How did Florida treat an aircraft-transportation and repair subsidiary's apportionment, tax-proration election, and aircraft-parts exemptions?

Plain-English summary

The subsidiary's income was derived primarily from transporting people or goods. It therefore qualified to apportion all Florida corporate income by revenue miles traveled within and outside Florida.

For sales and use tax, the subsidiary could elect statutory proration for tangible personal property, including aircraft leases, part purchases, and Florida use of aircraft or parts.

The TAA also applied several separate exemptions. Parts installed on foreign-government-registered aircraft of any size were not taxable when the aircraft would leave the United States after modification. Parts used in Florida to repair or maintain aircraft meeting the statutory weight criteria were exempt, including qualifying parts sent out of state for maintenance and returned for Florida installation. Florida repair sales of qualifying parts were likewise exempt. The modification exemption under section 212.08(5)(i) required work under an FAA supplemental type certificate for the specific modification.

What this means for you

The ruling combined one corporate apportionment rule with multiple sales-tax provisions. Each aircraft, part movement, service, weight threshold, foreign registration, and FAA authorization must be tested separately.

Common questions

Could all income use revenue-mile apportionment? Yes.

Could the subsidiary elect sales-tax proration? Yes, for the purchases and uses described.

Did every aircraft modification qualify for the STC exemption? No. The work had to be performed under an FAA supplemental type certificate for the specific modification.

Citations and references

• Fla. Stat. §§ 212.0598, 212.06, 212.08, 220.151, and 220.152 and Fla. Admin. Code rr. 12A-1.007, 12C-1.003, 12C-1.0151, and 12C-1.0152, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11A-029

Original ruling text

SUMMARY
QUESTION: Whether Subsidiary is eligible to prorate sales and use tax, as provided in
s. 212.0598, F.S., and whether Subsidiary is entitled to certain exemptions from sales and
use tax for parts and equipment used by it in aircraft repair and maintenance. Also,
Taxpayer is requesting confirmation of Subsidiary’s right to use revenue miles for
apportionment of Florida corporate income tax under Chapter 220 F.S., as provided in s.
220.151, F.S.
ANSWER: It is determined that Subsidiary’s revenue is derived from the transportation
of people or goods. Subsidiary operates a “business whose income is derived primarily
from transporting people or goods from one location to another,” within the definition of
Rule 12C-1.0151(2)(a)1., F.A.C. It is further determined that Subsidiary is entitled to use
revenue miles to apportion all of its income to Florida for purposes of corporate income
tax, pursuant to s. 220.151, F.S.
It is concluded that Subsidiary is entitled to elect to prorate sales and use taxes for its
purchases of tangible personal properly, including the lease of aircraft, purchases of parts,
and use of parts or aircraft in Florida, pursuant to s. 212.0598, F.S. Also, it is determined
that parts purchased by Subsidiary that are installed on aircraft of any size being modified
for foreign customers are not taxable, so long as the aircraft are registered with a foreign
government and will depart from the U.S. after the modifications are completed, pursuant
to s. 212.06(5)(a)1., F.S. Also, it is concluded that Subsidiary’s use of parts for the repair
or maintenance of aircraft that meet the weight criteria under s. 212.08(7)(rr), F.S., is
exempt from any Florida use tax when those parts are installed in Florida. In addition, it
is determined that s. 212.08(7)(rr), F.S., exempts Subsidiary from any use tax liability
where parts purchased for modification, repair, or maintenance service are sent out of
state for maintenance and then returned for installation on aircraft that meet the weight
criteria when such installation occurs in Florida. Furthermore, it is determined that no
sales tax will be due when Subsidiary repairs aircraft in Florida and thereby sells parts
and equipment used in the repair that meet the weight thresholds provided in s.
212.08(7)(rr), F.S., and it is concluded that in order for the exemption under s.
212.08(5)(i), F.S., to apply, Subsidiary must be performing its work under an STC issued
by the FAA for a specific modification.

