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