Can a corporate group's dedicated transportation subsidiary buy an executive jet tax-free and treat its charges to affiliates as untaxed transportation services?

Plain-English summary

A corporate group organized a dedicated "Transportation" LLC beneath one of its holding-company subsidiaries, specifically to provide transportation services to the parent and its affiliates. Transportation has its own name, books, bank accounts, officers, and roughly $20 million of equity capital with no debt — genuinely separate from its affiliates on paper and in practice. It will own and operate about 80 cars plus an executive jet registered under FAR Part 91, retaining sole ownership, full possession, and complete command and control of the aircraft at all times, and will lease its own hangar space and insurance. Transportation may hire its own staff to schedule and bill for aircraft/car use, or buy those services from affiliates or third parties at fair value, and will contract with an independent aviation-management company as its agent for services it doesn't perform itself. About 90% of the aircraft's use will be flying officers, employees, customers, vendors, and business colleagues of the affiliated companies, billed to those affiliates based on the aircraft's actual direct and indirect operating costs.

The Department's answer turns entirely on New York's "commercial aircraft" test: if more than half of an aircraft's use goes to transporting people for compensation, and that compensation reasonably reflects the actual cost of running the plane, the aircraft counts as commercial and its purchase is exempt. With 90% of planned use meeting that description here, Transportation's purchase of the jet qualifies for the exemption (with an Exempt Use Certificate given to the seller), and its maintenance costs and equipment purchases connected to the aircraft ride along exempt too. Because Transportation keeps complete operational dominion and control over the plane, its cost-based charges to the affiliates who use it are treated as nontaxable transportation service fees rather than taxable equipment rentals — the same over-50%-for-hire-plus-control template the Department has applied to other corporate aircraft arrangements.

The Department flagged the same limit it applies to every related-entity aircraft structure: all of this assumes Transportation, the holding company, and its sibling subsidiaries are respected as genuinely separate legal entities, with any shared scheduling, billing, or administrative work actually performed in Transportation's own name. If an examination instead found the companies were so dominated by their common parent, or so commingled with each other, that they're really operating as alter egos rather than distinct entities, the whole structure would collapse — Transportation's aircraft would be treated as bought for the group's own self-use rather than as a commercial aircraft, losing the exemption on the purchase itself and on every related repair, maintenance, and equipment purchase.

What this means for you

Corporate groups setting up a dedicated aviation or transportation subsidiary

Real organizational separation matters as much as the usage percentage: separate books, bank accounts, officers, and substantial capitalization all support treating the subsidiary as a genuine independent entity rather than a shell that a later "alter ego" challenge could unwind.

Flight departments billing affiliates at cost for corporate travel

Pricing your internal transportation charges to reasonably reflect actual operating cost (not an arbitrary markup, and not a below-cost subsidy) is part of what qualifies the aircraft as a "commercial aircraft" primarily engaged in for-hire transport — track and document that cost basis.

Accountants structuring or auditing corporate aircraft ownership

This is a clean template for the over-50%-for-hire-plus-operational-control test applied elsewhere in this corpus to corporate aircraft: confirm actual usage percentages, confirm the operating entity truly retains dominion and control, and stress-test whether the corporate structure could be recharacterized as alter egos before relying on the exemption.

Common questions

Q: What usage percentage makes an aircraft a "commercial aircraft" for New York's sales tax exemption?
A: More than 50% of the aircraft's use must go toward transporting people or property for compensation that reasonably reflects the cost of operating it.

Q: Does the corporate structure matter if the usage percentage is met?
A: Yes — the exemption assumes the transportation subsidiary and its affiliates are genuinely separate legal entities. If they're found to be alter egos of one another, the aircraft is instead treated as purchased for the group's own self-use, losing the exemption entirely.