October 19, 2011

XXX
XXX
XXX
Re:

Technical Assistance Advisement 11A-029
Florida Sales and Use Tax/Corporate Income Tax

Aircraft
Sections 212.0598, 212.06, 212.08, 220.151, 220.152, Florida Statute (F.S.)
Rules 12A-1.007, 12C-1.003, 12C-1.0151, 12C-1.0152, Florida Administrative
Code (F.A.C.)
Petitioners: XXX. (“Taxpayer”)
XXX (“Subsidiary”)
Dear
This letter is a response to your petition dated February 11, 2011, for the Department's
issuance of a Technical Assistance Advisement ("TAA") concerning the above
referenced petitioner and matter. Your petition has been carefully examined and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 1211, F.A.C. This response to your request constitutes a TAA and is issued to you under the
authority of Section (s.) 213.22, F.S.
FACTS
A subsidiary of Taxpayer, Subsidiary, holds a Federal Aviation Administration (“FAA”)
Part 135 air carrier certificate, an FAA Part 133 air operator certificate, and an FAA Part
145 repair station certificate.
Previously Subsidiary’s U.S. base of operations was almost entirely in XXX. However,
it has recently relocated to XXX, Florida. It is now filing Florida sales and use tax
returns and anticipates filing its Florida corporate income tax return, when due. 1
Subsidiary operates two lines of business. First, it operates both fixed and rotary-wing
aircraft under contract, including transportation of personnel and cargo in support of U.S.
government contracts outside the U.S., under the FAA Part 135 air carrier certificate and
the FAA Part 133 air operator certificate. Second, Subsidiary operates under the FAA
Part 145 repair station certificate and performs maintenance, repair, overhaul and
engineering, and design modifications on aircraft.
Presently, Subsidiary operates a fleet of 63 leased aircraft, of which 18 fixed-wing and 23
rotary-wing aircraft operate under contracts with the U.S. government (principally in
Afghanistan and other jurisdictions outside the U.S.) from Subsidiary’s current base of
operations. The remaining 22 aircraft are currently located at Subsidiary’s base of
operations, 20 of which are for use in future service contracts or for sale; the other two
are hulls. All but five of Subsidiary’s leased fleet are leased from another subsidiary of
Taxpayer, a Delaware limited liability company. The remaining aircraft are leased from
unrelated entities. When Subsidiary completes its relocation to Florida, aircraft not in
service under a government contract will likely be stored in Florida until sold or
redeployed under a new contract.

1

Updated information, relating to Subsidiary’s status, was submitted by Taxpayer on September 21, 2011.

