Is a corporate subsidiary's company-owned aircraft, and the fuel and maintenance it buys for it, exempt from New York sales and use tax when the subsidiary flies its parent company's people over 95% of the time for a cost-based fee?

Plain-English summary

Standard & Poor's Securities Evaluations, Inc., a subsidiary of The McGraw-Hill Companies, owns and operates its own aircraft, hangared in New York, with a dedicated six-person aviation staff (a chief pilot/manager, two pilots, a maintenance technician, a flight attendant, and an administrator). Over 95% of the plane's flight time carries employees and customers of its parent and sister companies; the subsidiary bills them monthly through a formula based on each affiliate's share of total flight hours, designed to reimburse the subsidiary's actual operating costs. The subsidiary asked whether the plane itself, its parts and maintenance, its fuel, its fueling/defueling services, and the transportation fees it collects from affiliates are subject to New York sales and use tax.

New York exempts "commercial aircraft" — aircraft used more than 50% of the time to transport people or property for hire — from sales and use tax, along with equipment installed on the plane, maintenance/repair property and services, and jet fuel. The Department found that because the subsidiary retains full operational control (its own staff runs everything from scheduling to maintenance) and charges a fee that reasonably tracks its real costs, it is providing a genuine transportation service to its affiliates rather than renting them the plane — and since transportation services aren't on the list of taxable enumerated services, those charges escape tax entirely. That transportation-for-hire status is also what makes the aircraft qualify as exempt "commercial aircraft," which in turn makes its maintenance, machinery/equipment installations, and jet fuel exempt too. The one wrinkle is ordinary aviation gasoline (as opposed to kero-jet fuel): New York taxes that at the pump regardless of exempt status, and the buyer has to separately apply for a refund.

What this means for you

Corporations running an in-house or subsidiary-owned flight department

The same over-50%-for-hire, cost-based-fee, dominion-and-control test from other corporate-aircraft rulings applies here to a fully-owned (not just leased) plane: own it outright, keep full operational control, and bill affiliates a genuine cost-recovery fee for most of its flight time, and both the plane and its running costs (minus a gasoline refund step) come out of the sales tax net.

Companies fueling their own commercial aircraft

Don't assume all aircraft fuel is treated the same at the register. Kero-jet fuel purchased for a qualifying commercial aircraft is exempt outright; ordinary aviation gasoline is taxed at purchase with a right to apply afterward for a refund. Fuel for a plane that doesn't qualify as commercial aircraft (non-commercial operators) gets no refund at all.

Businesses with commonly owned affiliates sharing use of a corporate plane

As in related rulings, this all hinges on respecting the affiliated companies as genuinely separate legal entities. If the facts showed the subsidiary was really just an alter ego dominated by its parent, the Department would disregard the corporate structure, and the plane would be treated as ordinary (taxable) self-use property rather than exempt commercial aircraft.

Common questions

Q: Does owning the plane outright (rather than leasing it) change the commercial-aircraft analysis?
A: No — the same over-50%-for-hire test and cost-based-fee/dominion-and-control facts apply whether the corporate flight subsidiary leases or owns its aircraft outright.

Q: Is all aircraft fuel exempt for a qualifying commercial aircraft operator?
A: Not automatically. Kero-jet fuel is exempt at the point of sale; ordinary aviation gasoline is taxed upfront and requires the purchaser to separately apply to the Department for a refund.

Q: If the parent company occasionally uses the plane for something unrelated to the fee arrangement, does that break the exemption?
A: Not on these facts — the subsidiary's own limited self-use (under 5% here) didn't prevent the aircraft from being primarily "for hire" and qualifying as commercial aircraft.

Q: Can any corporate parent-subsidiary aircraft arrangement rely on this specific ruling?
A: No. It binds the Department only for this petitioner's exact facts; another company's arrangement needs its own advisory opinion or professional analysis, particularly around whether the fee truly reflects operating costs and whether real corporate separateness exists.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(5), (7), (17) (sale/purchase, use, commercial aircraft)
• Tax Law § 1105(a), (c)(3) (retail sales and enumerated services tax, commercial-aircraft carve-out)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(a)(9), (21), (j), (dd) (fuel exemption, commercial aircraft exemption, motor-fuel prepayment carve-out, repair/maintenance services)
• Tax Law § 1120(d) (fuel-tax refund procedure)
• 20 NYCRR 526.7(e)(4) (transfer-of-possession test)
• TSB-M-80(4)S; TSB-M-96(14)S (commercial aircraft guidance memoranda)

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 test)
• Federal Express Corporation, TSB-A-96(81)S; KPMG LLP, TSB-A-03(12)S; IBM Credit Corporation, TSB-A-03(17)S (maintenance/fuel exemption)
• Harfred Operating Corporation, TSB-A-86(28)S (alter-ego disregard of corporate structure)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a05_15s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-05(15)S
Sales Tax
May 25, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S041004A

On October 10, 2004, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Standard & Poor’s Securities Evaluations, Inc., 55 Water Street,
New York, New York 10020.
The issues raised by Petitioner, Standard & Poor’s Securities Evaluations, Inc., are
whether, under the circumstances described below, the New York State sales and compensating
use tax applies to the:
1.

