Which steps in a Florida aircraft purchase, resale, dry lease, and crewed charter structure were subject to sales tax?

Plain-English summary

The aircraft purchases for resale were exempt, the dry lease was taxable, and the crewed charter service to customers was exempt.

The original corporation could buy the aircraft tax-free because it was registered as an aircraft dealer/lessor and would give the seller a valid resale certificate.

Its resale to the aircraft-owning subsidiary was also exempt if that subsidiary registered before the purchase, gave a valid resale certificate, and used the aircraft exclusively for leasing. The ruling added that no use tax was due while the aircraft remained unused in Florida.

The subsidiary's dry lease of the aircraft to the flight company was taxable because the lessor provided no crew. Tax applied to the total lease consideration paid by the flight company.

The flight company separately obtained crews and sold crewed charter transportation to its customers. Those customer charges were exempt transportation-service charges, although the flight company still owed tax on its dry-lease payments.

What this means for you

The tax line turned on possession and crew responsibility. A bare aircraft lease was a taxable rental of tangible personal property, while transportation furnished with a crew was treated as an exempt charter service.

Common questions

Q: Could the first corporation buy the aircraft tax-free? A: Yes, if it was properly registered and gave the seller a valid resale certificate.

Q: Could the leasing subsidiary buy the aircraft tax-free? A: Yes, if it registered before purchase, gave a resale certificate, and used the aircraft exclusively for leasing.

Q: Was the dry lease taxable?
A: Yes. Sales tax applied to the gross lease consideration.

Q: Were the crewed charter charges to passengers taxable? A: No. The ruling treated them as transportation service rather than aircraft rental.

Citations and references

• Fla. Stat. § 212.02(16) — lease or rental as a sale
• Fla. Admin. Code rr. 12A-1.038 and 12A-1.039 — resale certificates
• Fla. Admin. Code r. 12A-1.071(2), (21), and (22) — leasing property, aircraft rental, and charter service
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95A-026

Original ruling text

Jun 29, 1995

VIA FAX AND US MAIL

Re: TAA 95A-026
Aircraft - Charter Services and Apportionment s. 212.02, F.S. Rules 12A-1.038, 12A-1.071, F.A.C.

Dear:

This acknowledges receipt of your request for a Technical Assistance Advisement ("TAA") dated May 19, 1995. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code (F.A.C.), and is issued to you under the authority of s. 213.22, Florida Statutes (F.S.).

FACTS

XXXXX ("the Corporation") is a XXXX corporation registered with the Florida Department of Revenue as an aircraft dealer/lessor of tangible personal property, effective January

1995.

After having registered, XXXX purchased a XXXX ("the Airplane" or "the plane") for resale to a subsidiary. Immediately after its purchase, the Airplane has been undergoing a refurbishing and refitting process in XXXX. The Airplane will

not be placed in service until the refurbishing is completed.

The Airplane will be leased to companies and individuals. Accordingly, the plane will be operated under a certificate issued by the Federal Aviation Administration ("FAA") (i.e., a Part 125 certificate).

Subject to approval by the FAA, the Corporation will sell the Airplane to a subsidiary, XXXX ("Plane Corp"), at an arms-

length sales price. Prior to purchase, Plane Corp will register as an aircraft lessor of tangible personal property. Plane Corp would extend an appropriate resale certificate to the

Corporation.

Currently, the Corporation has a subsidiary corporation, XXXX ("Service Corp"), based in XXXX. For operational reasons Service Corp would provide aircraft flight and maintenance

crews.

For purposes of providing transportation services, XXXX ("Flight Corp") would enter into separate contracts with Plane Corp and Service Corp. Flight Corp would lease the Airplane from Plane Corp. The lease of the Airplane would be a "dry" lease (i.e., a lease of the Airplane, with no crew or operational staff). The contract between the Flight Corp and Service Corp will provide for flight and maintenance crews. Flight Corp will enter into contracts with a prospective Florida customer or any other customer to provide air transportation

services to locations within and without the United States.

The prospective customer is headquartered in XXX and will make frequent use of the aircraft. Because of the customer's location, the aircraft will be based and hangared in XXX. Some of the leased flights will originate in XXX; some will terminate in XXX; and still others will neither originate nor terminate in

XXX.

ISSUES

Listed below are the issues raised in your letter.

ISSUE 1 Whether the purchase of the Airplane by Corporation

will be exempt from sales tax?

ISSUE 2 Whether the sale of the Airplane from the

Corporation to its subsidiary, Plane Corp, will be exempt?

ISSUE 3 Whether the lease of the Airplane from Plane Corp

to Flight Corp will be exempt from sales tax?

ISSUE 4 Whether the services provided by Flight Corp to its

customers will be subject to sales tax?

THE DEPARTMENT'S DETERMINATION

The Department will individually address each of the issues

raised in your letter.

ISSUE 1 Whether the purchase of the Airplane by Corporation will

be exempt from sales tax?

