Does the 2009 law (Part N-1) narrowing NY's aircraft exemptions apply to an aircraft bought out-of-state before the law's effective date but first used in NY afterward?

Plain-English summary

The petitioner bought an aircraft out of state in 2003 and has always hangared and based it there; it has never carried on any business in New York. The aircraft is operated more than 50% of the time in for-hire charter service (to third parties and a related subsidiary) by an FAA-licensed charter company, with the rest under FAR Part 91 by the owner/subsidiary. The owner is considering relocating the aircraft to New York. It asked whether Part N-1 of Chapter 57 of the Laws of 2009 -- which narrowed both the nonresident use-tax exemption and the commercial-aircraft exemption (e.g., excluding the carrying of officers/owners of "affiliated persons" who were New York residents at purchase) -- would apply to an aircraft bought before Part N-1's effective date but first used in New York after it.

The Office of Counsel concluded Part N-1 does not apply, and no use tax is due:

• Effective-date rule. Part N-1 applies only to sales made and uses occurring after June 1, 2009. Because the aircraft was purchased in 2003 -- before that date -- Part N-1 does not affect whether use tax applies when the aircraft is relocated to New York (TSB-M-09(4)S). The pre-amendment versions of both exemptions govern.
• Nonresident exemption (1118(2)). Tax Law 1110(a) imposes use tax on a New York resident's use of property bought at retail, but 1118(2) exempts property purchased while the user was a nonresident. The owner was a nonresident (no New York business) when it bought the aircraft in 2003, so the nonresident exemption applies.
• Commercial-aircraft exemption (1115(a)(21)). Under the pre-amendment definition (1101(b)(17)), the aircraft qualifies as a commercial aircraft -- exempt -- as long as it's used more hours transporting persons for hire than for all other purposes ("primarily" = more than 50%). Charter flights for the subsidiary count as "for hire" so long as the subsidiary pays at least the cost of operating the aircraft (GSO Capital, TSB-A-08(20)S).
• So no use tax is due on relocating the aircraft to New York. (The opinion notes, however, that machinery/equipment and services exemptions, and any lease payments due after Part N-1's effective date, would be governed by the amended definition.)

What this means for you

Aircraft (and vessel/vehicle) owners weighing a move to New York

The date you bought the asset can control which version of the exemptions applies. Part N-1's narrower rules reach only purchases/uses after June 1, 2009; for an asset bought out of state before that date, the older, broader exemptions apply even if you first use it in New York later. Two classic pre-amendment exemptions can combine to avoid use tax: the nonresident exemption (you were a nonresident when you bought) and the commercial-aircraft exemption (used primarily -- more than 50% -- for hire), with affiliate charters counting as "for hire" if the affiliate pays at least operating cost. Keep records of purchase date, residency, and for-hire usage.

Caution

This is a fact- and date-specific analysis. Post-2009 leases, and the equipment/services exemptions, follow the amended commercial-aircraft definition -- so don't assume the pre-amendment treatment carries across every charge.

Common questions

Q: Does the 2009 narrowing of the aircraft exemptions apply to my older aircraft?
A: Not if you purchased it out of state before June 1, 2009 -- Part N-1 reaches only sales/uses after that date, so the pre-amendment exemptions apply.

Q: Will I owe use tax if I move the aircraft to New York?
A: Not here -- the owner was a nonresident at purchase (1118(2)) and the aircraft is used primarily for hire (commercial-aircraft exemption), so no use tax.

Q: Do charters for my own affiliate count as 'for hire'?
A: Yes, as long as the affiliate pays at least the cost of operating the aircraft (GSO Capital).

Citations and references

• Tax Law section 1110(a) (compensating use tax)
• Tax Law section 1118(2) (nonresident use exemption)
• Tax Law section 1115(a)(21) (commercial aircraft exemption)
• Tax Law section 1101(b)(17) (definition of commercial aircraft)
• Chapter 57 of the Laws of 2009, Part N-1 (narrowing the aircraft exemptions)

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_1s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-11(1)S
Sales Tax
December 20, 2010

