Do flights an aircraft owner takes on their own plane, operated under an FAA Part 135 air carrier certificate, count toward the 50% trips-or-miles threshold needed to qualify the aircraft for Illinois's rolling stock exemption?

Plain-English summary

Illinois exempts aircraft (and related parts) from Retailers' Occupation Tax and Use Tax when they qualify as "rolling stock moving in interstate commerce." For aircraft purchased on or after January 1, 2014, that status depends on whether, over a 12-month period, the aircraft carried persons or property for hire in interstate commerce for more than 50% of its total trips or total miles.

This GIL answers a specific question: if an aircraft owner flies on their own plane, and that flight is operated by a management company under an FAA Part 135 air carrier certificate, does the flight count toward that 50% threshold? The Department said yes — a Part 135 certificate is itself evidence the carrier is authorized to conduct for-hire operations, and an arm's-length transaction between an aircraft owner and a separate management company that flies the owner for hire under Part 135 can count as a qualifying trip or mile, as long as all the other conditions of the exemption are met. The Department noted, however, that a flight billed at cost generally is not considered an arm's-length transaction, so it would not count.

The letter also walks through mechanics taxpayers must follow: making (and documenting) an election to measure the 50% threshold by trips or by mileage (flight hours can substitute for miles), and keeping records to prove qualifying use even though the IRS's 2021 final regulations no longer require the owner to be separately billed for federal air transportation excise tax purposes.

What this means for you

Aircraft owners and lessors

If you own an aircraft managed and flown by a separate company under a Part 135 certificate, flights that include your own use can still count toward the 50%-or-more for-hire threshold that Illinois requires for the rolling stock exemption — but only if the arrangement is an arm's-length transaction. A flight billed only at cost, with no true for-hire markup, generally will not qualify as an arm's-length transaction and so would not count toward the threshold.

Air charter and management operators

A Part 135 certificate held by your company is treated as an indication (not automatic proof) that operations under it are for-hire. You still need to track trips or miles (or flight hours, in lieu of miles) per aircraft over rolling 12-month periods, and help your clients document which flights — including owner flights — qualify.

Accountants and tax professionals

Remember the election mechanics: the taxpayer must elect, at the time of purchase, to measure the 50% threshold using either the trips method or the mileage method, and document that election in the books and records. If no election is documented, the mileage method applies by default, and once made, the election binds for the entire time the purchaser owns the aircraft. The rules differ slightly for property (parts) purchased on or after January 1, 2014, to be attached to aircraft purchased earlier — that property's rolling-stock qualification rides on the aircraft's own qualification test.

Compliance and audit-documentation staff

Because owner flights under the 2021 IRS final regulations no longer require separate billing to avoid the federal air transportation excise tax, the Department flagged that taxpayers still must document qualifying trips or miles for state rolling-stock purposes on some other basis. The GIL points to 26 C.F.R. § 49.4261-10 (federal excise-tax documentation guidance) as potentially useful for record-keeping, while stopping short of prescribing specific state documentation requirements.

Common questions

Q: Does an aircraft owner's own flight ever count toward the 50% rolling stock threshold?
A: Yes, if the flight is carried under a Part 135 certificate as part of an arm's-length transaction between the owner and a separate management/charter company that transports the owner for hire, and all other exemption conditions are met.

Q: What if the owner's flight is only billed at cost?
A: The Department states that a flight provided at cost is generally not considered an arm's-length transaction, so it would not count toward the qualifying trips or miles.

Q: How is the 50% threshold measured?
A: Over a rolling 12-month period, more than 50% of the aircraft's total trips or more than 50% of its total miles (flight hours may substitute for miles) must be for-hire in interstate commerce. The taxpayer elects the trips method or the mileage method at purchase and documents it; if undocumented, the mileage method applies by default, and the election lasts for the duration of ownership.

Q: Does a Part 135 certificate alone prove the flights are exempt?
A: Not automatically — it is "an indication" the certificate holder is authorized to conduct for-hire operations, but the specific flights still must actually carry persons or property for hire in interstate commerce to count.

Q: Is this letter binding on the Department?
A: No. It is a General Information Letter, which only directs the taxpayer to relevant statutes, rules, and information sources. It is not a statement of Department policy and is not binding, unlike a Private Letter Ruling.

