Can an aircraft that its owner uses more than half the time for its own corporate travel — and charters out the rest — qualify for New York's commercial-aircraft sales-tax exemption?

Plain-English summary

Stephen J. Epstein (through his accountants) asked whether an aircraft qualifies for New York's commercial-aircraft exemption where the owner (a corporation or partnership) uses it more than 55% of the time for its own corporate purposes and charters it to others the rest of the time. In 1986 the charter use was 193 hours (45% of total); in 1987 it was expected to be about 32%, and never below 25%. The owner's principal shareholder or partner would use the plane for himself or affiliated entities and cover net expenses through capital contributions.

The Department held the aircraft is not exempt.

• The exemption. Tax Law § 1115(a)(21) exempts "commercial aircraft primarily engaged in intrastate, interstate or foreign commerce," plus certain machinery, maintenance/repair property, and flight simulators.
• "Primarily" means over 50% of use. Property is generally primarily engaged in an activity if over fifty percent of its use is in that activity. The petitioner argued primary use should instead be measured by comparing charter income to total income and by disregarding the owner's own use — but the Department found that at odds with the plain meaning of the statute.
• Self-use dominates. Because more than 50% of the aircraft's use is self-use by its owner, and the charter appears to be merely a way to reduce operating expenses, the plane is not a commercial aircraft primarily engaged in commerce.
• It's also not a "commercial aircraft" by definition. Under TSB-M-80(4)S and 20 NYCRR 528.10(b), a "commercial aircraft" is one used by an airline or by an air-taxi/commercial small-aircraft operator holding the appropriate FAA certificate. The petitioner submitted nothing showing the aircraft or its owner met that description.
• Result. The aircraft is not exempt from sales and use tax under § 1115(a)(21).

What this means for you

The commercial-aircraft exemption is a use test, not an income test. New York looks at whether over half of the aircraft's actual use is in qualifying commercial commerce — not at the ratio of charter revenue to total revenue, and not with the owner's personal or corporate flights ignored.

A plane used mostly by its owner won't qualify just because it's chartered part-time. If more than half the flying is the owner's own use, occasional charter — especially charter that looks designed mainly to defray costs — does not turn it into a commercial aircraft.

You generally need genuine airline or air-taxi status. The exemption is aimed at aircraft operated by airlines or FAA-certificated air-taxi/commercial operators. Without that, expect the purchase to be taxable.

Common questions

Q: My company plane is chartered out part of the time. Is it exempt?
A: Only if it is a commercial aircraft primarily (over 50% of use) engaged in commerce. If the owner uses it more than half the time, it doesn't qualify.

Q: Can I measure "primary use" by charter income instead of hours?
A: No. The Department rejected an income-based test and disregarding the owner's own use; it looks at whether over 50% of actual use is qualifying commercial use.

Q: What counts as a "commercial aircraft"?
A: One operated by an airline, or by an air-taxi/commercial small-aircraft operator holding the appropriate FAA certificate (per TSB-M-80(4)S and 20 NYCRR 528.10(b)). You must show you meet that.

Citations and references

Statute, regulation, and guidance:

• Tax Law § 1115(a)(21) — exempts commercial aircraft primarily engaged in intrastate, interstate, or foreign commerce (and related property)
• 20 NYCRR 528.10(b) — defines an airline to include an air-taxi operator, informing what counts as a "commercial aircraft"
• TSB-M-80(4)S — Department memorandum explaining that airlines and FAA-certificated air-taxi/commercial operators qualify as commercial aircraft

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_41s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87(41)S
Sales Tax
November 9, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO: S870520A

On May 20, 1987, a petition for Advisory Opinion was received from Stephen J. Epstein c/o
Richard A. Eisner & Company, 380 Madison Avenue, New York, New York 10017.
The issue raised is whether an aircraft which is used more than 55% of the time by its owner
for corporate purposes and the remainder of the time is used for charter purposes qualifies for
exemption from sales tax under § 1115(a)(21) of the Tax Law.
Petitioner has presented a statement of facts whereby the owner of an aircraft, which owner
may be either a corporation or a partnership, will maintain the aircraft at an airport in New York
State and will either obtain an FAA FAR 135 Air Carrier Operating Certificate entitling it to charter
the aircraft for compensation, or, alternatively, will execute a Charter Management Agreement with
an independent charter agent, who will obtain FAA amendment to include the aircraft in question
in its FAR 135 Air Carrier Operating Certificate. In either case, the aircraft will be chartered for
compensation to independent parties for use in transporting individuals. In 1986, this use amounted
to 193 hours or 45% of the total hours used. In 1987, Petitioner's expectations are for 150 hours of
such charter use, which is expected to approximate 32% of the total hours used. Petitioner believes
that this approximate breakdown of use will continue in future years as well. In any event, such
usage should not drop below 25%.
The remainder of the aircraft's use will be by the principal shareholder or partner of the
owning entity, either for himself or on behalf of other entities he controls or in which he has a
significant ownership interest. This shareholder or partner will finance any net aircraft expenses
through capital contributions.
Section 1115(a)(21) exempts "[c]ommercial 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."
Property is generally regarded as primarily engaged in a particular activity if over fifty
percent of its use is in such activity. However, Petitioner contends that in determining whether the
aircraft here at issue is a commercial aircraft primarily engaged in intrastate, interstate or foreign
commerce, the determination of its primary use should be accomplished by comparing income from
intrastate, interstate or foreign commerce to total income. Petitioner contends that use of the aircraft
by its owner for his own purposes should be disregarded even though such use represents more than
one-half of the total use of the aircraft.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-87(41)S
Sales Tax
November 9, 1987
Petitioner cites Technical Services Bureau Memorandum TSB-M-80(4)S as support for his
position. However, the memorandum cited by Petitioner does not address the precise situation
described by Petitioner.
The ruling proposed by Petitioner is clearly at odds with the plain meaning of section
1115(a)(21). More than fifty percent of the use of the aircraft in question is self use by its owner. The
charter of the aircraft by its owner in this case appears to be nothing more than a means of reducing
its operating expenses. Thus, the aircraft is not a "commercial aircraft primarily engaged in intrastate,
interstate or foreign commerce".
Additionally, Technical Services Bureau Memorandum TSB-M-80(4)S provides:
Although the term "commercial aircraft" has not been defined in the Tax Law, Sales Tax
Regulation 528.10(b) defines an airline to include an air taxi operator, described as follows:
...classified by the Civil Aeronautics Board as a "commuter air carrier" or who (a)
performs at least five round trips per week between two or more points and publishes
flight schedules which specify the times and days of the week and places between
which such flights are performed or (b) transports mail by air pursuant to contract
with the United States Postal Service.
Consequently, aircraft used by an "airline" as defined above, would constitute "commercial
aircraft" qualifying for sales tax exemption. In addition, aircraft purchased by air taxi
operators and commercial operators of small aircraft holding Air Taxi Certificates issued by
the Federal Aviation Agency, although not qualified for "airline" status, will qualify as
commercial aircraft for purposes of sales tax exemption.
Petitioner has submitted no information which would indicate that the aircraft in question
qualifies as a "commercial aircraft" or that the owner qualifies as an "airline" pursuant to the above ­
described provision of the TSB-M.
Accordingly, it is determined that the aircraft at issue is not exempt from sales and use tax
under section 1115(a)(21) of the Tax Law.

DATED: November 9, 1987

s/ANDREW F. MARCHESE
Chief of Advisory Opinions
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.