When a company buys a fractional ownership interest in a private jet through a trust, and an aircraft management company keeps control over pilots, maintenance, and scheduling, is that purchase a taxable rental of the aircraft or an exempt transportation service?

Plain-English summary

Chanel, Inc. bought fractional ownership interests (6.25% and 18.75%) in two Gulfstream jets through a fractional-ownership program, using a Grantor Trust ("Owner/Trustee") to hold legal title. Chanel entered a package of standard fractional-ownership agreements: a Purchase Agreement (buying the interest, subject to up to 16 other owners' rights), an Owners Agreement (governing use among all fractional owners), a Management Agreement (engaging a management company to provide pilots, maintenance, insurance, and all operating logistics), and an Exchange Agreement (letting the management company substitute a different aircraft when Chanel's plane isn't available — say, because another owner is using it, or it's being serviced, or it's out on public charter).

The core question — whether Chanel's purchase is a taxable acquisition/rental of an aircraft, or simply an exempt purchase of transportation services — turned entirely on dominion and control, the same test New York uses for buses, limousines, and boat charters. The Department found the management company, not Chanel, keeps control:

• The management company supplies, trains, and pays the pilots, who use their own discretion selecting routes and can terminate flights at their own judgment.
• The management company handles and pays for all maintenance, repairs, insurance, fuel, hangar fees, landing fees, and FAA recordkeeping.
• The management company can use the aircraft itself for public charter service or pilot training, and can swap in a different plane when Chanel's aircraft is unavailable for any reason.
• The seller can even repurchase the ownership interest at fair market value once the Management Agreement ends.

Because Chanel never actually obtains custody, possession, or the right to direct and control the aircraft's use, the word "owner" in these agreements doesn't function like real property ownership for sales-tax purposes — what Chanel is really buying is a transportation service. That means no sales or use tax applies to the purchase of the fractional interest, regardless of where the aircraft is delivered or based, and the separate operating agreement granting Chanel the right to actually use the plane under the program is likewise just a right to receive that same nontaxable transportation service — also untaxed.

What this means for you

Companies considering fractional jet ownership programs

The "ownership" label in fractional aircraft programs doesn't control the tax outcome — what matters is who really directs the plane's operation day to day. If the management company keeps the pilots, dictates operations, pays the bills, and can reassign your plane or substitute another one, expect the arrangement to be treated as a nontaxable transportation service rather than a taxable purchase or rental, much like the outcome here.

Businesses buying interests in shared/pooled equipment generally (boats, equipment, vehicles)

The same dominion-and-control framework used for buses and limousines applies across equipment types: retained possession/control by the owner-operator points toward an exempt service; genuine transfer of custody and control to the buyer points toward a taxable sale or rental.

Accountants structuring or advising on aircraft ownership arrangements

This opinion is a detailed roadmap of the specific contractual features (management agreement terms, exchange/substitution rights, repurchase rights, insurance and expense allocation) that the Department treats as evidence the fractional owner never obtains real operational control. Compare your client's actual agreements against these factors rather than relying on the "ownership interest" label alone.

Common questions

Q: Does buying a fractional ownership interest in a jet automatically mean I owe New York sales/use tax on the purchase?
A: Not necessarily. If a management company retains real dominion and control — pilots, maintenance, scheduling, expenses, and the right to substitute another aircraft — the purchase is treated as buying an exempt transportation service, not a taxable acquisition of the aircraft.

Q: Does it matter that legal title to the aircraft interest is held by a trust?
A: The Department looked past the legal-title/trust structure to the practical control facts — the trust's nominal ownership didn't change the analysis once the underlying agreements showed the management company actually directs the plane's use.

Q: What if I actually control how, when, and where the plane flies?
A: That's the key variable. Retaining genuine dominion and control (hiring/firing crew, directing routes, bearing operating costs and risk) points toward a taxable rental instead of an exempt service — the opposite of the facts in this ruling.

Q: Does this ruling apply to any fractional aircraft ownership arrangement?
A: This is a fact-specific Advisory Opinion binding only on Chanel, Inc. Programs with different management, exchange, or control terms could come out differently; the opinion also expressly doesn't address whether the seller's own purchase or use of the aircraft is taxable.