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

PETITION NO. S100922B

Petitioner name redacted asks whether Part N-1 of Chapter 57 of the Laws of 2009, which
narrowed the nonresident and commercial aircraft exemptions, would apply to an aircraft that was
purchased and delivered out-of-state prior to Part N-1’s effective date but first used in the State after
the effective date. We conclude that Part N-1 would not apply to the aircraft and that the preamendment versions of both exemptions would apply to exempt the aircraft from use tax.
Facts
Petitioner acquired an aircraft (the "Aircraft") outside New York in State X in 2003. Since
acquisition, the Aircraft has been at all times hangared and based in State X. At no time prior to or
since the acquisition of the Aircraft has Petitioner engaged in any manner in carrying on in New York
any employment, trade, business or profession. Petitioner is wholly (100%) owned by a limited
liability company organized and at all times based in State X ("Parent"). At the time the Aircraft was
acquired, the Petitioner entered into a charter services agreement with a United States Federal
Aviation Administration licensed air carrier (the "Charter Company") to market and operate the
Aircraft in charter service under Part 135 of the Federal Aviation Regulations ("FAR"). Since
acquisition, the Aircraft has been operated more than 50% of the time providing charter services for
hire to third-parties and to a related party (“Subsidiary”). For the balance of the operating time, which
represents less than 50% of the flight hours, the Aircraft has been operated under FAR Part 91 by
Petitioner and by Subsidiary (as lessee from Petitioner), respectively.
The compensation received by Petitioner for all charter flights reasonably reflects the cost of
operating the Aircraft. On all charter flights, the Charter Company has retained complete possession,
command and control of the Aircraft. Among the passengers on Subsidiary charter flights has been
an individual (the "Passenger") who is a senior officer of Petitioner, a controlling owner and senior
officer of Parent and (indirectly) a controlling owner and senior officer of Subsidiary. Since the time
the Aircraft was acquired (2003), Passenger has been a resident of State X. From the date the Aircraft
was acquired through December 15, 2005, the Passenger held greater than a 5% interest in profits, but
no interest in capital (other than, from time to time, undistributed profits), in several partnerships
(each an "Affiliated Person"), which were residents of New York at the time the Aircraft was acquired
by Petitioner. As an owner of a mere profits interest, the Passenger did not have the right to sell or
transfer the interest, would receive no recurring interest in the profits once his employment from the
company was terminated and would receive no capitalized value upon termination.
Petitioner is considering relocating the Aircraft to New York, where the Aircraft will be
hangared and based. Upon basing the Aircraft in New York, Petitioner is considering engaging the
Aircraft exclusively in for-hire charter services for the benefit of third-parties and Subsidiary. The
management/charter company receives no commission for amounts paid by Petitioner or Subsidiary
for Part 135 flights. Petitioner would enter into a Management and Pilot Services Agreement with the

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Sales Tax
December 20, 2010

New York-based management/charter company, pursuant to which the management/charter company
would be authorized and directed by the Petitioner to conduct FAR Part 135 operations for (i) the
Petitioner, (ii) the Subsidiary (i.e., an affiliated entity) and (iii) unrelated third-parties from the public.
In compliance with Federal Aviation Regulations, only the management/charter company would
legally be permitted to have “operational control” of Part 135 flights. This is because only the
management/charter company would have a FAA-granted air carrier certificate authorizing such
operations. In the event a flight is operated under FAR Part 91 by Petitioner, who is the owner, the
Petitioner would have operational control.
The Management and Pilot Services Agreement would not include a lease of the aircraft to the
management/charter company. Nor would there be a separate lease. Under FAR Part 135, an owner
of an aircraft may allow the aircraft to be engaged in Part 135 operations without leasing the aircraft to
the Part 135 air carrier. Possession of the aircraft would be transferred from time to time (i.e., for the
duration of each Part 135 flight) to the management/charter company under a bailment and agency
arrangement. The management/charter company would temporarily assume possession of the aircraft
and perform the Part 135 flights (for all parties) on the Petitioner’s behalf.
The management/charter company would pay no rent to the Petitioner for such possession. To
the contrary, Petitioner would pay the management/charter company a marketing commission for
bringing in third-party charterers. The management/charter company would receive a 10%
commission of the amounts collected for the Petitioner for third-party Part 135 flights. The
management/charter company receives a $5,000 monthly management fee in consideration for
managing the aircraft and its operations. All fixed and variable operating expenses are borne by the
Petitioner, with funds therefor provided from Part 135 flight charges and from an operating deposit
funded by Petitioner.
Analysis
Section 1105(a) of the Tax Law imposes sales tax on all sales of tangible personal property
unless purchased by the customer for resale or otherwise exempt. Tax Law § 1110(a) imposes use tax
on, among other things, every use by a New York resident of tangible personal property purchased at
retail except to the extent that the property has or will be subject to the sales tax or an exemption
applies. Tax Law § 1118(2) exempts from the use tax imposed by section 1110 the use of property or
services purchased by the user while a nonresident of this state.” Part N-1 of Chapter 57 of the Laws
of 2009 (“Part N-1), added the following sentences to section 1118(2), effective June 1, 2009:
This exemption does not apply to the use of qualified property where the qualified
property is purchased primarily to carry individuals, whether or not for hire, who are
agents, employees, officers, shareholders, members, managers, partners, or directors of
(A) the purchaser, where any of those individuals was a resident of this state when the
qualified property was purchased or (B) any affiliated person that was a resident when
the qualified property was purchased. For purposes of this subdivision: (i) persons are
affiliated persons with respect to each other where one of the persons has an ownership
interest of more than five percent, whether direct or indirect, in the other, or where an
ownership interest of more than five percent, whether direct or indirect, is held in each of
the persons by another person or by a group of other persons that are affiliated persons
with respect to each other; (ii) "qualified property" means aircraft, vessels and motor