Citations and references

Statutes and rules:

• 35 ILCS 120/2-5(13) (Retailers' Occupation Tax rolling stock exemption)
• 35 ILCS 105/3-55(c) (Use Tax rolling stock exemption)
• 35 ILCS 120/2-51(e), (f) (12-month trips-or-miles test; election binds for duration of ownership)
• 86 Ill. Adm. Code 130.340 (rolling stock exemption rules)
• 14 C.F.R. Part 135 (FAA for-hire air carrier operations)
• 26 U.S.C. § 4261(e)(5); 26 C.F.R. § 49.4261-10 (federal air transportation excise tax exemption and documentation)
• 2 Ill. Adm. Code 1200.120 (GILs are non-binding); 2 Ill. Adm. Code 1200.110 (PLR procedures)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0025-gil.pdf

Original ruling text

ST 22-0025-GIL 12/07/2022 ROLLING STOCK
If an air carrier carries persons or property for hire in interstate commerce under
the authority of its Part 135 certificate (Part 135 of the Federal Aviation
Regulations; 14 C.F.R. Part 135), that operation may be included in the trips or
miles that qualify the aircraft to meet the definition of “use as rolling stock moving
in interstate commerce.” See 35 ILCS 120/2-51; 86 Ill. Adm. Code 130.340.
(This is a GIL.)
December 7, 2022

NAME/ADDRESS
Dear Mr. XXX:
This letter is in response to your letter dated August 11, 2021, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer
inquiries concerning the application of a tax statute or rule to a particular fact situation.
A PLR is binding on the Department, but only as to the taxpayer who is the subject of
the request for ruling and only to the extent the facts recited in the PLR are correct and
complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General
Information Letter (“GIL”) is to direct taxpayers to Department regulations or other
sources of information regarding the topic about which they have inquired. A GIL is not
a statement of Department policy and is not binding on the Department. See 2 Ill. Adm.
Code 1200.120. You may access our website at www.tax.illinois.gov to review
regulations, letter rulings and other types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
RE: Aircraft owner flights qualifying for Rolling Stock Exemption
Dear Sir/Madam:
Our office needs your assistance in determining whether aircraft owner
flights, flown under 14 CFR 135 in interstate commerce, would count
towards hours flown in determining the 50% threshold for qualifying the
aircraft for the Illinois Rolling Stock exemption under 35 ILCS 120/2-5
(13).
Interstate commerce: Commercial airlines operating in interstate commerce
are eligible for the rolling stock exemption and can buy tax-free items such as
the airplanes themselves and parts and accessories which become
permanent part [sic] of the planes. [ILCS Chapter 35 §120/2-5(13); Ill.
Admin. Code 86 §130.340(b).]

COMPANY/NAME
Page 2
December 7, 2022

For aircraft purchased on or after January 1, 2014, use as "rolling stock
moving in interstate commerce" occurs when, during a 12-month period, the
rolling stock has carried persons or property for hire in interstate commerce
for greater than 50% of its total trips for that period or for greater than 50% of
its total miles for that period. The person claiming the exemption must
make an election at the time of purchase to use either the trips or mileage
method and document that election in their books and records. If no
election is made, the person is deemed to have chosen the mileage method.
Flight hours may be used in lieu of recording miles in determining whether
the aircraft meets the mileage test. Property purchased on or after January
1, 2014, for the purpose of being attached to aircraft as a part thereof
qualifies as rolling stock moving in interstate commerce only if the aircraft
to which it will be attached qualifies as rolling stock moving in interstate
commerce under the test set forth above, regardless of when the aircraft
was purchased. Persons who purchased aircraft prior to January 1, 2014 will
make an election to use either the trips or mileage method and document
that election in their books and records for the purpose of determining
whether property purchased on or after January 1, 2014 for the purpose of
being attached to aircraft as a part thereof qualifies as rolling stock moving in
interstate commerce. [ILCS Chapter 35 §105/3-61(e); ILCS Chapter 35
§115/2d(e); ILCS Chapter 35 §110/3-51(e); ILCS Chapter 35 §120/251(e).] The election to use either the trips or mileage method will remain in
effect for the duration of the purchaser's ownership of that item. [ILCS
Chapter 35 §105/3-61(f); ILCS Chapter 35 §115/2d(f); ILCS Chapter 35
§110/3-51(f); ILCS Chapter 35 §120/2-51(f).]
Earlier this year, the Internal Revenue Service issued final regulations
effective January 14, 2021, which in summary allows an aircraft owner to
have his/her flights flown under 14 CFR 135 without incurring the
Federal Air Transportation Excise Taxes (FET) of 7.5% of trip cost plus
$4.30 per passenger segment fee. We have attached a summary of the
final IRS regulations for your review.
As a result of the IRS final regulations, our office has received numerous
requests to opine on whether aircraft owner flights if flown under 14
CFR 135 would count toward the 50% Rolling Stock Exemption
threshold. If so, since the owner flights may or may not be separately
invoiced, the concern is what documentation will the Illinois Department
of Revenue request upon audit to determine if aircraft usage qualifies for
the Rolling Stock Exemption since no FET will be invoiced to the owner
for his/her trips. The IRS Final Regulations do not require that the
owner be "separately billed" for chartering his/her own aircraft - just
that the aircraft owner (or lessee) pay for the cost of the flight.