Subsidiary’s customers are currently all U.S. government agencies and are generally
located in overseas locations. The majority of Subsidiary’s revenue-producing aircraft
are located at sites other than its base of operations. Subsidiary has, in the past, however,
operated domestic contracts from its XXX base of operations, and it will continue to
pursue in the future other domestic services that could be provided to federal and nonfederal customers within the U.S., including from Florida upon completion of its
relocation.
Prior to deployment, aircraft are customarily brought to Subsidiary’s base of operations,
typically for a 30- to 60-day period, for testing, training of personnel, and potential
modifications. Subsidiary does not generate revenue during this time but rather incurs
costs to prepare the aircraft for a mission and to train its pilots. When a service contract
expires, the aircraft used in the performance of the contract are likely to be returned to
Subsidiary’s base of operations until redeployed under a new contract or sold. From time
to time, Subsidiary may lease aircraft specifically for use in ongoing training at
Subsidiary’s base of operations. Following its relocation to Florida, Subsidiary will
utilize the aircraft in Florida to train and prepare pilots to fly missions, principally outside
the U.S., but it will receive payment for such training only as an increment of overhead.
Subsidiary is not transporting either cargo or passengers during any of its training
exercises.
To support its fleet, Subsidiary is responsible for repairing and maintaining its aircraft.
Line maintenance and other light repair are conducted in theater. Most heavy
maintenance would likely be conducted at a third-party provider outside the U.S. or by
Subsidiary in situations where the aircraft would be returned to the U.S. To support
operating aircraft, Subsidiary purchases new or used (overhauled) parts that are: (i) stored
at the base of operations; (ii) shipped directly abroad; (iii) or shipped to Subsidiary’s base
of operations to then be exported. Subsidiary estimates that it has approximately $10 to
$15 million in parts that will be relocated from XXX to Florida.
Subsidiary, also repairs, rebuilds, and modifies aircraft under its FAA Part 145 repair
station certificate. In general, Subsidiary works on fixed-wing aircraft of maximum
certified takeoff weight exceeding 15,000 pounds or rotary-wing aircraft of more than
10,300 certified maximum takeoff weight. For this line of business, Subsidiary’s
customers are foreign or domestic owners or operators of aircraft. In addition, from time
to time, Subsidiary, operating under a d/b/a, may perform repair work for its own aircraft
operating under a different d/b/a. The process of repair and modification can take from
one to six months, depending on the scope of work. Once a job is completed, the aircraft
are returned to the owners/customers for operation under that owner’s/customer’s
certification.
REQUESTED ADVISEMENTS
Whether Subsidiary is eligible to prorate sales and use tax, as provided in s. 212.0598,
F.S., and whether Subsidiary is entitled to certain exemptions from sales and use tax for
parts and equipment used by it in aircraft repair and maintenance. Also, Taxpayer is

requesting confirmation of Subsidiary’s right to use revenue miles for apportionment of
Florida corporate income tax under Chapter 220 F.S., as provided in s. 220.151, F.S.
TAXPAYER’S POSITION
Taxpayer’s position is that Subsidiary is entitled to elect to prorate sales and use tax for
its purchases of tangible personal property, including the lease of aircraft, purchases of
parts, and use of parts or aircraft, pursuant to s. 212.0598, F.S.
Taxpayer also contends that parts purchased by Subsidiary that are installed on aircraft of
any size being modified for foreign customers are not taxable, so long as the aircraft are
registered by a foreign government and will depart from the U.S. after the modifications
are completed, pursuant to s. 212.06(5)(a)1., F.S. Also, it contends that Subsidiary’s use
of parts for the repair or maintenance of aircraft that meet the weight criteria under s.
212.08(7)(rr), F.S., is exempt from any Florida use tax when those parts are installed in
Florida. Further, Taxpayer asserts that s. 212.08(7)(rr), F.S., exempts Subsidiary from
any use tax liability where parts purchased for modification, repair, or maintenance
service are sent out of state for maintenance and then returned for installation on aircraft
that meet the weight criteria when such installation occurs in Florida. In addition,
Taxpayer maintains that no sales tax will be due when Subsidiary repairs aircraft in
Florida and thereby sells parts and equipment used in the repair that meet the weight
thresholds provided in s. 212.08(7)(rr), F.S. Furthermore, Taxpayer states, in order for
the exemption under s. 212.08(5), F.S., to apply, Subsidiary must be performing its work
under an STC (supplemental type certificate) issued by the FAA for a specific
modification.
Also, Taxpayer’s position is that Subsidiary is entitled to use revenue miles to apportion
all of its income to this state for purposes of corporate income tax, pursuant to s. 220.151,
F.S.

ANALYSIS and DISCUSSION
Corporate Income Tax
Section 220.151(2), F.S., permits a taxpayer “furnishing transportation services” to
apportion its income by revenue miles traveled within and without Florida. Pursuant to
Rule 12C-1.0151(2)(a)1., F.A.C., the definition of a taxpayer providing transportation
services is a business whose income is derived primarily from transporting people or
goods from one location to another.
From the information submitted by Taxpayer and reviewed, Subsidiary is a taxpayer in
the business of transporting goods and people from one location to another. Its
“principal” or “most significant” source of revenue is derived primarily from those

