Are an aircraft-owning subsidiary's purchases of its aircraft and maintenance services exempt from New York sales tax, and are the operating-cost charges it bills to affiliates for flights exempt as air transportation rather than a taxable aircraft rental?

Plain-English summary

National Express Company is an American Express subsidiary that owns three Gulfstream IV jets, a Gulfstream V, and a helicopter, all based at Stewart International Airport. It employs its own 39-person aviation staff — pilots, technicians, dispatchers, flight attendants — and already pays New York sales and use tax on the aircraft themselves. More than 90% of the flight time carries employees, customers, and potential customers of American Express and its affiliated companies, who reimburse National Express for the aircraft's operating costs under a written transportation services agreement. One wrinkle: at the time of the request, one aircraft was still leased out to related companies, though National Express planned to end that lease.

The Department addressed three linked questions using the same central test — who has "dominion and control" of the aircraft. First, are the intercompany charges to affiliates a taxable rental of the aircraft, or an exempt transportation service? Since National Express runs the flight operations itself (its own pilots, its own maintenance decisions, its own scheduling authority) and doesn't hand over possession or control of the aircraft, the answer is a nontaxable transportation service — but the Department conditioned this specifically on National Express actually terminating all its leases to related companies, since a genuine lease would flip the analysis. Second, are the aircraft themselves — and parts, equipment, and maintenance supplies for them — exempt from sales/use tax under the "commercial aircraft" exemption? Because over 90% of use will be devoted to for-hire transportation once the lease ends, comfortably clearing the more-than-50%-use threshold from the Department's own commercial aircraft/vessel guidance (TSB-M-96(14)S), yes. Third, are the maintenance, repair, and installation services on that aircraft exempt too? Since they qualify as services performed on an already-exempt "commercial aircraft," yes.

What this means for you

Corporate flight departments and aviation subsidiaries

If your company or a subsidiary owns aircraft and bills affiliated companies for flight time based on operating costs, keeping actual operational control — your own pilots, your own maintenance authority, your own scheduling decisions — is what keeps those intercompany charges out of sales tax as a transportation service rather than a taxable equipment rental. Any formal lease of the aircraft to an affiliate works against that conclusion; this ruling was expressly conditioned on ending the one lease still in place.

Aircraft owners claiming the commercial aircraft exemption

The bright-line rule from the Department's own guidance is that at least 50% of an aircraft's use in for-hire transportation of persons or property qualifies it as "commercial aircraft primarily engaged in ... commerce" under § 1115(a)(21) — here it was over 90%. That status exempts not just the aircraft purchase, but installed equipment and maintenance/repair services too.

Accountants and tax professionals

This is a companion ruling to the Department's earlier decisions on the same fact pattern (TSB-A-96(49)S, and others in the American Express/PepsiCo corporate-aviation line), all applying the same "dominion and control" test from 20 NYCRR § 526.7(e). Note the conditional nature of the holding — it depends on National Express actually completing the lease termination it described as intended but not yet finished.

Common questions

Q: Are the intercompany flight charges taxable as an aircraft rental?
A: No, as long as National Express keeps dominion and control over the aircraft (its own crew, scheduling, and maintenance) and terminates its existing lease to related companies — then the charges are a nontaxable transportation service.

Q: Is the purchase of the aircraft itself exempt from sales tax?
A: Yes. Since over 90% of flight time is for-hire transportation of affiliates' people, the aircraft qualifies as exempt "commercial aircraft," well above the 50% threshold in the Department's guidance.

Q: Are maintenance and repair services on the aircraft exempt too?
A: Yes — because the aircraft itself qualifies as commercial aircraft, the maintaining, servicing, repairing, and installation services performed on it are also exempt under § 1105(c)(3)(v).

Q: What if National Express doesn't end the existing lease?
A: The ruling's transportation-service conclusion is conditioned on ending all leases to related companies; if a lease remains in place, the dominion-and-control analysis and the outcome could differ.

Q: Can another company with a similar aircraft arrangement rely on this ruling?
A: No. It's binding only on National Express based on the specific facts described, and can't be relied on by any other taxpayer.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5), (7), (17) (sale/purchase; use; commercial aircraft definition)
• Tax Law § 1105(a), (c)(3)(v) (imposition on retail sales; maintenance/repair exemption)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(a)(21) (commercial aircraft exemption)
• 20 NYCRR § 526.7(e)(4) (transfer of possession)

Guidance and prior opinions cited:

• TSB-M-96(14)S (Tax Law Defines Commercial Vessels and Commercial Aircraft, Nov. 7, 1996)
• TSB-A-96(49)S, Pasquale & Bowers, Aug. 1, 1996

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_22s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(22)S
Sales Tax
July10, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010821C

