Would aircraft transferred into a new Florida LLC be exempt when the LLC planned rentals and flight instruction?

Subject

Transfer of Aircraft

Plain-English summary

The proposed direct conversion did not establish an exempt transfer because a corporation was not among the entities then permitted to convert to a Florida LLC. If the transition instead occurred through a qualifying corporate merger or consolidation, or a section 368(a)(1) reorganization solely for stock, the corporation's aircraft transfer could qualify for exemption.

The nonprofit owner's aircraft transfers to the LLC were taxable. An aircraft bought exclusively for rental could qualify with a resale certificate, but the LLC planned both rentals to the nonprofit for its students and flight instruction for other students without segregating aircraft by use. Because some aircraft would be used for instruction rather than exclusively for rental, all transferred aircraft failed the stated exclusive-rental treatment.

Student charges for flight instruction were exempt. The LLC's service charge to the nonprofit was treated as aircraft rent, but the nonprofit's section 501(c)(3) status exempted that rental.

What this means for you

Entity-transition form, consideration, resale documentation, and actual aircraft use each had separate tax consequences. Mixed, unsegregated use defeated the transfer exemption even though some downstream charges were exempt.

Common questions

Q: Could the corporation simply convert to an LLC under the cited statute? No.

Q: Could a merger or qualifying reorganization be exempt? Yes, if it met the stated requirements and used only stock consideration.

Q: Why were all nonprofit aircraft transfers taxed? The LLC did not segregate exclusively rented aircraft from aircraft used for non-nonprofit student instruction.

Q: Were student flight-instruction charges taxable? No.

Citations and references

• Fla. Stat. §§ 608.438 and 608.439 — LLC mergers and conversions
• I.R.C. § 368(a)(1) — corporate reorganization
• Fla. Admin. Code r. 12A-1.007(14)(b)1. and (26) — aircraft purchases and transfers
• Fla. Admin. Code r. 12A-1.071(23) — flight instruction
• Fla. Stat. § 212.08(7)(p) — section 501(c)(3) organizations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01A-057

Original ruling text

SUMMARY

QUESTION: Whether, upon conversion of a Florida corporation
(Corporation) to a Florida limited liability company (LLC),
Florida sales tax should be applied to aircraft transferred
from Corporation to LLC and aircraft transferred from
another entity (Entity X) to the LLC.

ANSWER - Based on Facts Below: Under Florida law, a
corporation is not an entity that is permitted to convert
to a limited liability company. If, however, the
Corporation's transition to a Florida limited liability
company would be executed as a corporate consolidation or
merger in accordance with Chapters 607 or 617, F.S., or a
reorganization as defined in Section 368(a)(1), I.R.C.,
solely in exchange for stock, the transfer of title of the
Corporation aircraft to LLC may be exempt from tax pursuant
to Rule 12A-1.007(26)(a), F.A.C.

The aircraft transferred from Entity X to LLC would be used
exclusively for providing flight instruction and aircraft
rental. Upon transfer of the Entity X aircraft to LLC, LLC
will provide contract services to Entity X to provide
flight instruction for students of Entity X completing
courses through XXX. In addition to fulfilling the
contract between LLC and Entity X, the Entity X aircraft
will also be used to provide flight instruction to nonEntity X students. There is no plan to segregate which
aircraft will be used for providing flight instruction to
Entity X students and which aircraft will be used to
provide flight instruction to non-Entity X students.

Rule 12A-1.007(14)(b)1., F.A.C., provides that the purchase
of an aircraft exclusively for rental purposes may be made
tax exempt when the purchaser issues a resale certificate
to the dealer at the time of purchase in lieu of paying
tax. Pursuant to Rule 12A-1.071(23), F.A.C., a charge for
flight instruction, which includes supervised flights, is
exempt from Florida sales tax. However, under this rule,
the purchase of aircraft to be used for flight instruction
is subject to Florida sales tax. Since there is no plan to

segregate which aircraft will be used for a particular
purpose, it must be shown that all of the aircraft being
transferred from Entity X to LLC are to be used exclusively
for rental purposes, in order for the transfer to be exempt
from Florida sales tax under Rule 12A-1.007(14)(b)1.,
F.A.C., assuming that LLC presents a resale certificate to
Entity X at the time of transfer.

