Does an aircraft-owning LLC's lease of its jet to an aviation operator, which then charters the plane exclusively to one affiliated company at cost-reflecting rates, qualify for New York's commercial-aircraft sales tax exemption even though the plane serves only a single customer?

Plain-English summary

CB Applications, LLC owns a jet and leases it for fixed monthly payments to Jet Aviation Business Jets (Jets) under a renewable three-year lease, with Jets responsible for taxes, insurance, and maintenance. Jets, acting as agent for New World Jet Corporation (NWJ) -- which holds an FAA Part 135 Air Carrier Operating Certificate -- enters into a three-year Aircraft Charter Agreement with Ernst & Young (E&Y), giving NWJ exclusive control over the aircraft as between NWJ and E&Y, with the plane used exclusively to transport E&Y. The charter fee E&Y pays is calculated to cover Jets' estimated usage costs, insurance, the rental payment back to CB Applications, and quarterly adjustments so the total matches Jets' actual direct and indirect costs of maintaining and flying the plane. E&Y owns a substantial part of CB Applications, so the arrangement runs through commonly owned/related entities.

New York exempts "commercial aircraft" primarily engaged in commerce -- defined broadly enough to include aircraft used to transport people or property for hire, or aircraft used by the purchaser primarily to transport its own property in its business. The Department has previously held that an aircraft qualifies whenever more than half its use goes to transporting employees, customers, and potential customers for compensation that reasonably reflects the cost of operating the aircraft, regardless of whether that use serves only one customer. Applying that rule here, since the charter payments were designed to match Jets' actual costs, and the plane was devoted entirely to providing E&Y transportation for that cost-reflecting compensation, the lease qualified for the commercial-aircraft exemption -- even though the aircraft serves exclusively one customer, and even though that customer is related to the aircraft's owner through common ownership.

What this means for you

Related-party aircraft leasing and charter arrangements

A single-customer charter arrangement, even between commonly owned or affiliated companies, can still qualify for the commercial-aircraft exemption as long as the charter/lease payments are structured to reasonably reflect the actual cost of operating the aircraft (not simply padded profit or disguised personal use) -- the exemption doesn't require serving multiple unrelated customers.

Aviation management companies structuring multi-party lease/charter chains

The exemption analysis follows the chain of relationships (owner-lessor, aviation operator, charter customer) and focuses on whether over 50% of the aircraft's use ultimately generates cost-reflecting compensation for transportation, not on how many contractual layers or agency relationships sit between the aircraft's title holder and its end user.

Accountants and tax professionals

This ruling applies the same "over 50% cost-reflecting compensated use" rule from Pasquale & Bowers and the single-customer clarification from John J. Bischoff -- both cited here -- confirming that neither a single dedicated customer nor common ownership between the aircraft owner and its end customer defeats the exemption, as long as the cost-reflecting compensation element is genuinely present.

Common questions

Q: Does an aircraft need multiple customers to qualify as a "commercial aircraft"?
A: No -- serving a single customer exclusively doesn't disqualify the exemption, as long as the compensation for that use reasonably reflects the actual cost of operating the aircraft.

Q: Does common ownership between the aircraft owner and the end customer matter?
A: Not under the facts of this ruling -- the exemption turned on the cost-reflecting nature of the compensation and the extent of compensated transportation use, not on the parties' ownership relationships.

Q: Can another aircraft leasing arrangement rely on this ruling?
A: No. It binds the Department only as to this petitioner's facts. Other arrangements should confirm their own charter/lease payments genuinely reflect operating costs and that over half the aircraft's use is devoted to compensated transportation.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(17) (definition of "commercial aircraft")
• Tax Law § 1115(a)(21) (exemption for commercial aircraft primarily engaged in intrastate, interstate, or foreign commerce)
• 20 NYCRR § 526.6(c)(1) (resale exclusion)

Prior rulings referenced:

• Pasquale & Bowers, Adv Op Comm T&F, Aug. 1, 1996, TSB-A-96(49)S
• John J. Bischoff, Adv Op Comm T&F, Apr. 8, 1999, TSB-A-99(20)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_6s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(6)S
Sales Tax
February 1, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990701A