On August 21, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from National Express Company, Stewart International Airport, 1 Express Drive,
Newburgh, NY 12550.
The issues raised by Petitioner, National Express Company, are:
(1) Whether the compensation paid to Petitioner by related companies with respect to the
aircraft described below will be considered payments for air transportation services that are not
subject to sales and compensating use tax.
(2) Whether its purchase and use of the aircraft, machinery or equipment installed on the
aircraft, and property used by or purchased for use of the aircraft for maintenance, servicing or
repairs, will be exempt from sales and compensating use tax pursuant to Section 1115(a)(21).
(3) Whether Petitioner’s payments for services of maintaining, servicing, or repairing such
aircraft, machinery or equipment and property, as well as for the service of installing property on
the aircraft, will be exempt from tax pursuant to Section 1105(c)(3)(v) of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner was incorporated in the State of New York in 1957. Petitioner is a first-tier
subsidiary of American Express Company (“American Express”), a publicly-traded New York
corporation. Petitioner’s principal place of business and offices for its aircraft operations are located
at a facility in Stewart International Airport. Petitioner has its own board of directors and
approximately 39 employees consisting of the Vice President of Flight Operations, airline transport­
rated aircraft pilots, licensed aircraft and power plant technicians, a parts and inventory manager,
certified dispatchers, flight attendants and administrative personnel. These employees work at the
facility in Stewart International Airport and comprise the entire staff for aircraft operations.
Petitioner is the sole owner of, and has title in its name to, three Gulfstream IV aircraft, a
Gulfstream V aircraft and a Sikorsky S76B helicopter, for which it has paid New York State sales
and use taxes. Presently, one of the aircraft has been leased by Petitioner to related companies.
Petitioner intends to terminate the aircraft lease at some point in the future.
Petitioner is not required to obtain an FAR 135 Air Carrier Operating Certificate under Part
135 of the Federal Aviation Administration (“FAA”) Regulations for its aircraft. Petitioner will be
responsible for ensuring that the aircraft are inspected, tested, maintained, serviced, repaired,

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modified and overhauled in accordance with FAA safety and other requirements. Petitioner will be
responsible for authorizing or cancelling aircraft flights and deploying pilots, determining where and
when the aircraft will fly, and determining if and how to maintain, repair, modify, overhaul and add
improvements to the aircraft, and will otherwise be responsible for the activities of all flight
personnel and flight operations and the costs associated with them. The sale or other disposition of
the aircraft and the acquisition of new aircraft will be decided upon by Petitioner’s officers, and
approved, if necessary, by its Board of Directors.
More than 90% of the flight time for Petitioner’s aircraft is devoted to transporting
employees, customers and potential customers of American Express and other related companies
(together the “American Express Group”). These services will be provided in accordance with a
written aircraft transportation services agreement between Petitioner and American Express,
contracting on behalf of the American Express Group.
Petitioner is part of the consolidated group of corporations, for federal income tax purposes,
of which American Express is the common parent. It has substantial assets and a net worth in excess
of $100 million. Petitioner files its own separate sales and use tax returns with the State of
New York on a monthly basis. Petitioner is a separate and distinct legal entity that will operate
independently of American Express and other companies that are directly or indirectly owned or
controlled by American Express. Petitioner maintains its own books and records, operates under
its own name and holds itself out to the public as a separate legal entity. It will have its own
business relationships and lines of credit with outside vendors and service providers and will enter
into and enforce contracts with these and other parties. Petitioner occupies and will lease in its name
offices and a hangar at the Stewart Airport facility from an unrelated organization and will pay the
rent for these premises. Petitioner maintains its own bank accounts and will pay all the operating
expenses of its aircraft operations.
At the end of each year or on a periodic basis during the year, Petitioner will charge out all
of the costs of operating the aircraft, based on usage, to all of its affiliates. The charges will be
based on flight hours that each affiliate’s employees, customers and potential customers used the
aircraft for the period then ended. For administrative convenience, American Express will pay all
such amounts on behalf of the American Express Group pursuant to the aircraft transportation
services agreement described above.
Applicable Law and Regulations
Section 1101(b) of the Tax Law states, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section
eleven hundred ten, the following terms shall mean:

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*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.
*

*

*

(7) Use. The exercise of any right or power over tangible personal property
. . . by the purchaser thereof, and includes, but is not limited to, the receiving, storage
or any keeping or retention for any length of time, withdrawal from storage, any
installation, any affixation to real or personal property, or any consumption of such
property. . . .
*

*

*

(17) Commercial aircraft. 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 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(3) Installing tangible personal property, excluding a mobile home, or
maintaining, servicing or repairing tangible personal property, including a mobile
home, not held for sale in the regular course of business, whether or not the services
are performed directly or by means of coin-operated equipment or by any other

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means, and whether or not any tangible personal property is transferred in
conjunction therewith, except:
*

