Does a Qualified Empire Zone Enterprise's aircraft qualify for the QEZE sales-tax exemption when it's used to fly to business locations outside the zone?

Plain-English summary

The petitioner is a Qualified Empire Zone Enterprise (QEZE) -- certified under General Municipal Law Article 18-B and given a QEZE sales-tax exemption certificate for its business locations in an Empire Zone. In 2008 it bought an aircraft, used to fly on business to locations outside the Empire Zone where it's certified. The aircraft was not hangared in the zone. The petitioner asked whether the aircraft purchase was exempt under Tax Law 1115(z).

The Office of Counsel concluded the purchase is taxable (no exemption):

• The 1115(z) test. In 2008, section 1115(z) exempted property bought by a QEZE only if it was used "directly and predominantly" by the enterprise in the Empire Zone for which it's certified.
• "Directly" = activity in the zone. The word "directly" connotes actual activity. So merely hangaring (storing) the aircraft in the zone would not be using it directly in the zone (compare 20 NYCRR 528.13(c)(1)(ii)).
• "Predominantly" = 50%+ physically in the zone. "Predominantly" is both a time and physical limit: at least 50% of the property's actual use must occur within the zone (compare 20 NYCRR 528.13(c)(3)). Property that's merely integral to an in-zone business isn't necessarily used predominantly in the zone -- it must be physically used there.
• Application. The aircraft was used to fly to business locations outside the zone and wasn't in fact used in the zone. Using it to support the in-zone business is irrelevant. Because it was used neither directly nor predominantly in the certified Empire Zone, the purchase and use of the aircraft is subject to sales and use tax.

What this means for you

QEZEs and businesses relying on geographic exemptions

A QEZE certificate doesn't make everything you buy exempt. For the 2008-era 1115(z) exemption, the property had to be used directly and predominantly inside your certified Empire Zone -- a physical, 50%+ test measured by where the property is actually used, not by whether it helps your zone business. Mobile assets (aircraft, vehicles, equipment) used to travel outside the zone -- or merely stored in it -- generally won't qualify. Track and document where an asset is physically used before claiming a geographic exemption, and be ready to support the 50%-in-zone showing.

Practical note

Empire Zone rules and the QEZE program have changed over time; this opinion applies the 2008 version of section 1115(z). Confirm the current rules for any later purchase.

Common questions

Q: I'm a QEZE -- is my aircraft purchase exempt?
A: Only if the aircraft is used directly and predominantly (50%+ of actual use, physically) within your certified Empire Zone. An aircraft flown to locations outside the zone doesn't qualify.

Q: Does hangaring the aircraft in the zone count?
A: No. Merely storing it in the zone isn't "direct" use -- direct use requires actual activity in the zone.

Q: It supports my in-zone business -- isn't that enough?
A: No. Supporting the in-zone business is irrelevant; the property itself must be physically used in the zone at least 50% of the time.

Citations and references

• Tax Law section 1115(z) (QEZE exemption for property used in an Empire Zone)
• General Municipal Law article 18-B (Empire Zones)
• 20 NYCRR section 528.13 (Empire Zone use requirements)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_13s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(13)S
Sales Tax
May 3, 2011

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S100913A

Petitioner name and address redacted inquires whether an aircraft he purchased in 2008 for
business purposes was exempt from sales and use tax under Tax Law section 1115(z)(1). Because the
aircraft was not directly and predominantly used in the designated Empire Zone, Petitioner’s purchase
and use of the aircraft is subject to New York sales and use tax.
Facts
On January 28, 2003, the Tax Department issued a Qualified Empire Zone Enterprise (QEZE)
sales tax certification to Petitioner. The certificate was valid for all current and future business locations
of the Petitioner that are located in empire zones in which such business enterprise was certified to
receive benefits under Article 18-B of the General Municipal Law (GML). The certificate states that
Petitioner could make tax exempt purchases as a QEZE effective February 1, 2003.
Petitioner maintains an office in an empire zone in which his business has been certified to
receive benefits under Article 18-B of the GML. In 2008 Petitioner purchased an aircraft. The aircraft
was not hangared in an Empire Zone. Petitioner uses the aircraft to travel on business to locations outside
the Empire Zone in which his business is qualified.
Analysis
During 2008, section 1115(z) of the Tax Law exempted from sales and use taxes the sale of
tangible personal property to a QEZE, provided that the property was directly and predominantly used or
consumed by the enterprise in an area designated as an Empire Zone pursuant to Article 18-B of the GML
with respect to which the enterprise is certified pursuant to GML Article 18-B.
Petitioner’s aircraft was used neither directly nor predominantly within an Empire Zone with
respect to which the Petitioner was certified pursuant to Article 18-B. The adverb “directly” qualifying
the word “used”connotes activity. Cf. 20 NYCRR §528.13(c)(1)(ii). Thus, the mere storage of tangible
personal property in an Empire Zone would not constitute use directly in the zone. Accordingly, the
aircraft would not be used directly in an Empire Zone if it were merely hangared in the zone.
The adverb “predominantly” qualifying the word “used” is both a temporal and physical
limitation on the eligible use of tangible personal property. At least 50% of the use of the tangible
personal property must occur within the Empire Zone in order for the property to qualify for the
exemption. Cf. 20NYCRR §528.13(c)(3). Property integral to a business located in an Empire Zone is not
necessarily used predominantly in the zone. The property must be physically used in the zone to satisfy
the predominant requirement. Petitioner did not in fact use the aircraft in the zone. The use of the aircraft
to support business activity in the zone is irrelevant.

-2-

TSB-A-11(13)S
Sales Tax
May 3, 2011

Petitioner’s aircraft is not used directly or predominantly in an Empire Zone; therefore,
Petitioner’s purchase and use of the aircraft is subject to sales and use tax.

DATED: May 3, 2011

NOTE:

/S/
DEBORAH LIEBMAN
Deputy Counsel

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.