COMPANY/NAME
Page 3
December 7, 2022
Thank you in advance for your assistance. If you should have any
question, or need any clarity in reference to the above, please do not
hesitate to contact me.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax and Use Tax do not apply to sales to
owners, lessors, or shippers of tangible personal property used by interstate carriers for
hire as rolling stock moving in interstate commerce. See 35 ILCS 120/2-5(13) and 35
ILCS 105/3-55(c). The Department's rules governing the rolling stock exemption are
found at 86 Ill. Adm. Code 130.340.
For aircraft purchased on or after January 1, 2014, "use as rolling stock moving
in interstate commerce" occurs when, during a 12-month period, the aircraft has carried
persons or property for hire in interstate commerce for greater than 50% of its total trips
for that period or for greater than 50% of its total miles for that period. The person
claiming the exemption must make an election at the time of purchase to use either the
trips or mileage method and document that election in their books and records. If no
election is made, the person is deemed to have chosen the mileage method. For
aircraft, flight hours may be used in lieu of recording miles in determining whether the
aircraft meets the mileage test. In addition, property purchased on or after January 1,
2014 for the purpose of being attached to aircraft as a part thereof qualifies as rolling
stock moving in interstate commerce, but only if the aircraft to which it will be attached
qualifies as rolling stock moving in interstate commerce under the test in effect at the
time of the purchase of the property, regardless of when the aircraft was purchased.
See 35 ILCS 120/2-51(e). The election to use either the trips or mileage method will
remain in effect for the duration of the purchaser's ownership of the aircraft. See 35
ILCS 120/2-51(f).
In general, if an Air Carrier Certificate is issued by the Federal Aviation
Administration authorizing the certificate holder to operate as an air carrier and conduct
common carriage operations in accordance with Part 135 of the Federal Aviation
Regulations (14 C.F.R. Part 135), such a certificate is an indication that the carrier is
authorized to conduct for-hire operations. If an air carrier carries persons or property for
hire in interstate commerce under the authority of its Part 135 certificate, that operation
may be included in the trips or miles that qualify the aircraft to meet the definition of “use
as rolling stock moving in interstate commerce.” Qualifying trips or miles may include
an arm’s-length transaction between an aircraft owner and a separate legal entity that
provides aircraft management services consisting of the transportation of the aircraft
owner for hire on the aircraft under Part 135 of the Federal Aviation Regulations,
assuming all other conditions of the exemption are met. Generally, a flights provided at
cost is not considered an arm’s-length transaction.

COMPANY/NAME
Page 4
December 7, 2022
As with any rolling stock exemption, even if the flight is exempt under 26 U.S.C.
§4261(e)(5) from the federal air transportation excise tax, taxpayers must document
qualifying trips or miles. We are unable to provide specific documentation requirements
in the context of a General Information Letter, but, in addition to any other documents
that evidence qualifying trips or miles that taxpayers retain in their records, we note that
26 C.F.R §49.4261-10 provides guidance for documenting the exemption from the
federal air transportation excise tax. That guidance may assist in record-keeping for the
rolling stock exemption.
I hope this information is helpful. If you require additional information, please
visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.

Very truly yours,

Samuel J. Moore
Associate Counsel
SJM:rkn