*

*

(v) such services rendered with respect to commercial aircraft, machinery or
equipment and property used by or purchased for the use of such aircraft as such
aircraft, machinery or equipment, and property are specified in paragraph twenty-one
of subdivision (a) of section eleven hundred fifteen of this article. . . .
Section 1110(a) of the Tax Law provides, in part:
Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred
seventy-one except as otherwise exempted under this article, (A) of any tangible
personal property purchased at retail. . . .
Section 1115(a)(21) of the Tax Law exempts from the sales tax imposed by Section 1105(a)
of the Tax Law and from the compensating use tax imposed under Section 1110:
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 526.7(e)(4) of the Sales and Use Tax Regulations provides, in part:
Transfer of possession with respect to a rental, lease or license to use, means
that one of the following attributes of property ownership has been transferred:
(i) custody or possession of the tangible personal property, actual or
constructive;
(ii) the right to custody or possession of the tangible personal property;
(iii) the right to use, or control or direct the use of, tangible personal property.
Opinion
Petitioner owns and operates several aircraft used to transport, for compensation, employees,
customers, potential customers, and guests or other invitees of employees of the American Express

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Group to conduct their global business. Under FAA regulations, Petitioner is not required to obtain
an FAR 135 Air Carrier Operating Certificate. Petitioner is a separate and distinct legal entity
operating independently of the related companies, and is the sole owner of the aircraft. The
compensation charged to the related companies by Petitioner is based on the operating costs of the
aircraft and is pursuant to a written transportation services agreement. Over 90% of the use of
Petitioner’s aircraft is devoted to its air transportation services.
Whether the compensation paid to Petitioner by related companies with respect to the aircraft
is considered compensation for nontaxable air transportation services is determined based on which
party has dominion and control of the aircraft. Where Petitioner retains complete dominion and
control over the aircraft, the transactions are considered to be the provision of a transportation
service rather than the rental of property and Petitioner’s charges to related companies to transport
their employees, customers, potential customers, and guests or other invitees are not subject to
sales or use tax (see Pasquale & Bowers, Adv Op Comm T&F, August 1, 1996, TSB-A-96(49)S).
Presently one of the aircraft has been leased by Petitioner to related companies. Petitioner intends
to terminate all aircraft leases to related companies at some point in the future. Upon termination
of all such leases, Petitioner will employ the personnel who maintain and operate the aircraft,
including pilots, aircraft and power plant technicians and flight attendants. Petitioner will determine
where and when the aircraft fly, and will be responsible for all maintenance and costs associated
with operation of the aircraft. Therefore, Petitioner will be furnishing to the related companies a
nontaxable transportation service and not a taxable purchase or rental of tangible personal property,
provided that Petitioner has terminated all leases with related companies, and Petitioner does not
relinquish dominion and control of the aircraft within the meaning of Section 526.7(e) of the Sales
and Use Tax Regulations.
Whether Petitioner’s purchase and use of the aircraft, machinery and equipment installed on
the aircraft, and property used by or purchased for use of the aircraft for maintenance and repairs
are exempt from sales and use tax pursuant to Section 1115(a)(21) of the Tax Law depends on
whether the aircraft are commercial aircraft primarily engaged in intrastate, interstate or foreign
commerce. The term “commercial aircraft” includes aircraft used primarily to transport persons or
property, for hire. See Section 1101(b)(17) of the Tax Law. An aircraft is primarily engaged in
qualifying commerce if at least 50% of its use is in transportation of persons or property, for hire
(see Technical Services Bureau Memorandum entitled Tax Law Defines Commercial Vessels and
Commercial Aircraft, November 7, 1996, TSB-M-96(14)S). Since Petitioner states that upon
termination of its aircraft leases to related companies, over 90% of the use of its aircraft will be
devoted to intrastate, interstate or foreign air transportation services for compensation based on
operating costs, the aircraft will be considered commercial aircraft primarily engaged in intrastate,
interstate or foreign commerce within the meaning of Section 1115(a)(21) of the Tax Law.
Therefore, Petitioner’s purchase or use of the aircraft, machinery or equipment installed on the
aircraft, and property used to maintain or repair the aircraft will be exempt from the New York State
and local sales and use taxes.

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Whether Petitioner’s payments for services of maintaining, servicing, or repairing its aircraft,
machinery or equipment installed on the aircraft and property used to maintain or repair the aircraft,
as well as for the service of installing property on the aircraft, will be exempt from sales and use tax
pursuant to Section 1105(c)(3)(v) of the Tax Law depends on whether the aircraft are commercial
aircraft primarily engaged in intrastate, interstate or foreign commerce within the meaning of
Section 1115(a)(21) of the Tax Law. As explained above, under the facts presented in this Advisory
Opinion Petitioner’s aircraft will be considered commercial aircraft primarily engaged in intrastate,
interstate or foreign commerce. Therefore, Petitioner’s payments for services of maintaining,
servicing, or repairing such aircraft, machinery or equipment and property, as well as for the service
of installing property on the aircraft, will be exempt from sales and use tax pursuant to
Section 1105(c)(3)(v).

DATED: July 10, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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