Purchase of a new aircraft,

2.

Purchase of machinery or equipment to be installed on a new or existing aircraft,

3.

Purchase of tangible personal property to repair or maintain a new or existing aircraft,

4.

Purchase of services to repair or maintain a new or existing aircraft,

5.

Purchase of fuel for the aircraft,

6.

Purchase of fueling and defueling services for the aircraft,

7.

Charges paid to Petitioner by its parent company and its other subsidiaries for air
transportation services.
Petitioner submitted the following facts as the basis for this Advisory Opinion.

Petitioner is a subsidiary of The McGraw-Hill Companies, Inc. (“Parent”) with its
principal operation in New York. Petitioner is a separate and distinct legal entity that operates
independently of Parent and its other subsidiaries (collectively the “Affiliated Companies”).
Petitioner is responsible for its own business operations, including finances, administration and
management.
Petitioner owns an aircraft that is used to provide transportation services. Petitioner is the
sole owner of the aircraft. None of the Affiliated Companies provide air transportation services
or have any ownership interest in Petitioner’s aircraft. Additionally, Petitioner states that it
exercises complete dominion and control over the aircraft, including all flight services,
scheduling, fuel, repairs and maintenance, pilots and flight staff for the aircraft. In this respect,
Petitioner determines where and when the aircraft flies and is responsible for all maintenance and

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other costs associated with the aircraft operations. The aircraft is hangared in New York when
not in use.
Petitioner operates its aircraft under Part 91 of the FAA Regulations and is not required
to obtain an air taxi/commercial operating certificate. Additionally, Petitioner is not required to
obtain a FAR 135 Air Carrier Operating Certificate under Part 135 of the FAA Regulations.
Petitioner maintains its own staff dedicated full time to the operation, maintenance and
scheduling of the aircraft. Petitioner’s aircraft department is comprised of six individuals,
including a Chief Pilot/Manager, two airline transport rated pilots, a licensed aircraft
maintenance technician, a flight attendant, and a department administrator.
Petitioner’s aircraft is used primarily (i.e., over 95% of all flights) to transport employees,
customers and potential customers of Petitioner’s Parent and Affiliated Companies on intrastate,
interstate and international flights. However, on occasion (i.e., less than 5% of all annual
flights), Petitioner may use the aircraft to transport its own employees, customers or potential
customers.
Pursuant to a written transportation service agreement, Parent and Affiliated Companies
are charged a fee equal to Petitioner’s costs of operating and maintaining the aircraft (i.e., total
fixed and variable costs). This fee is allocated each month to Parent and Affiliated Companies in
proportion to each company’s flight hours in relation to total flight hours. This formula is
intended to result in an intercorporate reimbursement of Petitioner’s aircraft costs, as measured
by flight hours.
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:
*

*

*

(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.
*

*

*

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(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. (Emphasis added)
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 . . . 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 . . . 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 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 . . . except as otherwise exempted under this article, (A) of any

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tangible personal property purchased at retail . . . (D) of any tangible personal property,
however acquired, where not acquired for purposes of resale, upon which any of the
services described in paragraphs two, three and seven of subdivision (c) of section eleven
hundred five of this part have been performed. . . .
Section 1115 of the Tax Law provides, in part:
(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. (Emphasis added)
*

*

*

(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. . . .
*

*

*

(dd)(1) Services otherwise taxable under paragraph three of subdivision (c) of
section eleven hundred five or under section eleven hundred ten of this article, and
tangible personal property purchased and used by the person who sells such services in
performing such services, where such property becomes a physical component part of the
property upon which the services are performed or where such property is a lubricant
applied to aircraft, shall be exempt from tax under this article where such services are
performed on aircraft.

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(2) The service of storing an aircraft provided by a person who sells a service
exempt under paragraph one of this subdivision, when such storing is rendered in
conjunction with, and during the rendering of, such service to such aircraft, shall be
exempt from the tax imposed under paragraph four of subdivision (c) of section eleven
hundred five of this article.
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 twentynine 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 . . . of
this article but for the provisions of subdivision (j) of section eleven hundred fifteen . . .
of this article. . . .
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.
Technical Services Memorandum, entitled Exemptions for Commercial Aircraft, May 15,
1980, TSB-M-80(4)S, states, in part:
The following list contains examples of purchases for qualifying exempt
commercial aircraft and their taxable status, designated by "E" for exempt and "T" for
taxable:
Purchases for Qualifying Exempt Commercial Aircraft
Aircraft for use in transporting persons or property for
compensation primarily engaged in intrastate, interstate or foreign E
commerce.
Parts and accessories.

E

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Helicopters used primarily to transport persons for compensation E
intrastate, interstate or foreign commerce.
Equipment and machinery purchased or rented for use in the
maintenance of qualifying exempt commercial aircraft.
E
Maintenance and line services.

