purchaser will take delivery after _ installs the purchaser's engines onto the aircraft. B. The purchaser will take delivery after a contractor other than
_ installs the purchaser's engines onto the aircraft. C. The purchaser will take delivery of aircraft with engines being loaned by _. The purchaser will then have its own engines installed elsewhere and return the loaned engines to
____.”
You asked whether under any or all of the foregoing fact patterns, the sale of the "aircraft" would be exempt pursuant to Revenue and Taxation Code Section 6366. Opinion Revenue and Taxation Code Section 6366 provides: "Aircraft sold to common carriers, foreign governments and nonresidents. There are exempted from the taxes imposed by this part the gross receipts from the sale of and the storage, use, or other consumption of aircraft sold to persons using such aircraft as common carriers of persons or property under authority of the laws of this state, of the United States or any foreign government, or sold to any foreign government for use by such government outside of this state, or sold to persons who are not residents of this state and who will not use such aircraft in this state otherwise than in the removal of such aircraft from this state."

500.0145
The term "aircraft" is defined in the code as follows: "'Aircraft' means any contrivance designed for powered navigation in the air except a rocket or missile" (Rev. & Tax. Code §6274) You cited Business Taxes Law Guide Annotation 105.0160 as authority for exempting the proposed sale. In that matter, a seller wished to sell and a buyer wished to buy an aircraft. The airframe was sold outright but the installed engines were leased to the buyer with option to purchase at a later date. Our staff concluded that an exempt sale of an aircraft had occurred pursuant to Section 6366. In the instant matter we are, likewise, of the opinion that the proposed sale of the airframe with installed engines to a common carrier, as described in fact patterns A, B, and C, would qualify as an exempt sale of an aircraft pursuant to Section 6366.

Very truly yours,
E. Leslie Sorenson, Jr.
Tax Counsel