services. As a result, Subsidiary should use the single factor apportionment provided in
section 220.151, F.S.
Regarding the proration of Subsidiary’s business income, Rule 12C-1.003(4), F.A.C.,
defines “business income,” in part, basically as all income which arises from the conduct
of trade or business operations of a taxpayer. Rule 12C-1.0151(2)(c), F.A.C., provides
that the revenue miles apportionment factor is applied to the business income of a
transportation company providing transportation services, partially or wholly in interstate
or foreign commerce. Section 220.151, F.S., and Rule 12C-1.0151(1), F.A.C., state that a
taxpayer providing transportation services (transportation company) shall apportion
income to Florida using a single-factor formula, in lieu of the three-factor formula used in
the general apportionment method. These provisions state that all of the income of a
taxpayer providing transportation services would be apportioned under the single-factor
formula. Therefore, all of the “business income” of Subsidiary, a transportation company
substantially providing transportation services, should be apportioned to Florida using a
single apportionment factor based on revenue miles. This would include all of
Subsidiary’s business income from other activities, including aircraft repair and
modification activities for as long as Subsidiary remains a “transportation company.”
Please note that the single transportation apportionment factor must accurately and fairly
reflect the Subsidiary’s business activity in Florida, or alternative apportionment under
section 220.152, F.S., and Rule 12C-1.0152, may be requested by the taxpayer or invoked
by the Department.
Sales and Use Tax
Section 212.06(8)(a), F.S., provides that generally, when tangible personal property is
imported to Florida within six months of the date of purchase, the property is subject to
the Florida use tax. In addition, leased tangible personal property located or used in
Florida is also subject to Florida sales tax on the lease while the property is present in
Florida. The consequences of this for Subsidiary are that absent a specific tax exemption,
its recently purchased inventory and leased aircraft would be subject to Florida use tax
and sales tax. However, since Subsidiary operates under an FAA Part 135 certificate,
transporting people and/or cargo for hire, the partial exemption provided for in s.
212.0598, F.S., will apply.
Section 212.0598, F.S., does require a taxpayer to be a licensed air carrier and to utilize
mileage apportionment for corporate income tax purposes. Since Subsidiary operates
under FAA Part 135 as a licensed air carrier, it can utilize the corporate income tax
mileage apportionment, and thus Subsidiary would be entitled to elect apportionment
based on the ratio of Florida miles to total mileage as determined in chapter 220, F.S.
The applicable ratio is then applied monthly to all systemwide purchases of tangible
personal property, including the lease of aircraft, purchase of parts, and use of parts or
aircraft in Florida.

Section 212.06(5)(a)1., F.S., provides that it is not the intention to levy Florida sales tax
upon purchases of parts and equipment installed on aircraft that have foreign registry and
that will not operated in the United States. Parts purchased by Subsidiary that are
installed on aircraft being modified for foreign customers are exempt from tax provided
the aircraft is registered outside of the United States and will depart from the United
States after the modifications are completed. To be eligible for this exemption,
Subsidiary must submit a notarized affidavit from the aircraft’s owner, agent, or operator
indicating that upon completion of the modifications the aircraft will depart from the U.S.
under its own power. See Rule 12A-1.007(10)(d)2., F.A.C.
Section 212.08(7)(ee), F.S., provides that there shall be exempt from sales tax all labor
charges for the repair and maintenance of aircraft of more than 15,000 pounds maximum
certified takeoff weight, and of rotary wing aircraft of more than 10,000 pounds
maximum certified takeoff weight.
Section 212.08(7)(rr), F.S., provides that there shall be exempt from sales tax
replacement engines, parts, and equipment used in the repair or maintenance of aircraft of
more than 15,000 pounds maximum certified takeoff weight, and of rotary wing aircraft
of more than 10,300 pounds maximum certified takeoff weight, when such parts or
equipment are installed on these aircraft that are being repaired or maintained in Florida.
As provided above, the purchases of parts and equipment used for the repair or
maintenance of aircraft of more than 15,000 pounds maximum certified takeoff weight or
rotary-wing aircraft with a maximum certified takeoff weight of more than 10,300
pounds are exempt when the repair or maintenance occurs in Florida. Also, labor charges
for the repair and maintenance of aircraft of more than 15,000 pounds maximum certified
takeoff weight and rotary wing aircraft of more than 10,000 pounds maximum certified
takeoff weight are exempt when the repair or maintenance occurs in Florida.
Subsidiary’s purchases of parts and equipment purchased for repairing and maintaining
aircraft meeting the statutory weight criteria in the State of Florida are exempt from sales
and use tax. Also, Subsidiary’s maintenance of spare parts for use on its aircraft meeting
these weight criteria would be exempt from any Florida use tax when these parts are
installed or held for installation in Florida during the course of aircraft repair or
maintenance, and future purchases of parts would be exempt from sales tax. Further, this
exemption will apply to exempt any use tax liability where the parts were sent out of state
for maintenance and then returned for installation on the aircraft, because the statute
requires only that the parts be “installed” on the aircraft that is being repaired in Florida.
In addition, Subsidiary’s labor charges for repair or maintenance of its aircraft meeting
these weight criteria would be exempt from any Florida sales and use tax.
Section 212.08(5)(i), F.S., provides that there shall be exempt from sales tax all charges
for aircraft modification services, including parts and equipment furnished or installed in
connection therewith, performed under authority of a supplemental type certificate issued
by the Federal Aviation Administration.

