Are a corporate aviation division's purchases of jet fuel, fueling/defueling services, and grease and other maintenance supplies for its aircraft exempt from New York sales tax?

Plain-English summary

KPMG LLP asked this question on behalf of its client, referred to only as "XYZ, Inc." XYZ's aircraft-services division owns and operates aircraft that transport employees, customers, and potential customers of related companies for compensation, on intrastate, interstate, and international flights, under a written transportation-services agreement that bills related companies based on operating costs. XYZ is a separate legal entity, staffs its own pilots, technicians, dispatchers, and administrative personnel, and exercises complete dominion and control over its aircraft's operations and maintenance — the same fact pattern the Department has treated in other opinions as a nontaxable transportation service rather than a taxable rental. XYZ's hangar and operations are based in New York. It buys fuel directly from an airport-based vendor (it has no fuel storage of its own), plus fueling/defueling services and oil, grease, and other petroleum-based maintenance supplies.

Because more than 50% of the aircraft's use is devoted to compensated transportation of related companies' personnel, and the compensation reasonably reflects XYZ's operating costs, the aircraft qualifies as "commercial aircraft" under § 1101(b)(17). That status triggers § 1115(a)(21)'s broad exemption, which reaches not just the aircraft itself but also property and services used for its maintenance and repair — including fuel, fueling/defueling services, and grease and other petroleum-based maintenance supplies.

There's an important wrinkle on the fuel piece specifically. A separate carve-out (§ 1115(j)) blocks the general commercial-aircraft exemption from applying to prepaid taxes on motor fuel or diesel motor fuel — with a narrow exception for kero-jet fuel bought by true "airlines" (as specially defined) for their aircraft, which stays tax-free at the point of sale. Everyone else — including commercial-aircraft operators like XYZ that aren't airlines — must pay sales tax on aviation gasoline and kero-jet fuel purchases up front, then apply to the Department for a refund of the tax paid, using the exemption process (and, for diesel/propane, Form FT-1020) rather than buying tax-free outright.

What this means for you

Corporate flight departments and aircraft-services divisions

Qualifying as "commercial aircraft" opens up a broad maintenance/repair exemption, but don't expect to buy jet fuel tax-free at the pump unless you're a true "airline" under the regulatory definition — most commercial (non-airline) operators have to pay the tax and file for a refund instead.

Aviation fuel and service vendors

If your customer is a commercial-aircraft operator that isn't a certificated "airline," you generally must charge sales tax on fuel at the time of sale; the customer's remedy is a refund application to the Department, not a point-of-sale exemption certificate (except for diesel/propane, where Form FT-1020 is used).

Accountants and tax professionals

This opinion is a clean companion citation to TSB-A-03(17)S (also decided this year) on the dominion-and-control test for treating intercompany aircraft charges as an exempt transportation service — but adds the fuel-specific refund mechanics under §§ 1115(j) and 1120(d) that the other ruling didn't need to address.

Common questions

Q: Can a commercial-aircraft operator buy jet fuel tax-free at the airport?
A: Generally no, unless it qualifies as an "airline" under the regulatory definition. Other commercial-aircraft operators pay sales tax on aviation gasoline and kero-jet fuel at purchase, then apply to the Department for a refund.

Q: Are maintenance supplies like grease treated the same as fuel?
A: No — grease and other petroleum-based goods used to maintain and repair qualifying commercial aircraft are simply exempt from tax at the time of purchase under § 1115(a)(21), without the fuel-specific prepay-and-refund wrinkle.

Q: What makes an aircraft "commercial" for this exemption?
A: More than 50% of its use must be devoted to transporting people or property for hire (or for the owner's own business use, under a separate branch), and here that meant compensated transport of employees/customers/potential customers of related companies at cost-based rates.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(17) (commercial aircraft definition)
• Tax Law § 1105(a) (retail sales tax); § 1105(c)(3)(v) (aircraft repair/maintenance exception)
• Tax Law § 1115(a)(9) (fuel sold to an airline); § 1115(a)(21) (commercial aircraft exemption); § 1115(j) (fuel exemption carve-out)
• Tax Law § 1120(d) (refund for exempt fuel purchasers); § 1132(c) (exemption certificate requirement)
• 20 NYCRR § 532.4 (Form FT-1020 exemption certificate)
• TSB-M-80(4)S (Exemptions for Commercial Aircraft, May 15, 1980)
• TSB-M-96(14)S (Tax Law Defines Commercial Vessels and Commercial Aircraft, Nov. 7, 1996)