Q: Are maintenance and equipment purchases related to an exempt commercial aircraft also exempt?
A: Yes — maintenance, repair services, and related equipment purchases connected to a qualifying commercial aircraft are exempt along with the purchase of the aircraft itself.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(17) (definition of commercial aircraft)
• Tax Law § 1105(a) (retail sales of tangible personal property)
• Tax Law § 1105(c)(3)(v) (maintenance/repair services exclusion for exempt commercial aircraft)
• Tax Law § 1115(a)(21) (commercial aircraft exemption)
• TSB-M-96(14)S (expanded commercial aircraft/vessel definitions, effective December 1, 1996)

Prior advisory opinions relied on:

• Pasquale & Bowers, TSB-A-96(49)S; CB Applications, LLC, TSB-A-00(6)S; Philip Morris Management Corp, TSB-A-00(38)S (over-50%-for-hire commercial aircraft test)
• Federal Express Corporation, TSB-A-96(81)S; KPMG LLP, TSB-A-03(12)S (exemption for related maintenance/equipment purchases)
• Harfred Operating Corporation, TSB-A-86(28)S (alter ego / disregarded entity doctrine)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_2s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(2)S
Sales Tax
January 28, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S031120B

On November 20, 2003, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Ernst & Young, LLP, 1400 Key Tower, 50 Fountain Plaza, Buffalo,
New York, 14202.
The issues raised by Petitioner, Ernst & Young, LLP, relating to the purchase, use, and
maintenance of, and related equipment purchases for, an aircraft under the circumstances described
below, are:
1.

Whether the purchase price paid to acquire the aircraft will be subject to New York sales and
use tax.

2.

Whether charges to affiliated companies for transportation services will be subject to
New York sales and use tax.

3.

Whether maintenance costs and related equipment purchases in connection with the use of
the aircraft will be subject to New York sales and use tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.

Holdings LLC (“Holdings”), a Delaware limited liability company, owns all the membership
interests in Subsidiary One LLC (“Sub 1") and Subsidiary Two LLC (“Sub 2"). Both Sub 1 and
Sub 2 are also Delaware limited liability companies.
Sub 1 has organized Transportation LLC (“Transportation”), also a Delaware limited liability
company, and will hold all the membership interests in Transportation. Transportation will have
a name that is different from each of its affiliates, and will maintain its own books and records and
bank accounts, which will be separate from the books and records and bank accounts of Holdings,
Sub 1 and Sub 2. Transportation’s Certificate of Organization and its Operating Agreement will set
out organizational purposes different from those of its affiliates. Transportation will also have its
own officers, who may overlap with, but who will also differ from, the officers of its affiliated
entities.
Transportation will, like each of its affiliates, hold itself out to the public as a separate legal
entity and will enter into business relationships and contractual obligations in its own name.
Transportation will have substantial equity capital, approximately $20,000,000, and no debt.
Transportation will be responsible for providing transportation services to Holdings, Sub 1 and
Sub 2, such as contracting for charter airline, bus and limousine services from unrelated third
parties. Transportation will also own and operate, outside of the State of New York, the fleet of

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approximately 80 automobiles presently held by one or more of its affiliates. In addition,
Transportation will acquire and operate an executive jet aircraft, which it will register with the
Federal Aviation Administration (“FAA”) under the rules found in Federal Aviation Regulations
(“FAR”) Part 91.
Transportation will be the sole owner of the aircraft, will set the specifications for and will
contract for modifications to the aircraft, and will be the owner of all rights under all related
warranties. Transportation will determine where and when the aircraft will fly, will determine the
passengers carried, and will at all times have possession, command and control of the aircraft.
Transportation will lease hangar space and retain related services for the aircraft in Suffolk County
in New York, and will obtain insurance on the aircraft.
Transportation is considering hiring a person to coordinate the scheduling and use of the
aircraft and automobiles and provide bookkeeping and other administrative services, including
billing affiliates for usage. Alternatively, Transportation will purchase these services from its
affiliates or unrelated third parties. Transportation will pay fair value for the use of any service or
property of its affiliates. In addition, Transportation will contract for and pay fair value for the costs
of all other aspects of the aircraft’s operation, maintenance, inspection, repairs and overhauls.
Finally, Transportation will contract with an independent publicly held company that will provide,
as Transportation’s agent, any necessary related aviation services that Transportation will not
perform itself. This agreement will be based upon a standard air transportation industry form that
is accepted under FAA regulations for the provision of aviation management services.
Approximately 90 percent of the use of Transportation’s aircraft will be for services for hire
for Holdings, Sub 1 and Sub 2. Transportation will provide these services pursuant to a written
agreement. These services will consist of the transport of officers and employees of the affiliated
companies and their customers, or prospective customers, vendors and business colleagues.
Transportation will charge the recipient of these air transportation services (i.e., Holdings, Sub 1 or
Sub 2) for these services based on the direct and indirect operating costs of the aircraft under the
applicable FAA regulations and precedents.
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:
*