As provided in s. 212.08(5)(i), F.S., charges for parts and equipment furnished or
installed in connection with the modification of an aircraft under an FAA supplemental
type certificate (“STC”) are exempt from Florida sales and use tax. Modifications
provided by Subsidiary under an STC issued by the FAA for specifically installed
equipment would be exempt from Florida sales and use tax.
CONCLUDING STATEMENTS
It is determined that Subsidiary’s revenue is derived from the transportation of people or
goods. Subsidiary operates a “business whose income is derived primarily from
transporting people or goods from one location to another,” within the definition of Rule
12C-1.0151(2)(a)1., F.A.C. It is further determined that Subsidiary is entitled to use
revenue miles to apportion all of its income to Florida for purposes of corporate income
tax, pursuant to s. 220.151, F.S.
It is concluded that Subsidiary is entitled to elect to prorate sales and use taxes for its
purchases of tangible personal properly, including the lease of aircraft, purchases of parts,
and use of parts or aircraft in Florida, pursuant to s. 212.0598, F.S. Also, it is determined
that parts purchased by Subsidiary that are installed on aircraft of any size being modified
for foreign customers are not taxable, so long as the aircraft are registered with a foreign
government and will depart from the U.S. after the modifications are completed, pursuant
to s. 212.06(5)(a)1., F.S. Also, it is concluded that Subsidiary’s use of parts for the repair
or maintenance of aircraft that meet the weight criteria under s. 212.08(7)(rr), F.S., is
exempt from any Florida use tax when those parts are installed in Florida. In addition, it
is determined that s. 212.08(7)(rr), F.S., exempts Subsidiary from any use tax liability
where parts purchased for modification, repair, or maintenance service are sent out of
state for maintenance and then returned for installation on aircraft that meet the weight
criteria when such installation occurs in Florida. Furthermore, it is determined that no
sales tax will be due when Subsidiary repairs aircraft in Florida and thereby sells parts
and equipment used in the repair that meet the weight thresholds provided in s.
212.08(7)(rr), F.S., and it is concluded that in order for the exemption under s.
212.08(5)(i), F.S., to apply, Subsidiary must be performing its work under an STC issued
by the FAA for a specific modification.
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 request 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 Section 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 10 days of the date of this letter.
If you have any further questions with regard to this matter and wish to discuss them, you
may contact me directly at 850-717-6735.
Kind Regards,

Alan R. Fulton
Tax Law Specialist
Technical Assistance & Dispute Resolution
ARF\pb
Record ID:

97871