Prior rulings referenced:

• Philip Morris Management Corp., TSB-A-00(38)S
• Citiflight, Inc., TSB-A-00(30)S
• Pasquale & Bowers, TSB-A-96(49)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_12s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(12)S
Sales Tax
March 25, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S011227A

On December 27, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from KPMG LLP, 3001 Summer Street, Stamford, CT 06905. Petitioner, KPMG
LLP, provided additional information with respect to the Petition on February 26, 2002.
The issues raised by Petitioner regarding its client XYZ, Inc. (XYZ) are:
(1) Whether the purchase of fuel by XYZ for its aircraft is subject to New York State
sales and compensating use tax.
(2) Whether the purchases of fueling and defueling services by XYZ are subject to
New York State sales and compensating use tax.
(3) Whether the purchases of grease and other petroleum based goods by XYZ for
use in maintaining and repairing its aircraft are subject to New York State sales and
compensating use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
XYZ owns and operates several aircraft used in XYZ’s air transportation services.
The aircraft services division of XYZ provides air transportation services to employees,
customers, and potential customers of related companies for compensation, on intrastate, interstate
and international flights. XYZ is a separate and distinct legal entity operating independently of any
related companies, and the compensation charged to the related companies by XYZ is based on the
operating costs of the aircraft pursuant to a written transportation services agreement. XYZ employs
the following types of employees in the aircraft operations group: airline transport rated pilots;
licensed aircraft technicians; certified dispatchers; and administrative personnel. XYZ is the sole
owner of the aircraft primarily used to provide aircraft transportation services. XYZ is not required
to obtain a FAR 135 Air Carrier Operating Certificate under Part 135 of the Federal Aviation
Administration (FAA) Regulations. XYZ operates its aircraft under Part 91, Subpart F of the FAA
regulations. According to Petitioner XYZ exercises complete dominion and control over all aircraft,
including operations and maintenance, it determines where and when the aircraft fly, and is
responsible for all maintenance and costs associated with the aircraft operations. XYZ’s hangar,
employees and its aircraft operations are based within New York State.
In New York State, XYZ purchases fuel directly from a vendor located at the airport where
the aircraft is hangared. XYZ does not have its own fuel storage facilities. XYZ purchases fuel

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directly from its vendor. XYZ also purchases fueling and defueling services, as well as oil, grease,
and other petroleum-based supplies used on its aircraft for operation and/or maintenance.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, 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:
*

*

*

(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(a) of the Tax Law imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes a tax on 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
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 1115 of the Tax Law provides, in part:

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(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:
*

*

*

(9) Fuel sold to an air line for use in its airplanes.
*

*

*

(21) 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.
*

*

*

(j) The exemptions provided in this section shall not apply to the tax required
to be prepaid pursuant to the provisions of section eleven hundred two of this article
nor to the taxes imposed by sections eleven hundred five and eleven hundred ten of
this article with respect to receipts from sales and uses of motor fuel or diesel motor
fuel, except that the exemption provided in paragraph nine of subdivision (a) of this
section shall apply to the tax required to be prepaid pursuant to the provisions of
section eleven hundred two of this article and to the taxes imposed by sections eleven
hundred five and eleven hundred ten of this article with respect to sales and uses of
kero-jet fuel. . . .
Section 1120(d) of the Tax Law provides, in part:
Purchase of motor fuel or diesel motor fuel at retail by an exempt
organization. A refund or credit equal to the amount of tax imposed pursuant to
section eleven hundred five of this article and any like tax imposed pursuant to the
authority of article twenty-nine of this chapter upon the sale of motor fuel or diesel
motor fuel and paid by a purchaser shall be allowed such purchaser if the purchase,
use or consumption of such fuel would have otherwise been exempt pursuant to
section eleven hundred fifteen or eleven hundred sixteen of this article but for the
provisions of subdivision (j) of section eleven hundred fifteen or paragraph five of
subdivision (b) of section eleven hundred sixteen of this article. . . .
Opinion
The aircraft service division of XYZ owns and operates several aircraft, which are used to
provide transportation services to employees, customers, and potential customers of related