Entity X will be charging students a fee for flight
instruction. This charge for flight instruction would be
exempt from Florida sales tax pursuant to Rule 12A1.071(23), F.A.C. The charge from LLC for the contract
services to Entity X would not be deemed a charge for
flight instruction, but, rather, a charge for the rental of
the aircraft that is subject to Florida sales tax.
However, Section 212.08(7)(p), F.S., provides that
purchases or leases by a 501(c)(3) organization, such as
Entity X, are exempt from Florida sales tax. Thus, the
charge for contract services from LLC to Entity X for
flight instruction of Entity X students would be considered
a charge for a rental of aircraft to a 501(c)(3)
organization, which is exempt from Florida sales tax. Any
of the Entity X aircraft transferred to LLC that are used
for flight instruction for non-Entity X students would be
subject to Florida sales tax on the transfer pursuant to
Rule 12A-1.071(23), F.A.C.

Because Entity X has not segregated, nor does it plan to
segregate, which of the Entity X aircraft will be used for
flight instruction for Entity X students and which aircraft
will be used for flight instruction to non-Entity X
students, the transfer of the Entity X aircraft to LLC
would not be considered a transfer exclusively for rental
purposes. Therefore, Florida sales tax would be imposed on
all Entity X aircraft transferred to LLC.

Sep 07, 2001

Re: Technical Assistance Advisement 01A-057
Sales and Use Tax
Transfer of Aircraft
Sections 212.06(10), and 212.08(7)(p), F.S.
Section 330.27(1), F.S.
Section 608.439, F.S.
Rules 12A-1.007 and 12A-1.071(23), F.A.C.
XXX ("XXX"), Taxpayer I.D. XX
XXX ("Corporation"), Taxpayer I.D. XX
New Company ("Limited Liability Company")

Dear

This is a response to your letter of July 30, 2001, requesting a
Technical Assistance Advisement (TAA) regarding the abovereferenced matter. This response to your request constitutes a
TAA under Chapter 12-11, Florida Administrative Code (F.A.C.),
and is issued to you under the authority of Section 213.22,
Florida Statutes (F.S.).

FACTS

XXX is an organization exempt from taxation under Section
501(c)(3), I.R.C. XXX. In connection with the XXX, students may
complete the necessary requirements to receive various Federal
Aviation Administration ("FAA") ratings including: FAA private
pilot certificate, FAA commercial pilot and instrument rating,
FAA commercial certificate, FAA certified flight instructor
certificate, FAA instrument rating, and FAA multi-engine
airplane rating. In connection with the training of student
pilots and the granting by XXX of the various FAA pilot
certifications and ratings, XXX currently owns XX aircraft of
varying descriptions ("XXX aircraft"). None of the XXX aircraft
are, or will be, certified for charter purposes.

In addition, XXX owns XX of the outstanding shares of common
stock of Corporation, a Florida for-profit corporation.
Corporation is engaged in the business of XXX. In connection
therewith, Corporation currently owns title to XX aircraft
("Corporation aircraft") of varying descriptions (these are in
addition to the XX aircraft owned by XXX as described above).

All of the Corporation aircraft are free from debt.

XXX has proposed to convert Corporation, pursuant to Section
608.439, F.S., to a limited liability company (LLC). LLC will
be taxed as a sole proprietorship and, therefore, all items of
income, loss, and deductions will pass through to XXX, and LLC
will be disregarded as a separate entity from XXX for federal
tax purposes. In connection with the formation of LLC, XXX will
transfer right, title, and interest to all XXX aircraft. LLC
will continue to be engaged in the business of XXX, as was its
predecessor, Corporation. In addition, LLC will contract with
XXX to provide both supervised and unsupervised solo flights for
students completing their courses through XXX (the proposed
agreement between XXX and LLC has not been prepared). XXX will
continue to provide all classroom time and ground schooling.
LLC will be registered with the Florida Department of Revenue as
a dealer, prior to the transfer of any XXX aircraft. LLC will
be a registered dealer and will be able to issue XXX a resale
certificate at the time of the transfer of the XXX aircraft.

REQUESTED ADVISEMENT

XXX requests advisement on the Florida sales and use tax
consequences of the conversion of Corporation into a Florida
limited liability company and the transfer of title of the XXX
aircraft to LLC.

APPLICABLE LAW

Section 212.06(10), F.S., relating to the titling, licensing, or
registration of a vehicle in Florida provides in part:

No title certificate may be issued on any boat, mobile
home, motor vehicle, or other vehicle,... unless there is
filed with such application for title certificate or
license or registration certificate a receipt, issued by an
authorized dealer or a designated agent of the Department
of Revenue, evidencing the payment of the tax imposed by
this chapter where the same is payable. A presumption of
sales and use tax applicability is created if the motor
vehicle is registered in this state.... All transfers of

title to boats, mobile homes, motor vehicles, and other
vehicles are taxable transactions, unless expressly exempt
under this chapter.