Citations and references

• Tax Law § 1101(b)(5) (sale, selling or purchase; includes rental, lease, license to use)
• Tax Law § 1105(a), (c) (imposition of sales tax; enumerated taxable services)
• Tax Law § 1110(a) (use tax)
• 20 NYCRR § 526.7(e)(4) (transfer of possession; rental, lease, license to use)
• TSB-M-84(7)S, Bus Company Transactions — Transportation Service vs. Equipment Rental (Apr. 19, 1984)
• Matter of Firelands Sewer & Water Construction Co., Inc., State Tax Commission, Nov. 17, 1983, TSB-H-83(184)S
• Klondike Cruises, Inc., Adv Op Comm T&F, July 29, 1998, TSB-A-98(46)S
• Henry F. Geerken, Adv Op Comm T&F, Aug. 25, 1997, TSB-A-97(52)S
• Limousine Operators of Western New York, Inc., Adv Op Comm T&F, Oct. 27, 1988, TSB-A-88(55)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_23s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(23)S
Sales Tax
June 6, 2008

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

PETITION NO. S070920B

On September 20, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Chanel, Inc., 9 West 57th Street, New York, New York 10019.
The issues raised by Petitioner, Chanel, Inc., are:

1. Whether the Owner/Trustee’s purchase of undivided interests in noncommercial
   aircraft as described below, where deliveries of the aircraft are taken outside of New York State,
   is subject to the New York State and local use tax.
2. Whether the rights granted by Owner/Trustee to Petitioner to license, possess, use, and
   operate Aircraft under the Aircraft Interest Operating Agreement are subject to the New York
   State and local sales or use tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner is organized and headquartered in New York. Petitioner has contracted with
   Seller to participate in a fractional aircraft ownership program. Petitioner has elected to purchase
   a 6.25% undivided ownership interest in a Gulfstream Model G-550 Aircraft and an 18.75%
   undivided ownership interest in a Gulfstream Model G-450 Aircraft (collectively “Aircraft” or
   “the Aircraft”). In accordance with Federal Aviation Regulation (“FAR”) Part 91, Subpart K,
   the Aircraft will be used for the transportation of Petitioner’s employees and guests for business
   and pleasure purposes. It is anticipated that the fractional aircraft ownership program flights
   scheduled by Petitioner will frequently depart from and arrive at a New York airport.
   Petitioner has created a Grantor Trust (Owner/Trustee) and entered into an Ownership
   Trust Agreement with the Owner/Trustee. Petitioner contributed the right to purchase the
   interest in the Aircraft to the Trust, and in accordance with the Ownership Trust Agreement,
   Owner/Trustee has the duty to hold, protect, and conserve the undivided interest in the Aircraft.
   Further, Owner/Trustee and Petitioner have entered into an Aircraft Interest Operating
   Agreement granting Petitioner the right to license, possess, use, and operate the Aircraft under
   Seller’s fractional aircraft ownership program. Legal title to the Aircraft interest remains with
   the Owner/Trustee. Petitioner is obligated to pay all costs, expenses, fees, and charges incurred
   in conjunction with the delivery, possession, use, and operation of the Aircraft.
   Owner/Trustee has executed the following operating agreements for each of the Aircraft
   to fulfill its duties under the Ownership Trust Agreement:

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•
•
•
•

Fractional Interest Purchase Agreement;
Fractional Ownership Owners Agreement;
Fractional Ownership Program Management Services Agreement; and
Master Dry-Lease Aircraft Exchange Agreement.

