Is an insurance holding company's aircraft-owning affiliate's plane an exempt commercial aircraft when 80% of its use flies employees and guests of its parent insurer for a cost-based fee?

Plain-English summary

NYLIFE LLC, wholly owned by New York Life Insurance Company (NYLIC), bought a corporate jet and hired an independent management company to operate it — deciding flight schedules, passengers, maintenance, crew, and catering, while retaining full possession, command, and control. About 80% of the aircraft's use provides "Transportation Services" (flying NYLIC and affiliate employees, officials, and guests) under written agreements billed on the direct and indirect cost of operating the plane; the remaining share covers "Nonbusiness Transportation Services" for NYLIC's chairman, reimbursed at the maximum rate federal aviation rules allow.

This is a close cousin of a same-vintage Cleveland Browns Transportation ruling on nearly identical facts. New York's commercial aircraft exemption requires the aircraft be used at least 50% of the time to transport persons or property "for hire," with compensation reasonably reflecting actual operating cost. At 80% Transportation Services usage, NYLIFE clears that bar — so the aircraft purchase, related equipment, and maintenance/repair items all qualify as exempt commercial aircraft property, and NYLIFE's charges to NYLIC and its affiliates for flying them are nontaxable transportation services (not a taxable rental), because NYLIFE (through its management company) — not the flying passengers — retains dominion and control over the plane.

The Department flagged the same two guardrails found in the companion aircraft rulings of this era: (1) the WHOLE analysis depends on the aircraft's usage genuinely being a "transportation service" rather than a disguised equipment RENTAL — if the facts actually show a rental, the commercial-aircraft exemption fails entirely; and (2) the whole analysis depends on NYLIFE actually being a separate legal entity from NYLIC — if NYLIFE is later found to be so dominated by NYLIC that it's really operating as an alter ego, the corporate structure gets disregarded, the aircraft becomes ordinary self-use property, and the exemption is lost (though maintenance/repair by third parties could still have qualified for a since-expired separate exemption through 2009).

What this means for you

Insurance, financial, and other holding companies using an aircraft-owning subsidiary

The same commercial-aircraft playbook that works for other corporate families works here: keep the aircraft-owning entity genuinely separate (own books, contracts, management), have it retain real operational control (ideally through an independent management company), and bill affiliates on a cost-reflective, not-flat-fee basis for at least 50% of the plane's use.

Corporate aviation and tax counsel

Distinguishing a "transportation service" from a disguised "equipment rental" is the single most consequential factual question in this ruling — who has dominion and control over where, when, and with whom the aircraft flies is decisive, and the Department explicitly said this is a facts-and-circumstances test that could come out differently on a different record.

Accountants and tax professionals

Pair this with the same-era Cleveland Browns Transportation ruling for a matched set of near-identical related-party aircraft exemption analyses — both hinge on genuine separateness, cost-based billing, and real operational control by the aircraft-owning entity rather than by the flying affiliate.

Common questions

Q: Can an insurance company's aircraft-owning subsidiary get New York's commercial aircraft exemption?
A: Yes, if the subsidiary is a genuinely separate entity, retains real control over the aircraft's operation, and devotes at least 50% of its use to cost-based transportation for its affiliates.

Q: What if the arrangement is really an equipment rental instead of a transportation service?
A: Then the commercial-aircraft exemption fails, and use or rental of the aircraft in New York would be taxable.

Q: What happens if the subsidiary is found to be an alter ego of its parent?
A: The corporate structure is disregarded, the aircraft is treated as ordinary self-use property, and the exemption is lost.

Q: Can another holding company rely on this Advisory Opinion for its own aircraft subsidiary?
A: No. It binds the Department only for the petitioner and facts described; another company's separateness, control, and billing structure should be verified independently.

Citations and references

Statutes, regulations, and guidance:

• Tax Law §§ 1101(b)(5), (17); 1105(a); 1110(a); 1115(a)(21); 1115(dd)
• 20 NYCRR 526.7(e)(4)
• TSB-M-96(14)S (commercial vessel/aircraft definitions)

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_38s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(38)S
Sales Tax
October 25, 2005

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

PETITION NO. S050513A

On May 13, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from NYLIFE LLC, 51 Madison Avenue, New York, New York 10010.
Petitioner, NYLIFE LLC, submitted additional information pertaining to the Petition on July 22,
2005, and October 14, 2005.
The issues raised by Petitioner are:

1. Whether the use of an aircraft in New York by Petitioner will be subject to
   New York sales and use tax.
2. Whether amounts paid to Petitioner for transportation services are subject to
   New York sales and use tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner is a Delaware limited liability company, wholly owned by New York Life
   Insurance Company (“NYLIC”), a mutual insurance company organized under the laws of
   New York. Petitioner is the parent company of multiple wholly owned subsidiaries, which
   subsidiaries are engaged in business activities in various states and countries. Petitioner is a
   separate and distinct legal entity that operates independently of NYLIC and its affiliates and
   enters into business relationships and contractual obligations in its own name. Petitioner
   maintains its own books and records and bank accounts separate from the books and records and
   bank accounts of NYLIC. Petitioner has its own officers and directors, some of whom also serve
   as officers and directors of NYLIC and its affiliates.
   Petitioner acquired an aircraft from the manufacturer on November 5, 2004, pursuant to a
   contract entered into with the aircraft manufacturer. Petitioner is, and will continue to be, the
   sole owner of the aircraft and the owner of all rights under related warranties. Petitioner took
   delivery of the aircraft in Windsor Locks, Connecticut, and uses hangar space and obtains related
   services for the aircraft in Teterboro, New Jersey. The aircraft was temporarily hangared in
   White Plains, New York for portions of November and December 2004. Although Petitioner
   does not intend to use hangar space in New York in the future, it may do so periodically for
   purposes of picking up or dropping off passengers. The aircraft is registered with the Federal
   Aviation Administration under the rules of Federal Aviation Regulations Part 91, Subpart F.
   Petitioner provides transportation services to the employees, officials and guests of
   NYLIC and its affiliates, pursuant to written transportation agreements, for a fee based on the
   direct and indirect operating costs of the aircraft (the “Transportation Services”). The