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TSB-A-11(1)S
Sales Tax
December 20, 2010

vehicles; and (iii) "carry" means to take any person from one point to another, whether
for the business purposes or pleasure of that person.”
In pertinent part, section 1115(a)(21) of the Tax Law exempts “[c]ommercial aircraft primarily
engaged in intrastate, interstate or foreign commerce.” Prior to its amendment by Part N-1, Tax Law §
1101(b)(17) defined the term “commercial aircraft” as follows:
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
Part N-1 added the following sentence to section 1101(b)(17):
Transporting persons for hire does not include transporting agents, employees, officers,
members, partners, managers or directors of affiliated persons. Persons are affiliated
persons with respect to each other where one of the persons has an ownership interest of
more than five percent, whether direct or indirect, in the other, or where an ownership
interest of more than five percent, whether direct or indirect, is held in each of the
persons by another person or by a group of other persons that are affiliated persons with
respect to each other.
“Primarily” means, for the purposes of the commercial aircraft exemption, “more than 50% of the
time” (Tax Law Defines Commercial Vessels and Commercial Aircraft, TSB-M-96[14]S)
The effective date clause of Part N-1 made that part applicable to sales made and uses
occurring after June 1, 2009. Because the Aircraft was purchased in 2003, and thus prior to the
effective date of Part N-1, that legislation does not affect the issue whether, upon the Aircraft’s
relocation to New York, use tax will be due on the use of the Aircraft in New York (Amendments
Affecting the Application of Sales and Use Tax to Aircraft, Vessels and MotorVehicles,
TSB-M-09[4]S).1 Under the Tax Law as it read prior the amendments made by Part N-1, no use tax
would apply to Petitioner’s use of the aircraft in New York because Petitioner would qualify as a
nonresident for purposes of Tax Law § 1118(2) at the time it purchased the Aircraft. Moreover, under
the version of section 1101(b)(17) prior to its amendment by Part N-1, the Aircraft would qualify as a
commercial aircraft for purposes of the commercial aircraft exemption in section 1115(a)(21) as long
as the Aircraft was used for more hours in connection with transporting persons for hire than for all
other purposes and no use tax would be due. As long as the amount Subsidiary pays is equal to or
exceeds the costs of operating the Aircraft when the Aircraft is used to provide transportation services
1

It should be noted that whether the Aircraft, after its relocation to New York, would qualify for the
exemption in Tax Law § 1115(a)(21) for specified machinery and equipment installed on a
commercial aircraft or the exemption in Tax Law § 1105(c)(3)(v) for specified services to a
commercial aircraft would be governed by the definition of commercial aircraft in Tax Law §
1101(b)(17) as amended by Part N-1. Since the Advisory Opinion petition herein did not inquire
about those exemptions, this opinion does not further address whether those exemptions would apply
to the Aircraft. Moreover, the taxability of a payment on an aircraft lease due after Part N-1’s
effective date would be governed by Part N-1’s amended definition of a commercial aircraft regardless
of when the lease was entered into (see TSB-M-09[4]S, supra).

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December 20, 2010

to Subsidiary, such flights would be “for hire” and no use tax would be due (see GSO Capital Partners
(Texas) GP LLC, TSB-A-08[20]S) .

DATED: December 20, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and 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.