Relevant terms and conditions contained in the operating agreements are summarized
below.
Fractional Interest Purchase Agreement (“Purchase Agreement”) - Seller conveys to
Petitioner (owner) an undivided interest in and to the Aircraft subject to the rights of the owners
of the remaining interests in the Aircraft. The agreement establishes that Seller has the right to
sell up to 16 undivided ownership interests in the Aircraft. Owners have no right to object to the
sale of the additional interests by Seller. The individual owners must execute the Management,
Owners, and Exchange Agreements for the right to purchase the undivided interests in the
Aircraft. The sale of additional ownership interests establishes a tenancy in common among the
owners.
Fractional Ownership Owners Agreement (“Owners Agreement”) - This agreement
establishes the terms of use of the Aircraft among the owners. The agreement grants Seller the
right to repurchase the ownership interest in the Aircraft in order to ensure the continued
operation of the fractional aircraft ownership program. Seller has the right to repurchase the
Aircraft ownership interest at fair market value upon the termination or expiration of the
Management Agreement.
Fractional Ownership Program Management Services Agreement (“Management
Agreement”) - Each of the owners must enter into a Management Agreement with Seller under
which an affiliate of Seller (“Manager”) will manage the Aircraft for the benefit of the owners.
Under the terms of the Management Agreement, Manager will provide management services at
Manager’s expense. Management services include arranging for the Aircraft to be inspected,
maintained, serviced, repaired, overhauled, and tested in accordance with approved Federal
Aviation Administration (“FAA”) standards and guidelines. Manager will train and provide
licensed pilots to operate the Aircraft. In some instances, a pilot may be chosen by the owner but
subject to the approval of Manager. Manager will pay all operating expenses including but not
limited to salary, travel, and lodging expenses for the flight crew; fuel, hangar, and tie-down
costs; domestic landing fees; standard Aircraft stocking; flight planning; and weather contract
services. Manager will provide aircraft hull and personal liability insurance for passengers and
third parties naming Manager and all owners as insureds and providing for any insurance
proceeds to be paid to Manager for repair or replacement of the Aircraft. While Petitioner may
select the date, time, point of departure, and destination of a particular flight, Manager will make
all necessary take-off, flight, and landing arrangements. The pilots select their own routes and
use their own discretion in performing flight services. Manager and pilots have the right to

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terminate flights at their discretion. Manager will also maintain, on behalf of Petitioner, all
records and logs required by the FAA. Aircraft will be repaired and maintained at Manager’s
facilities located throughout the United States. Payment for the interest in the Aircraft is made
directly to Manager on a monthly basis and is based, in part, on passenger-occupied hours
multiplied by the occupied hourly rate.
Manager has the right to use the Aircraft to provide charter air service to the public and
for recurrent flight training of Manager’s pilots. Manager retains moneys earned from the use of
the Aircraft. Pursuant to the Exchange Agreement (below) Manager is authorized to substitute
another aircraft in the event Petitioner's Aircraft is being used by another owner or Manager is
using the Aircraft to provide public charter service or pilot flight training, or the Aircraft is
receiving maintenance services or otherwise unavailable for Petitioner's use.
Master Dry-Lease Aircraft Exchange Agreement (“Exchange Agreement”) - Under
this agreement, each owner agrees to participate in the Exchange Program (i.e., the fractional
aircraft ownership program) and to share the Aircraft and pilots with other persons who are also
parties to the agreement. An affiliate of Seller (“Administrator”) provides Manager access to an
alternate aircraft in the event use of the Aircraft is unavailable for any reason.
The Aircraft will be based in Ohio. Program operating documents will be executed
outside of New York. Due to the nature of Seller’s fractional aircraft ownership program, the
Aircraft will be in continual motion. Petitioner will have no control over the locations to which
other owners fly Aircraft. There is no guarantee that Petitioner will be using the Aircraft on
flights scheduled under the program.
Petitioner has submitted copies of the Ownership Trust Agreement, Aircraft Interest
Operating Agreement, bill of sale, and the Purchase, Owners, Management, and Exchange
Agreements with its Petition.
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

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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.
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 tax upon the receipts from every sale, except for
resale, of certain enumerated services.
Section 1110 of the Tax Law provides, in part:
(a) 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 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 Bureau Memorandum entitled Bus Company Transactions -Transportation Service vs. Equipment Rental, April 19, 1984, TSB-M-84(7)S, provides,
in part:

1. Where a bus company conducts a tour for which it determines the time and
   destination and sells tickets at a predetermined price, the company is providing a
   transportation service which is exempt.
2. Where a bus company charters a bus to a group, and the bus company retains
   dominion and control* over the bus, the bus company is engaged in providing a
   transportation service and, therefore, the charges are exempt from sales tax. A chartering
   party’s rights are limited to boarding the bus and riding to the agreed destination.