*

*

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(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 sales tax, in part, on the receipts from every sale,
except for resale, of the following services:
*

*

*

(3) Installing tangible personal property . . . or maintaining, servicing or repairing
tangible personal property . . . not held for sale in the regular course of business . . . 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; . . . (Emphasis
added)
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. (Emphasis added)
Technical Services Memorandum, entitled Tax Law Defines Commercial Vessels and
Commercial Aircraft, November 7, 1996, TSB-M-96(14)S, states in part:
Statutory changes in the definitions of commercial vessels and commercial aircraft
have expanded the current sales and use tax exemptions for commercial vessels and aircraft,
effective December 1, 1996. The expanded exemptions now also include vessels and aircraft
that transport, in qualifying commerce, tangible personal property in the conduct of the
business of the purchaser of the vessels or aircraft. (Purchaser includes, for example, a buyer,
renter or lessee of the vessel or aircraft.) The exemption covers certain purchases of tangible
personal property necessary to operate the exempt vessels and aircraft, and also exempts

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maintenance and repair services to the exempt vessels or aircraft, and fuel used by the
exempt vessels and aircraft.
Previously, only vessels and aircraft used by the purchaser primarily (at least 50%
of the time) in the transportation for hire of other persons or their property qualified for the
exemption. Thus, self-use of a vessel or aircraft to transport one’s own property was not a
qualifying use.
*

*

*

Commercial Aircraft
The expanded definition of a commercial aircraft is an aircraft used primarily:
•
•
•

to transport persons or property, for hire;
by the purchaser of the aircraft primarily to transport the purchaser’s own
tangible personal property in the conduct of the purchaser’s business; or
for both of the above purposes.

To be exempt, a commercial aircraft must be primarily engaged in intrastate,
interstate or foreign commerce. . . .
In addition to the exemption applicable to the aircraft, the exemption also applies to:
•
•
•

•

machinery and equipment installed on the aircraft;
property used by or purchased for the use of the aircraft for maintenance and
repairs;
the services of maintaining, servicing and repairing the aircraft, machinery
or equipment installed on the aircraft, and property used by or purchased for
the use of the aircraft; (Emphasis added)
flight simulators purchased by commercial airlines.

Permanent air cargo containers suitable for repeated use, and specifically designed
to facilitate the carriage of goods on aircraft, are exempt from New York State sales and use
taxes. Repairs to air cargo containers are likewise exempt.
For more information about the exemptions granted to commercial aircraft primarily
engaged in intrastate, interstate or foreign commerce, see TSB-M-80(4)S, Exemptions
For Commercial Aircraft, and TSB-M-80(4.1)S, Air Cargo Containers. In reading
TSB-M-80(4)S, please read-in the expanded definition of a commercial aircraft discussed
in this memorandum and also substitute 50% for the out-of-date 75% threshold for
determining when a commercial aircraft is primarily used in the qualifying commerce.