Section 212.08(7)(p), F.S., provides:

(p) Section 501(c)(3) organizations.--Also exempt from the
tax imposed by this chapter are sales or leases to
organizations determined by the Internal Revenue Service to
be currently exempt from federal income tax pursuant to s.
501(c)(3) of the Internal Revenue Code of 1986, as amended,
when such leases or purchases are used in carrying on their
customary nonprofit activities.

Section 330.27(1), F.S., provides:

(1) "Aircraft" means any motor vehicle... used or designed
for navigation of or flight in the air....

Section 608.439, F.S., relating to limited liability companies,
provides in part:

(1) As used in this section, the term "other entity" means
a business trust or association, a real estate investment
trust, a common law trust, or any other unincorporated
business, including a partnership, whether general
(including a registered limited liability partnership) or
limited (including a registered limited liability limited
partnership) or a foreign limited liability company.

(2) Any other entity may convert to a domestic limited
liability company by complying with subsection (8) and
filing in the Department of State in accordance with s.
608.4081:

(a) A certificate of conversion to a limited liability
company that has been executed by one or more authorized
persons in accordance with s. 608.408; and

(b) Articles of organization that comply with s. 608.407
and have been executed by one or more authorized persons in

accordance with s. 608.408. [e.s.]

Rule 12A-1.007, F.A.C., provides in part:

(14) Lease or Rental

(b)1. The purchase of an aircraft, boat, mobile home, or
motor vehicle exclusively for rental purposes may be made
tax exempt when the purchaser/lessor issues a resale
certificate to the dealer at the time of purchase in lieu
of paying tax. The lessor shall collect tax from his
customers on the total rental charge.

(26)(a) The following transfers of ownership of any
aircraft, boat, mobile home, motor vehicles, or other
vehicles of a class or type required to be registered,
licensed, titled, or documented in this state or by the
United States Government are exempt from tax, provided that
a certificate setting forth the facts and signed under
penalty of perjury accompanies the application for title
transfer, or if no title certificate is required by law,
the application for transfer of license or registration:

4. The transfer of title into the name of the surviving
   corporation by reason of a corporate consolidation or
   merger in accordance with Chapters 607 or 617, F.S., or a
   reorganization as defined in Section 368(a)(1) of the
   Internal Revenue Code solely in exchange for stock.

(d) When title to an aircraft, boat, mobile home, motor
vehicle, or other vehicle of a class or type required to be
registered, licensed, titled, or documented in this state
or by the United States Government is transferred... from
one corporation to another,... it is presumed that a
consideration flows from the transferee to the transferor,
and if no consideration is stated, then it shall be
presumed to be the fair market value of the vehicle. This

is true even when the two corporations are owned by the
same stockholders.

Rule 12A-1.071(23), F.A.C., provides:

(23) A charge for flight instruction, which includes
supervised solo flights, is exempt. The purchase of an
aircraft for this use is taxable.

DETERMINATION

XXX states its intent to convert Corporation to a Florida
limited liability company and thereby transfer ownership of
Corporation's XXX airplanes to the new limited liability company
(LLC). Pursuant to Rule 12A-1.007(26)(d), F.A.C., when title to
an aircraft is transferred from a corporation to another entity,
it is presumed that a consideration flows from the transferee to
the transferor. Thus, a transfer between a corporation and a
limited liability company would be subject to Florida sales tax,
unless expressly exempt. Rule 12A-1.007(26)(a), F.A.C.,
provides that the transfer of title of an aircraft into the name
of the surviving corporation by reason of a corporate
consolidation or merger in accordance with Chapters 607 or 617,
F.S., or a reorganization as defined in Section 368(a)(1) of the
Internal Revenue Code solely in exchange for stock, is exempt
from Florida sales tax.