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*

*

*

*Dominion and control remains with the owner of a vehicle when pursuant to an
agreement or contract:

1. there is no transfer of possession, control and/or use of the vehicle during the
   terms of the agreement or contract; and
2. the owner maintains the right to hire and fire the drivers; and
3. the owner uses his own discretion in performing the service (even though the
   customer may designate the area where passengers will be picked up and
   delivered) and generally selects his own routes; and
4. the owner retains the responsibility for the operation of the vehicle; and
5. the owner directs the operation, pays all operating expenses, including drivers’
   wages, insurance, tolls and fuels.
   Opinion
   Petitioner has created a Grantor Trust (Owner/Trustee) and contributed to the Trust the
   right to purchase an undivided ownership interest in the Aircraft. Owner/Trustee is purchasing
   from Seller an interest in what appears to be two specified aircraft. Seller’s obligations to
   Owner/Trustee are subject to Owner/Trustee becoming a party with Seller in the Purchase
   Agreement, Owners Agreement, Management Agreement, and Exchange Agreement as
   described below. Interest in the Aircraft is to be shared by up to 16 other purchasers or owners.
   Each owner has entered into the following agreements with Seller and each other:
   (1) In the Purchase Agreement, Seller, as owner of the Aircraft, sells an interest in the
   Aircraft to Owner/Trustee and other purchasers.
   (2) The Owners Agreement sets forth the relationship among all the owners with an
   interest in the Aircraft.
   (3) Under the Management Agreement, Owner/Trustee and other owners engage
   Manager to provide management services in connection with the operation of the Aircraft.
   (4) The Exchange Agreement between Manager and all persons participating in the
   Exchange Program, including Owner/Trustee, enables Owner/Trustee to share the Aircraft with
   other persons taking part in the exchange arrangement and enables Manager to use other aircraft
   should use of the subject Aircraft be unavailable.

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Issue 1
Petitioner asks if purchase of interests in the Aircraft is subject to use tax.
Transportation is not one of the enumerated services upon which sales and use tax is due
(see section 1105(c) of the Tax Law and Matter of Firelands Sewer & Water Construction Co.,
Inc., State Tax Commission, November 17, 1983, TSB-H-83(184)S). However, sales or use tax
is due on purchases, including rentals, of tangible personal property under section 1105(a) or
1110 of the Tax Law. Whether Owner/Trustee’s purchase of an interest in the Aircraft
constitutes a taxable rental of tangible personal property rather than the purchase of an exempt
transportation service turns upon the question of dominion and control. See Klondike Cruises,
Inc., Adv Op Comm T&F, July 29, 1998, TSB A 98(46)S; Henry F. Geerken, Adv Op Comm
T&F, August 25, 1997, TSB-A-97(52)S. The documents furnished by Petitioner show that the
interest in the Aircraft conveyed by Seller to each owner is subject to the rights of all of the
owners. All of the owners have entered into the Exchange Agreement, whereby another aircraft
may be substituted by Manager if the subject Aircraft is not available. When the Aircraft is not in
use by one of the owners, Manager retains the right to use it. The agreements among each of the
owners and between each owner and Manager significantly limit the control any single owner
may exercise over the Aircraft. Therefore, the interest that is to be conveyed to Owner/Trustee
by the bill of sale does not appear to effect a transfer of possession of the Aircraft. The word
“owner” as used in the context of the agreements does not denote ownership in the typical sense
which involves holding title to property.
The provisions of Technical Services Bureau Memorandum entitled Bus Company
Transactions -- Transportation Service vs. Equipment Rental, April 19, 1984, TSB-M-84(7)S, do
not specifically apply to the chartering of an aircraft, but the criteria set forth in TSB-M-84(7)S
are useful in determining whether Owner/Trustee has obtained dominion and control of the
Aircraft within the meaning of section 526.7(e) of the Sales and Use Tax Regulations. See
Limousine Operators of Western New York, Inc., Adv Op Comm T&F, October 27, 1988,
TSB-A-88(55)S; Klondike Cruises, Inc., supra; Henry F. Geerken, supra. In this case, the
Management Agreement provides that Manager will furnish qualified pilots to operate the
Aircraft. The pilots are paid by Manager, who also provides recurrent pilot training at its own
expense and pays for all salaries, travel, and lodging expenses for the pilot and flight crew.
Owner/Trustee may, at times, choose a pilot, but only subject to the approval of Manager. While
Owner/Trustee may select the date, time, point of departure, and destination of a particular flight,
Manager makes all necessary take-off, flight, and landing arrangements, and the pilots use their
own discretion in performing the flight services and selecting routes. Manager has the overall
responsibility to manage and operate the Aircraft and pays all operating expenses such as fuel,
hangar and tie-down costs, domestic landing fees, standard aircraft stocking, flight planning,
weather contract services, and aircraft hull insurance (which names Manager and all owners as
insureds and provides for any insurance proceeds to be paid to Manager for repair or replacement