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companies for compensation on intrastate, interstate and international flights. XYZ is a separate and
distinct legal entity operating independently of any related companies. XYZ exercises complete
dominion and control over its aircraft, including operations and maintenance.
Provided more than 50 percent of the use of XYZ’s aircraft is devoted to transporting
employees, customers, and potential customers of related companies for compensation, and the
compensation reasonably reflects the cost of operating the aircraft, the aircraft will be considered
commercial aircraft, within the meaning of Section 1101(b)(17) of the Tax Law. See Philip Morris
Management Corp., Adv Op Comm T&F, October 11, 2000, TSB-A-00(38)S; Citiflight, Inc., Adv
Op Comm T&F, August 3, 2000, TSB-A-00(30)S; Pasquale & Bowers, Adv Op Comm T&F,
August 1, 1996, TSB-A-96(49)S.
Section 1115(a)21 of the Tax Law provides an exemption from tax on purchases of
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. A commercial aircraft is regarded as primarily engaged in
qualifying commerce if over fifty percent of its use is in such activity (see Technical Services
Bureau Memorandum, Tax Law Defines Commercial Vessels and Commercial Aircraft, November
7, 1996, TSB-M-96(14)S). Therefore, XYZ’s purchases of commercial aircraft, 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 will be exempt where over fifty percent of the use of such
aircraft is devoted to transporting employees, customers and potential customers of related
companies for compensation. See Pasquale & Bowers, supra.
XYZ purchases fuel used in the flight operations of its commercial aircraft. As explained
in Technical Services Bureau Memorandum, Exemptions for Commercial Aircraft, May 15, 1980,
TSB-M-80(4)S, the purchase of fuel for use in a commercial aircraft is a qualifying exempt purchase
pursuant to Section 1115(a)(21) of the Tax Law. Therefore, provided XYZ’s aircraft are primarily
engaged in qualifying commerce, the purchases by XYZ of fuel for its commercial aircraft are
exempt from sales and use tax under Section 1115(a)(21).
However, purchases of aviation gasoline by airlines or for commercial aircraft other than
airlines are subject to sales tax at the time of purchase. The purchaser may then apply to the
New York State Department of Taxation and Finance for a refund of the sales tax paid. See Sections
1115(j) and 1120(d) of the Tax Law. Commercial aircraft operators, other than airlines, must also
pay sales tax on purchases of kero-jet fuel at the time of purchase, and may then apply for a refund
of the tax paid. Sales of kero-jet fuel to airlines for use in their aircraft are exempt from sales and
use taxes at the time of purchase. See Sections 1115(a)(9) and 1115(j) of the Tax Law. The
purchaser should furnish Form FT-1020, Exemption Certificate for Certain Taxes Imposed on Diesel
Motor Fuel and Propane, to the vendor within 90 days of the date of sale. See Section 1132(c) of
the Tax Law and Section 532.4 of the Sales and Use Tax Regulations. It should be noted that sales
of fuel to noncommercial aircraft operators are subject to sales tax without any right to a refund.

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XYZ purchases fueling and defueling services used in the flight operations of its commercial
aircraft. As explained in TSB-M-80(4)S, supra, fueling and defueling services purchased for use
in a commercial aircraft as specified in Section 1115(a)(21) of the Tax Law are qualifying exempt
purchases pursuant to Section 1105(c)(3)(v) of the Tax Law. Therefore, provided XYZ’s aircraft
are primarily engaged in qualifying commerce, the purchases by XYZ of fueling and defueling
services for its commercial aircraft are exempt from sales tax under Section 1105(c)(3)(v).
XYZ purchases grease and other petroleum based goods used in the maintenance, repairs and
flight operations of its commercial aircraft. As explained in TSB-M-80(4)S, supra, purchases of
grease and other petroleum based goods used in the maintenance, repairs and flight operations of
commercial aircraft are qualifying exempt purchases pursuant to Section 1115(a)(21) of the Tax
Law. Therefore, provided XYZ’s aircraft are primarily engaged in qualifying commerce, XYZ’s
purchases of grease and other petroleum based goods used in the maintenance, repairs and flight
operations of its commercial aircraft are exempt from sales and use tax under Section 1115(a)(21).

DATED: March 25, 2003

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.