Is a telecom subsidiary's brand-new corporate jet purchase exempt from New York sales tax when it's delivered out of state and used mostly to fly the parent company's affiliated group?

Plain-English summary

Verizon Corporate Services Group Inc. — a New York corporation wholly owned (through GTE Corporation) by Verizon Communications Inc. — bought a new Gulfstream aircraft, paid for in progress payments, to be delivered outside New York and then hangared at a New York airport. The subsidiary runs its own aviation department (pilots, crew, maintenance staff) and keeps complete dominion and control over the plane's scheduling, fuel, repairs, and maintenance. Ninety percent or more of its flight time carries officers, employees, guests, and customers of its parent and other Verizon affiliates, who are billed monthly based on each affiliate's share of total flight hours, calculated to reimburse the subsidiary's true operating costs. It asked whether the aircraft purchase, the transportation fees charged to affiliates, and related maintenance/equipment purchases are subject to New York sales and use tax.

Because the subsidiary retains full control of the aircraft's operation and charges its affiliates a genuine cost-based fee for the great majority of its flight time, the Department found it is providing an exempt transportation service — not renting the plane to its affiliates — so the intercompany charges aren't taxable at all. That over-50%-for-hire use is also what qualifies the aircraft itself as tax-exempt "commercial aircraft," along with its installed equipment and maintenance/repair purchases. The fact that delivery happens outside New York doesn't matter to this analysis — what matters is the aircraft's ultimate qualifying use.

What this means for you

Corporations buying a new aircraft for an in-house flight subsidiary

The commercial-aircraft exemption reaches a brand-new purchase the same way it reaches a lease or an existing plane: keep the flight subsidiary in genuine operational control, bill affiliates a fee that tracks real operating cost, and stay above the 50%-for-hire threshold, and the purchase itself — plus installed equipment and ongoing maintenance/repair purchases — is exempt from sales and use tax.

Companies taking delivery of an aircraft outside New York

Where the plane is delivered doesn't defeat New York use tax exposure or the exemption analysis; what matters is where and how the aircraft is ultimately used (here, hangared and predominantly operated for the parent's affiliated group).

Multi-subsidiary corporate groups sharing one flight department

As with sister rulings on the same fee-for-transportation-service model, the analysis depends on the flight subsidiary being respected as a genuinely separate legal entity from its parent and affiliates. If the facts instead showed common domination or commingling to the point of alter-ego status, the exemption would not apply and the plane would be treated as ordinary taxable self-use property.

Common questions

Q: Does buying a brand-new aircraft (versus leasing one) change the commercial-aircraft exemption analysis?
A: No — the same over-50%-for-hire, cost-based-fee, dominion-and-control test applies whether the corporate flight subsidiary purchases, leases, or already owns its aircraft.

Q: Does it matter that the plane was delivered outside New York before being hangared here?
A: Not for this exemption analysis — the focus is on the aircraft's qualifying commercial use going forward, not the location of delivery.

Q: Are the intercompany flight charges taxable if they're billed by flight-hour formula rather than a flat fee?
A: No, as long as the formula is designed to reasonably reflect the subsidiary's actual operating and maintenance costs — the billing method itself (flight-hour proration here) didn't change the transportation-service characterization.

Q: Can another affiliated corporate group rely on this exact ruling for its own aircraft purchase?
A: No. This advisory opinion binds the Department only as to this petitioner's specific facts; other companies need their own ruling or professional advice, especially regarding whether their fee structure and corporate separateness would hold up the same way.

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)(21), (dd) (commercial aircraft exemption; repair/maintenance services)
• 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/equipment purchases)
• 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_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(16)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. S050125A

On January 25, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Verizon Corporate Services Group Inc., 1095 Avenue of the Americas,
New York, New York 10036.
The issues raised by Petitioner, Verizon Corporate Services Group 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.

Charges paid to Petitioner by its Affiliated Companies, as described below, and its other
unrelated companies for air transportation services;

3.

Maintenance costs and purchases of machinery or equipment to be installed on the
aircraft.
Petitioner submitted the following facts as the basis for this Advisory Opinion.