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of the Aircraft). Payment for the interest in the Aircraft is made directly to Manager by
Owner/Trustee on a monthly basis and is based, in part, on passenger-occupied hours multiplied
by the occupied hourly rate. Manager has the right to use the Aircraft to provide charter air
service to the public and for recurrent flight training of Manager’s pilots, and Manager retains
moneys earned from the use of the Aircraft. Manager is authorized to substitute another aircraft
pursuant to the Exchange Agreement in the event Petitioner's Aircraft is being used by another
owner or by Manager to provide charter air service or for pilot training or is receiving
maintenance service or is otherwise unavailable for Petitioner's use.
With respect to Owner/Trustee’s purchase of an interest in the Aircraft for the purpose of
transportation of Petitioner's officers, employees, and guests, Owner/Trustee has fulfilled none of
the requirements listed in TSB-M-84(7)S, supra, to obtain dominion and control over the
Aircraft. Some additional factors set forth in the agreements that support the view that custody
over the Aircraft with the right to exercise the direction and control of its use have not been
transferred to Owner/Trustee are:

1. Manager arranges at its own expense for the aircraft to be inspected,
   maintained, serviced, repaired, overhauled, and tested in accordance with approved
   Federal Aviation Administration (FAA) standards and guidelines.
2. Manager maintains all records, logs, and other materials required by the FAA
   to be maintained with respect to the aircraft.
3. Seller has the right to repurchase the Aircraft ownership interest at fair market
   value upon the termination or expiration of the Management Agreement.
   Therefore, possession, command, and control of the Aircraft have not been transferred to
   Owner/Trustee. What has been purchased by Owner/Trustee is a nontaxable transportation
   service. There is no taxable sale or rental to Owner/Trustee of tangible personal property
   pursuant to sections 1101(b)(5) and 1105(a) of the Tax Law in this case, regardless of where
   delivery or use of the Aircraft occurs, since there is no transfer of title or possession. See
   Limousine Operators of Western New York, Inc., supra. (For a discussion of the topic of the
   provision of air transportation services by an owner of an aircraft to related entities, see Internal
   Revenue Service Rev. Rul. 76-394, 1976-2 C.B. 355).
   It should be noted that this Opinion does not address whether Seller's purchase or use of
   the Aircraft is subject to New York State and local sales and use tax.

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Issue 2
Since possession, command, and control of the Aircraft have not been transferred to
Owner/Trustee and what is being furnished to Owner/Trustee is a nontaxable transportation
service, the rights granted by Owner/Trustee to Petitioner to license, possess, use, and operate the
Aircraft under the Aircraft Interest Operating Agreement are merely rights to obtain
transportation services purchased by Owner/Trustee from Seller. Charges by Owner/Trustee to
Petitioner for such transportation services are not subject to sales tax. See Limousine Operators
of Western New York, Inc., supra.

DATED: June 6, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.