Response to Issue 1: Yes. Rule 12A-1.038, F.A.C., provides, in

pertinent part, as follows:

"(1) It is the specific legislative intent that every sale,... is taxable under Chapter 212, F.S., unless such sale, admission, use, storage, consumption or rental is specifically exempt. The exempt status of the transaction must be established by the dealer. Unless the dealer shall have taken from the purchaser a certificate to the effect that the property or service was purchased for resale and bearing the name and address of the purchaser, the effective date of the certificate and the number of his dealer's certificate of registration, or a certificate bearing the number of his consumer's exemption certificate, and the effective date of the certificate, the sale shall be deemed to be a taxable sale at retail ...

"(3) A resale certificate is required from every purchaser who purchases tangible personal property or service for resale,... Otherwise, the dealer will be required to

collect and remit the tax to the Department of Revenue... "

Rule 12A-1.038(3), F.A.C., provides that a completed resale certificate is required from every purchaser who purchases tangible personal property for resale, subject to the provisions of subsection 12A-1.038(1), F.A.C.; otherwise the selling dealer will be required to collect and remit the tax to the Department. Therefore, the purchase of the Airplane by the Corporation will be exempt from sales tax, provided that the Corporation is

properly registered with the Department and, at the time of

purchase, extends to the seller a valid resale certificate.

The Florida Department of Revenue does not supply dealers with preprinted forms which meet the standards of Rule 12A- 1.038, F.A.C., and has therefore promulgated Rule 12A-1.039, F.A.C., providing only a suggested form for a blanket resale and exemption certificate that meets the minimum requirements of

Rule 12A-1.038, F.A.C.

ISSUE 2 Whether the sale of the Airplane from the Corporation to

its subsidiary, Plane Corp, will be exempt?

Response to Issue 2. Yes. Please refer to the Response to Issue

1, above, which delineates the requirements to properly exempt a purchase for resale. As it relates to the leasing activities, following the purchase of the Airplane, to be undertaken by Plane Corp, Rule 12A-1.071, F.A.C., provides in pertinent part

as follows:

"(2)(a)1. Tangible personal property purchased exclusively for leasing purposes may be purchased tax exempt, providing the lessor is registered with the Department as a dealer at the time of purchase and issues the vendor a valid resale certificate in lieu of tax. Any purchases made prior to the time of registration as a dealer are subject to tax.

"(b)1. Any person who purchases tangible personal property for the dual purpose of leasing it to others and also for his own use, or who purchases tangible personal property with the intention only of leasing it but in fact also uses the property itself, shall pay the tax on the cost price of such property and shall also collect and remit the tax on

all leases of such property." (Emphasis added.)

Therefore, the sale of the Airplane from the Corporation to Plane Corp would be exempt from sales tax, provided: 1) that the Airplane will be used exclusively for lease; and 2) that Plane Corp, at the time of sale, extends to the Corporation a valid resale certificate which states that the Airplane will be exclusively for leasing. Moreover, as it relates to the periods

of time during which the Airplane remains in Florida, unused, no

use tax would be due.

ISSUE 3 Whether the lease of the Airplane from Plane Corp to

Flight Corp will be subject to sales tax?

Response to Issue 3: Yes. Section 212.02(16), F.S., defines the

term "sale" as:

"Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or

otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration." (Emphasis added).

Additionally, Rule 12A-1.071, F.A.C., provides:

"(21) The rental of aircraft is taxable.

"(22) The charge made by an air taxi (charter) to transport a passenger to a certain destination (the passenger does not pilot or take possession of the aircraft) is a charge

for transportation service rather than a rental and is

exempt from tax."

Therefore, the lease of tangible personal property, the Airplane, is considered to be a sale. In addition, the Department considers the lease of the Airplane by Plane Corp to Flight Corp to be a "dry" lease (i.e., a lease where the lessor does not provide a crew). Accordingly, the lease of the Airplane by Plane Corp to Flight Corp is taxable as provided in Rule 12A-1.071(21) and (22), F.A.C.

Additionally, in the instant case Flight Corp will also contract with Service Corp, who will furnish the crew to fly the Airplane. Thus, Flight Corp will provide to its customers a charter service using the ("dry") leased Airplane from Plane Corp and the flight crew from Service Corp. Therefore, the transaction between the Plane Corp and Flight Corp will be regarded as the rental of tangible personal property and sales tax will apply only to the gross proceeds derived from the total consideration paid by Flight Corp to Plane Corp for the lease of the Airplane.

ISSUE 4 Whether the services provided by Flight Corp to its

customers will be subject to sales tax?

Response to Issue 4: No. Flight Corp should not charge its

customers any sales tax for the flight services Flight Corp will be providing. The services provided by Flight Corp will be exempt because Flight Corp is providing a charter plane with a crew, or a transportation service. However, as stated in the Department's response to Issue 3, above, Flight Corp must pay sales tax to Plane Corp on the gross proceeds derived from the

total consideration paid for the "dry" lease of the Airplane.

This response constitutes a Technical Assistance Advisement under s. 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 s. 213.22, F.S. Our response is based 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 and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the

request or the response.

Sincerely,

Nydia Men,ndez

Tax Law Specialist

Control No. 21442