For Kansas's 10-day aircraft fly-away exemption, does the removal period begin when title to a green aircraft passes or when the buyer accepts the completed aircraft?

Plain-English summary

An aircraft manufacturer transferred title and risk of loss when a business aircraft was “green” — airworthy and capable of flight but still unpainted and missing its completed interior. The manufacturer kept possession for completion work in Kansas and Indiana before final acceptance and delivery to an out-of-state buyer.

The Department said the 10-day removal period in K.S.A. 79-3606(k) started at final delivery of the completed aircraft, not at the earlier green-aircraft title transfer.

Completed, final condition meant that the aircraft met the customer's final specifications and could be used for the customer's intended purpose. The ruling assumed that the only Kansas use after green delivery was transportation to the completion location and the completion work itself.

It also assumed that the bona fide non-Kansas buyer removed the finished aircraft within 10 days of final acceptance and did not register, hangar, or base it in Kansas. Both the primary manufacturer and a third-party completion company could accept a properly completed fly-away exemption certificate if each in good faith believed those requirements would be met.

When separate companies handled manufacture and completion, the manufacturer could support good-faith acceptance with a buyer statement at green-title transfer confirming that the finished aircraft would leave Kansas within 10 days of final possession.

What this means for you

Aircraft manufacturers

For the transaction described, measure the removal window from the buyer's acceptance of the fully completed aircraft, while documenting the limited use between green and final delivery.

Completion centers

A third-party completion company could accept the exemption certificate in good faith when it expected the final aircraft to leave Kansas within 10 days.

Out-of-state aircraft buyers

The exemption depended on prompt removal after final acceptance and on not returning the aircraft to be hangared or based in Kansas.

Common questions

Q: Did the 10 days start when title to the green aircraft passed?
A: No. It started when the buyer accepted the completed aircraft.

Q: What counted as completed final condition?
A: Completion to the customer's final specifications so the aircraft could serve its intended purpose.

Q: Could a third-party completion company accept the certificate?
A: Yes, if it accepted a properly executed certificate in good faith.

Q: Could the aircraft be based in Kansas afterward?
A: No under the assumptions supporting the exemption.

Citations and references

• K.S.A. 79-3606(k), then recodified in 2003 H.B. 2005, § 7(k) — 10-day aircraft fly-away exemption

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2003-006

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 28, 2003

XXXX
XXXX
XXXX

Re: Your letter dated June 10, 2003

Dear XXXX:

This responds to your letter received in June. Your letter presents a scenario involving XXXX's manufacture and sale of an mid-size business aircraft. Two "sales" transactions are involved. One involves the aircraft when it is "green." An aircraft is "green" when it has received its certificate of airworthiness and is capable of flight, but has an incomplete interior and an unpainted exterior. Under the terms of the contract of sale, title and risk of loss pass to the customer at the time of the green delivery. This is when title to the green aircraft passes to the customer.

Under the contract, XXXX retains possession of the green aircraft in order to complete the additional interior and exterior work. This work is done in Wichita and Wabash, Indiana. Following the completion of the interior and exterior work, the completed aircraft is delivered to the buyer who accepts the aircraft and removes it from Kansas within 10 days of acceptance. The aircraft buyer is a bona fide resident of a state other than Kansas and will not register or base the aircraft in Kansas.

You ask if the 10-day period extended in K.S.A. 79-3606(k) is measured from the date when title to the "green" aircraft passes, or from the date the buyer takes delivery of the completed aircraft. Please be advised that the 10-day period begins to run when the buyer takes delivery of the completed aircraft --- not when title to the green airplane passes.

For purposes of K.S.A. 79-3606(k), the 10-day period begins when the buyer takes delivery of the aircraft in the completed, final delivery condition. For purposes of this advice, completed, final delivery condition means the aircraft is completed to the customer’s final specifications and can be used for the customer’s intended purpose. This advice assumes that when title to the green aircraft passes, the only use being made of the aircraft in Kansas is its transportation to the location where the additional completion work will be done and completion of that work. It also assumes that the aircraft will be removed from Kansas within 10 days of the final acceptance by the purchaser.

While XXXX intends to performs the additional interior and exterior work in this case, this type of work is often performed by third-parties. For purposes of K.S.A. 79-3606(k), (now found at 2003 HB 2005, Sec. 7(k)), both the primary aircraft manufacturer and the third-party completion company may accept a properly completed and executed Kansas 10-day fly away exemption certificate from the buyer as long as both parties, in good faith, believe the aircraft will leave Kansas within 10 days of delivery to the buyer in its completed, final finished form. This includes the belief that the airplane will not be returned to Kansas to be hangared or otherwise be based here. When two separate companies are involved, the primary manufacturer can substantiate and support the exemption certificate was taken in good faith by obtaining a corroborating statement from the buyer at the time title is transferred to the green aircraft, indicating the aircraft will leave Kansas within 10 days of when the buyer takes possession of the aircraft in its final finished form.

I hope that this adequately explains application of K.S.A. 79-3606(k) to this business practice. If you need to discuss this matter further, please call me at 785-296-3081.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 10/28/2003 Date Modified: 10/28/2003

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