XXX representative states that XXX has proposed to convert
Corporation, pursuant to Section 608.439, F.S., to a Florida
limited liability company. Section 608.439(2), F.S., provides
that any "other entity" may convert to a limited liability
company provided certain criteria are met. The term "other
entity" is defined in Subsection (1) and includes a business
trust or association, a real estate investment trust, a common
law trust, or any other unincorporated business, including a
partnership, whether general (including a registered limited
liability partnership) or limited (including a registered
limited liability limited partnership) or a foreign limited
liability company. It is important to note that a "corporation"
has been omitted from this list of entities that are permitted
to convert to a limited liability company. In fact, the

definition specifically refers to "any other unincorporated
business." Contrast this with Section 608.438, F.S., which
deals with mergers of limited liability companies. For purposes
of mergers, the term "other business entity" specifically
includes corporations. Therefore, it appears, from the facts
presented by XXX, that Corporation is not an entity permitted to
convert to a Florida limited liability company pursuant to
Section 608.439, F.S. If, however, the Corporation's transition
to a Florida limited liability company would be executed as a
corporate consolidation or merger in accordance with Chapters
607 or 617, F.S., or a reorganization as defined in Section
368(a)(1), I.R.C., solely in exchange for stock, the transfer of
title of the Corporation aircraft to LLC may be exempt from tax
pursuant to Rule 12A-1.007(26)(a), F.A.C.

In its letter, XXX, a not-for-profit corporation, also states
its intent to transfer the title of the XXX aircraft to LLC,
subsequent to its formation. As mentioned above, pursuant to
Rule 12A-1.007(26)(d), F.A.C., when title to an aircraft is
transferred from a corporation to another entity, it is presumed
that a consideration flows from the transferee to the
transferor. Thus, a transfer between XXX and LLC would be
subject to Florida sales tax, unless expressly exempt.

XXX states that LLC will be in the business of XXX. According
to XXX, upon transfer to LLC, the XXX aircraft will not be used
for charter purposes. Therefore, from XXX statement, it appears
that the transferred aircraft would be used exclusively for
providing flight instruction and aircraft rental. Further, XXX
states that upon transfer of the XXX aircraft to LLC, LLC will
provide contract services to XXX to provide flight instruction
for students of XXX completing courses through XXX. In addition
to fulfilling the contract between LLC and XXX, the XXX aircraft
will also be used to provide flight instruction to non-XXX
students. Currently, there is no plan to segregate which
aircraft will be used for providing flight instruction to XXX
students and which aircraft will be used to provide flight
instruction to non-XXX students.

Rule 12A-1.007(14)(b)1., F.A.C., provides that the purchase of
an aircraft exclusively for rental purposes may be made tax

exempt when the purchaser issues a resale certificate to the
dealer at the time of purchase in lieu of paying tax. Since
there is no plan to segregate which aircraft will be used for a
particular purpose, it must be shown that all of the aircraft
being transferred from XXX to LLC are to be used exclusively for
rental purposes, in order for the transfer to be exempt from
Florida sales tax under Rule 12A-1.007(14)(b)1., F.A.C.,
assuming that LLC presents a resale certificate to XXX at the
time of transfer.

As stated above, LLC will be providing contract services to XXX
for flight instruction of XXX students. Rule 12A-1.071(23),
F.A.C., provides that a charge for flight instruction, which
includes supervised solo flights, is exempt from Florida sales
tax. In this case, the XXX will be charging students a fee for
flight instruction. This charge for flight instruction would be
exempt from Florida sales tax pursuant to Rule 12A-1.071(23),
F.A.C. The charge from LLC for the contract services to XXX
would not be deemed a charge for flight instruction, but,
rather, a charge for the rental of the aircraft that is subject
to Florida sales tax. However, Section 212.08(7)(p), F.S.,
provides that purchases or leases by a 501(c)(3) organization,
such as XXX, are exempt from Florida sales tax. Thus, the
charge for contract services from LLC to XXX for flight
instruction of XXX students would be considered a charge for a
rental of aircraft to a 501(c)(3) organization, which is exempt
from Florida sales tax.

In its letter, XXX states that LLC will also be providing flight
instruction to non-XXX students. Again, pursuant to Rule 12A1.071(23), F.A.C., a charge for flight instruction, which
includes supervised flights, is exempt from Florida sales tax.
However, under this rule, the purchase of aircraft to be used
for flight instruction is subject to Florida sales tax.
Therefore, any of the XXX aircraft transferred to LLC that are
used for flight instruction for non-XXX students would be
subject to Florida sales tax on the transfer.

Because XXX has not, nor does it plan to, segregate which of the
XXX aircraft will be used for flight instruction for XXX
students and which aircraft will be used for flight instruction

to non-XXX students, the transfer of the XXX aircraft to LLC
would not be considered a transfer exclusively for rental
purposes. Therefore, Florida sales tax would be imposed on all
XXX aircraft transferred to LLC.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the requests
for this advice, as specified in Section 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules, upon which this advice is based, may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

M. Chris Lyon, Attorney
Technical Assistance & Dispute Resolution

Control #: 46176