Petitioner was incorporated in New York in 1932. Its principal place of business and
offices are located in New York City. Petitioner is wholly owned by GTE Corporation, which in
turn is wholly owned by Verizon Communications Inc.
Petitioner is a separate and distinct legal entity that operates independently of its
parent, GTE Corporation, grandparent, Verizon Communications Inc., and affiliated group
(collectively Affiliated Companies). Petitioner has its own business operations, books and
records, officers and directors, and employees, which include pilots, crew and aircraft
maintenance personnel.
Petitioner has purchased a new aircraft from Gulfstream Aerospace Corporation
(“Gulfstream”), with payment made through a series of progress payments. It has been agreed
that Gulfstream will deliver the aircraft to Petitioner at a location outside New York, after which
Petitioner will hangar the aircraft at a New York airport.
Title to the aircraft is to be held by Petitioner and it will be the sole owner of the aircraft.
None of the Affiliated Companies will have any ownership interest in the aircraft. Petitioner will
exercise complete dominion and control over the operations and maintenance of the aircraft,
including flight services, scheduling, fuel, repairs, maintenance, pilots and crew. It will be
responsible for all maintenance and costs associated with the aircraft’s operation.

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Petitioner will operate the aircraft under Part 91, Subpart F of the Federal Aviation
Administration (“FAA”) Regulations. It is not required to obtain a FAR 135 Air Carrier
Operating Certificate under Part 135 of the FAA regulations.
Ninety percent or more of the aircraft’s use will be by officers, directors, employees,
former officers, guests, customers and other persons transacting business with the Affiliated
Companies. On occasion, Petitioner may use the aircraft for the transportation of its own
officers, directors, employees, guests and customers, but such self use is anticipated to be less
than 10%.
The Affiliated Companies will compensate Petitioner for flights through an inter­
company charge based on the following formula. All costs of operating and maintaining the
aircraft are to be allocated to the Affiliated Companies in proportion to each affiliate’s flight
hours in relation to the aircraft’s total flight hours (not including training and maintenance
flights).
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.
*

*

*

(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

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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 . . . 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
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(a)(21) of the Tax Law exempts commercial aircraft from the sales tax
imposed by section 1105(a) of the Tax Law and from the compensating use tax imposed under
section 1110, as follows:

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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)
Section 1115(dd) of the Tax Law exempts services to aircraft from the sales tax imposed
by section 1105(a) of the Tax Law and from the compensating use tax imposed under section
1110, as follows:
(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.
(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 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 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

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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.
*

*

*

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
. . . 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
Petitioner is a separate and distinct entity from the Affiliated Companies and is
responsible for its own business operations. Petitioner is the sole owner of the aircraft in
question and maintains dominion and control of the aircraft as well as staff with respect to all
facets of the aircraft’s operation. Petitioner will charge the Affiliated Companies based on the
operating costs of the aircraft in proportion to each affiliate’s flight hours in relation to total
flight hours (not including training and maintenance flights).
Petitioner’s aircraft is used in 90% or more of its flights to transport officers, directors,
employees, former officers, guests, customers and other persons transacting business with the
Affiliated Companies. On occasion, Petitioner may use the aircraft for the transportation of its
own officers, directors, employees, guests and customers, but such self use is anticipated to be
less than 10%.
The taxability of Petitioner’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. 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 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 90% of the use of Petitioner’s aircraft will be
to provide air transportation services to its Affiliated Companies. Petitioner’s charges to the
Affiliated Companies reasonably reflect the costs of operating and maintaining 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 the Affiliated Companies are not
included in the enumerated services taxable under section 1105 of the Tax Law. Therefore,
Petitioner’s charges to its affiliates for such transportation services are not subject to sales tax.
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. Purchases of
machinery or equipment to be installed on the aircraft, and of tangible personal 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; IBM

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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 to sellers supplying machinery and equipment, or other tangible personal property or
services, which qualify for exemption.
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 the
Affiliated Companies. 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 any agreement between Petitioner and
the Affiliated Companies. 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 use of the aircraft and rental of the
aircraft to the Affiliated Companies would be subject to sales and use tax.
The analysis in this Opinion presumes treatment of Petitioner and the Affiliated
Companies as separate legal entities. However, if the activities of Petitioner were so dominated
and controlled by the parent or other 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 Petitioner and the Affiliated Companies should be disregarded as separate legal entities
for purposes of sales and use 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, the
commercial aircraft exemption would not apply to Petitioner’s purchase or use of the aircraft and
equipment for the aircraft. 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.