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Opinion
Transportation will acquire and operate an executive jet aircraft, which it will register with
the FAA under the rules found in FAR Part 91. Transportation will be the sole owner of the aircraft,
will be the owner of all rights under all related warranties, and will at all times have possession,
command and control of the aircraft. Transportation will lease hangar space and retain related
services for the aircraft in Suffolk County in New York, and will obtain insurance on the aircraft.
Pursuant to a written agreement with Holdings, Sub 1 and Sub 2, Transportation will
transport officers and employees of such affiliated companies and their customers, prospective
customers, vendors and business colleagues. Transportation will charge the recipients of these air
transportation services (i.e., Holdings, Sub 1 or Sub 2) for these services based on the operating
costs of the aircraft.
The taxability of Transportation’s purchase of the aircraft is dependent on whether the
aircraft qualifies as a commercial aircraft as defined by section 1101(b)(17) of the Tax Law. Where
over 50 percent of an aircraft’s use is devoted to transporting customers for compensation, and the
compensation reasonably reflects the cost of operating the aircraft, such aircraft will be considered
a commercial aircraft primarily engaged in intrastate, interstate or foreign commerce for purposes
of section 1115(a)(21) of the Tax Law. Therefore, the purchase of the aircraft by Transportation
qualifies for the exemption provided by section 1115(a)(21) for commercial aircraft if more than 50
percent of the use of the aircraft is in the provision of air transportation services for hire. (See
Pasquale & Bowers, Adv Op Comm T & F, August 1, 1996, TSB-A-96(49)S; CB Applications,
LLC, Adv Op Comm T&F, February 1, 2000, TSB-A-00(6)S; Philip Morris Management Corp, Adv
Op Comm T&F, October 11, 2000, TSB-A-00(38)S.)
Petitioner indicates that approximately 90 percent of the use of Transportation’s aircraft will
be to provide air transportation services for hire to its affiliates. Therefore, since the aircraft will
qualify as a commercial aircraft and qualify for the exemption from tax pursuant to section
1115(a)(21) of the Tax Law, the purchase price paid by Transportation will be exempt from sales
tax. Transportation should submit a properly completed Exempt Use Certificate, Form ST-121, to
the seller of the aircraft.
In addition, since Transportation retains complete dominion and control over the operations
and maintenance of the aircraft, Transportation’s charges to its affiliates are charges for the
provision of nontaxable transportation services. Maintenance costs in connection with
Transportation’s use of the commercial aircraft qualify for exclusion from tax under section
1105(c)(3)(v) of the Tax Law. Purchases of machinery or equipment to be installed on the aircraft,
and purchases of property to be used for the maintenance and repair of the aircraft, are exempt under
section 1115(a)(21) of the Tax Law. See Federal Express Corporation, Adv Op Comm T&F,
December 26, 1996, TSB-A-96(81)S; KPMG LLP, Adv Op Comm T&F, March 25, 2003,
TSB-A-03(12)S.

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The above analysis presumes treatment of Transportation, Holdings, Sub 1 and Sub 2 as
separate legal entities. It also presumes that any scheduling, accounting, billing and administrative
functions performed by affiliates are done so on behalf of and in the name of Transportation.
However, if the activities of Transportation, Holdings, Sub 1 or Sub 2 were so dominated and
controlled by the parent or each other, or their activities were so commingled that they would be
considered to be operating as alter egos of each other rather than separate legal entities, then the
corporate structures would be disregarded and the conclusions reached in this opinion would not
apply. See Harfred Operating Corporation, Adv Op St Tx Comm, July 18, 1986, TSB-A-86(28)S.
If an examination showed that the related entities in the present case should be disregarded
as separate legal entities for purposes of sales tax, the aircraft would not be considered to be a
commercial aircraft but rather would be purchased for self use by the related entities. Under such
circumstances, Transportation’s purchase of the aircraft, as well as any repair, maintenance or
equipment purchases, would not qualify for the commercial aircraft exemption.

DATED: January 28, 2004
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

NOTE:

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