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October 25, 2005

Transportation Services agreements were entered into contemporaneously with the purchase of
the aircraft. The Transportation Services will comply with Part 91 of the Federal Aviation
Regulations. Approximately 80% of the use of the aircraft will be for the provision of
Transportation Services. During time periods when the aircraft is not being used for the
provision of Transportation Services, Petitioner intends to provide transportation services to the
chairman of NYLIC for nonbusiness related trips (the “Nonbusiness Transportation Services”)
pursuant to an agreement. The agreement establishes an allocation of the operating costs based
on the amount of time the services are provided to the chairman. The chairman of NYLIC will
reimburse Petitioner for the costs associated with the Nonbusiness Transportation Services in an
amount equal to the maximum amount allowed under Part 91 of the Federal Aviation
Regulations. In no event will more than 20% of the use of the aircraft be for the provision of
services that are not Transportation Services.
Petitioner has contracted for aircraft management services with an independent
management company (the “Management Company”). Petitioner, or the Management Company
as Petitioner’s agent, (1) will determine where and when the aircraft will fly; (2) determine the
passengers carried on particular flights; (3) arrange for hangar and storage space; (4) provide
flight planning and weather services; (5) provide flight communications; (6) make flight, slot and
landing arrangements; (7) arrange for maintenance, repair and inspection; (8) provide qualified
crew and pilots; (9) provide in-flight catering services and at all times have possession,
command and control of the aircraft.
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.
*

*

*

(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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October 25, 2005

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 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 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:
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 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 acquired an aircraft and registered it with the Federal Aviation Administration
under the rules of Federal Aviation Regulations Part 91, Subpart F. Approximately 80% of
Petitioner’s use of the aircraft will be to provide transportation services for the employees,
officials and guests of NYLIC and its affiliates (the “Transportation Services”), pursuant to
written transportation agreements. Petitioner will receive fees from NYLIC and its affiliates

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based on the direct and indirect operating costs of the aircraft. Petitioner is a separate and
distinct legal entity that operates independently of NYLIC and its affiliates. Petitioner has
contracted for aircraft management services with an independent management company.
Petitioner or the management company as Petitioner’s agent will determine where and when the
aircraft will fly and the passengers carried on particular flights, and will at all times have
possession, command and control of the aircraft.
Whether Petitioner’s aircraft is exempt from sales and use tax pursuant to section
1115(a)(21) of the Tax Law depends on whether the aircraft is a 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 Service Bureau Memorandum
entitled Tax Law Defines Commercial Vessels and Commercial Aircraft, November 7 1996,
TSB-M-96(14)S). Petitioner states that approximately 80% of the use of its aircraft by Petitioner
or the management company as Petitioner’s agent will be devoted to Transportation Services for
compensation based on the operating costs of the aircraft. Assuming the compensation
reasonably reflects the cost of operating the aircraft, the aircraft will be considered a commercial
aircraft primarily engaged in intrastate, interstate or foreign commerce within the meaning of
section 1115(a)(21) of the Tax Law. 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. Therefore, Petitioner’s use of the aircraft in New York State is exempt from
the compensating use tax imposed under section 1110 of the Tax Law.
The air transportation services provided by Petitioner to NYLIC and its affiliates and the
chairman of NYLIC are not included in the enumerated services taxable under section 1105 of
the Tax Law. Therefore, Petitioner’s charges for such transportation services are not subject to
sales tax.
Whether the compensation paid to Petitioner 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. Since Petitioner represents that Petitioner or the
management company as Petitioner’s agent will retain complete dominion and control over the
aircraft, it is assumed for purposes of this Opinion that Petitioner is providing a transportation
service rather than renting the aircraft and Petitioner’s charges for such services are not subject
to sales or use tax (see National Express Company, Adv Op Comm T& F, July 10, 2002,
TSB-A-02(22)S). 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 relevant agreements. Were the transactions
described in this Opinion determined to be rentals of tangible personal property, the aircraft
would not qualify as a commercial aircraft for purposes of section 1101(b)(17) of the Tax Law.

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In such case, any use or rental of the aircraft by Petitioner, NYLIC or its affiliates would be
subject to sales and use tax, to the extent that such use or rental occurred in New York.
The analysis in this Opinion presumes treatment of Petitioner and NYLIC and its
affiliates as separate legal entities. However, if the activities of Petitioner were so dominated
and controlled by NYLIC or its 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 NYLIC and its affiliates 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: October 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.