E

Fuel, fueling and defueling, oil, grease and other supplies.

E

De-icing.

E

Initial installation of equipment or accessories on aircraft.

E

Refurbishing interior of aircraft.

E

Food or drink sold to airlines for in-flight consumption.

E

Repairs (labor and parts).

E

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 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.
*

*

*

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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;
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 .
. . and also substitute 50% for the out-of-date 75% threshold for determining when a
commercial aircraft is primarily used in the qualifying commerce.
Opinion
Pursuant to a written transportation agreement, Petitioner provides transportation services
to its Parent and Affiliated Companies. Petitioner is a separate and distinct entity from Parent
and is responsible for its own business operations. Petitioner is the sole owner of the aircraft and
states that it maintains dominion and control of the aircraft as well as staff, and handles all facets
of the aircraft’s operation. Petitioner will charge the recipients of these air transportation

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services based on the operating and maintenance costs of the aircraft in proportion to each
company’s flight hours in relation to total flight hours.
Petitioner’s aircraft is used in over 95% of its flights to transport employees, customers
and potential customers of Parent and Affiliated Companies. However, on occasion (i.e., less
than 5% of all annual flights), Petitioner may use the aircraft to transport its own employees,
customers and potential customers.
The taxability of Petitioner’s purchase or use 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. If
over 50% 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 or use of an aircraft
qualifies for the exemption provided by section 1115(a)(21) for commercial aircraft, if more than
50% 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 it retains complete dominion and control over the aircraft and its
operations and maintenance and that approximately 95% of the use of Petitioner’s aircraft will be
to provide air transportation services for hire to its affiliates. It appears from the facts presented
in the Advisory Opinion that the fee charged by Petitioner to its Parent and Affiliates reasonably
reflects the cost of operating the aircraft. Therefore, based on these facts Petitioner’s aircraft will
qualify as a commercial aircraft and qualify for the exemption from sales and use tax pursuant to
section 1115(a)(21) of the Tax Law.
The air transportation services provided by Petitioner to its Parent and Affiliates are not
included in the enumerated services taxable under section 1105 of the Tax Law. Petitioner’s
charges for such services are not subject to sales tax.
Purchases of machinery or equipment to be installed on the aircraft, and of tangible
personal property or services to be used for the maintenance and repair of the aircraft are exempt
under section 1115(a)(21) of the Tax Law. Maintenance costs in connection with Petitioner’s
use of the commercial aircraft qualify for exclusion from sales tax under section 1105(c)(3)(v) 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; IBM
Credit Corporation, Adv Op Comm T&F, April 4, 2003, TSB-A-03(17)S. Petitioner should
submit a properly completed Exempt Use Certificate, Form ST-121, to the seller of the aircraft
and sellers supplying machinery and equipment or other tangible personal property or services
that qualify for exemption.

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Fuel, fueling and defueling services used in the flight operations of a commercial aircraft
are eligible for exemption when purchased for use in conjunction with a commercial aircraft.
See Technical Services Bureau Memorandums, Exemptions for Commercial Aircraft, May 15,
1980, TSB-M-80(4)S; and Tax Law Defines Commercial Vessels and Commercial Aircraft,
November 7, 1996, TSB-M-96(14)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. In addition, 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 Petitioner’s aircraft is primarily engaged in qualifying
commerce, the purchases by Petitioner of fuel, fueling and defueling services for its commercial
aircraft are exempt from sales tax under sections 1105(c)(3)(v) and 1115(a)(21) of the Tax Law.
See KPMG LLP, supra; IBM Credit Corporation, supra.
However, purchases of aviation gasoline by airlines or for commercial aircraft 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. 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. See sections 1115(a)(9), 1115(j) and
1120(d) of the Tax Law. It should be noted that sales of fuel to noncommercial aircraft operators
are subject to sales tax without any right to a refund. See KPMG LLP, supra.
The conclusions in this Opinion are based on Petitioner’s representation that it retains
complete dominion and control over the aircraft and is providing air transportation services to its
Parent and Affiliates. However, whether Petitioner is providing a transportation service or is
renting tangible personal property is determined in accordance with the facts and circumstances
of the particular transaction and the provisions of the agreement between Petitioner and its Parent
and Affiliates. Were the transaction determined to be a rental of tangible personal property, the
aircraft would not qualify as a commercial aircraft for purposes of section 1101(b)(17) of the Tax
Law. In such case, Petitioner’s purchase of the aircraft and rental of the aircraft to its Parent and
Affiliates would be subject to sales and use tax.
The analysis in this Opinion presumes treatment of Petitioner and its Parent and Affiliates
as separate legal entities. However, if the activities of Petitioner were so dominated and
controlled by its Parent or Affiliates, 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 the related entities in this 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, Petitioner’s
purchase or use of the aircraft and equipment for the aircraft would not qualify for the

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commercial aircraft exemption. However repair and maintenance services performed on such
aircraft by third party service providers could be purchased tax exempt pursuant to the provisions
of section 1115(dd) of the Tax Law.

DATED: May 25, 2005

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.