On July 1, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from CB Applications, LLC, c/o Keith Rollins, Ernst & Young, LLP, 125 Chubb Avenue,
Lyndhurst, N.J. 07071.
The issue raised by Petitioner, CB Applications, LLC, is whether the lease of an aircraft
under the following circumstances is subject to sales and compensating use tax.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner owns a jet aircraft and enters into a three year renewable lease for fixed monthly
lease payments with Jet Aviation Business Jets, Inc. (Jets). Under the lease, Jets is responsible for
all applicable taxes, insurance, maintenance and other aspects of operating the aircraft.
Jets, as agent for New World Jet Corporation (NWJ) who holds an Air Carrier Operating
Certificate under Part 135 of the Federal Aviation Administration (FAA) regulations, enters into an
Aircraft Charter Agreement for three years with Ernst & Young, LLP (E & Y) for the provision of
air transportation to E & Y. The Charter Agreement provides that with respect to the parties to the
agreement, i.e., NWJ and E & Y, NWJ will have exclusive control over the aircraft. Jets will operate
the aircraft in accordance with FAA regulations as agent for NWJ. The Charter Agreement also
provides that the aircraft is to be used exclusively to provide transportation for E & Y.
The charter fee is computed as the total of the following: monthly payments to cover
estimated usage, insurance, rental payment to Petitioner and quarterly adjustments to make total
payments equal to direct and indirect costs incurred by Jets to maintain and fly the aircraft.
Jets is not related to any of the other parties to the agreements except as agent for NWJ. E
& Y owns a large part of Petitioner and the two entities are otherwise related through common
ownership.
Applicable Law and Regulations
Section 1101(b)(17) of the Tax Law defines the term "commercial aircraft" as:
Aircraft used primarily (i) to transport persons or property, for hire, (ii) by the
purchaser of the aircraft primarily to transport such person’s tangible personal
property in the conduct of such person’s business, or (iii) for both such purposes.
Section 1115(a)(21) of the Tax Law provides an exemption from sales and use tax for:

-2­
TSB-A-00(6)S
Sales Tax
February 1, 2000

Commercial aircraft primarily engaged in intrastate, interstate or foreign
commerce, machinery or equipment to be installed on such aircraft and property used
by or purchased for the use of such aircraft for maintenance and repairs and flight
simulators purchased by commercial airlines.
Section 526.6(c)(1) of the Sales and Use Tax Regulations provides:
Where a person, in the course of his business operations, purchases tangible
personal property or services which he intends to resell, either in the form in which
purchased, or as a component part of other property or services, the property or
services which he has purchased will be considered as purchased for resale and
therefore not subject to tax until he has transferred the property to his customer.
Opinion
Petitioner will lease its aircraft to Jets for a three year period for fixed monthly payments.
Jets will then act as an agent for NWJ who holds an Air Carrier Operating Certificate. NWJ will
then enter into a three year Aircraft Charter Agreement with E & Y. E & Y will have the exclusive
use of the aircraft. The charter payments are equal to direct and indirect costs incurred by Jets to
maintain and fly the aircraft.
Where over fifty percent of an aircraft’s use is devoted to transporting employees, customers
and potential customers for compensation, and the compensation reasonably reflects the costs of
operating the aircraft, such aircraft will be considered a commercial aircraft primarily engaged in
intrastate, interstate or foreign commerce, within the meaning of Section 1115(a)(21) of the Tax
Law. See Pasquale & Bowers, Adv Op Comm. T & F, August 1, 1996, TSB-A-96(49)S. In this
case, the aircraft leased by Jets will be devoted entirely to providing transportation for compensation
to E & Y under NWJ’s agreement with E & Y. The compensation will reflect Jets’ costs of
operating the aircraft. The lease by Jets of the aircraft from Petitioner for use exclusively in
providing charter service to E & Y, therefore, qualifies for the exemption provided by Section
1115(a)(21) of the Tax Law. It is immaterial that the aircraft is for the exclusive use of one
customer. See John J. Bischoff, Adv Op Comm T & F, April 8, 1999, TSB-A-99(20)S.

DATED: February 1, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.