Does the owner of an aircraft owe sales tax on the monthly rent it charges a lessee, when the owner did not obtain a resale certificate showing the lessee re-rented the plane?

Plain-English summary

Damar Aviation owned an aircraft and, under a verbal contract, leased it to Kamp Airport for rental and flight-training use. Damar did not collect sales tax on the monthly rent, arguing that the lessee itself re-rented the plane and collected sales tax whenever a taxable rental occurred. Damar did not say whether it had gotten a resale certificate or any other documentation showing the plane was leased exclusively for resale (re-rental). The question arose in an audit.

The Department's answer:

• A lease is a taxable sale. Renting or leasing tangible personal property is a "sale" under Tax Law § 1101(b)(5) and a retail sale under § 1101(b)(4), so the rent is subject to tax under § 1105(a) — unless the owner can prove the plane was leased exclusively for resale.
• Only a resale certificate removes the tax at the owner's level. If Damar had obtained a sales tax resale certificate (or other documentation) from the lessee substantiating that the lessee's use was exclusively for resale, Damar would not have had to collect tax on the monthly rent (the lessee would collect tax on its own re-rentals instead).
• Without one, the burden — and the liability — stay on the owner. All receipts are presumed taxable (§ 1132(c); Reg. §§ 528.1(c), 532.4, 533.2), and exemptions are strictly construed. Absent a resale certificate, the burden of proving the rent was not taxable falls directly on Damar and cannot be shifted to the lessee. If Damar can't substantiate an exemption, it is personally liable under § 1133 for the tax on the total rent the lessee paid.
• Whether a certificate exists is a fact question for the audit. It is not within an advisory opinion to decide whether Damar actually obtained a resale certificate; because the issue arose in an audit, that factual question must be resolved there.

What this means for you

Aircraft (and equipment) owners who lease to others

Leasing out a plane — or any equipment — is a taxable transaction, and you must collect sales tax on the rent unless you hold documentation that the lessee took it exclusively for re-rental. Believing that "the lessee collects tax on its rentals" is not enough; you need the paperwork.

Get the resale certificate up front

The single document that protects you is a resale certificate (or equivalent) from your lessee stating the property is leased exclusively for resale. Without it, the state presumes the rent is taxable and holds you, the owner, liable — you cannot point at the lessee.

Verbal deals don't help your proof

Damar's arrangement was a verbal contract. Exemptions are strictly construed and the burden of proof is on the person claiming them, so undocumented, handshake leasing leaves you exposed on audit.

Accountants and tax professionals

This applies the § 1132(c) presumption and § 1133 personal-liability rule to an equipment lease: absent a timely resale certificate, the lessor bears a nonshiftable burden of proving nontaxability and is liable for tax on the full rental receipts. Whether the certificate exists is a fact question resolved on audit.

Common questions

Q: Is leasing out an aircraft subject to New York sales tax?
A: Yes. A lease or rental of tangible personal property is a taxable sale, so the rent is taxable under § 1105(a) unless the owner proves the plane was leased exclusively for resale.

Q: How does the owner avoid collecting tax on the rent?
A: By obtaining a resale certificate (or equivalent documentation) from the lessee showing the aircraft is used exclusively for re-rental. Then the lessee collects tax on its own rentals instead.

Q: Can the owner rely on the lessee having collected tax on the re-rentals?
A: No. Without a resale certificate, the burden of proving the rent wasn't taxable stays on the owner and can't be shifted to the lessee.

Q: What happens if the owner has no documentation?
A: The owner is presumed to owe the tax and is personally liable under § 1133 for the tax on the total rent the lessee paid.

Q: Did the opinion decide whether Damar owed the tax?
A: No. Whether Damar obtained a resale certificate is a factual question that must be resolved in the audit, not in an advisory opinion.

Citations and references

Statutes and authorities:

• Tax Law § 1105(a) (tax on receipts from retail sales of tangible personal property, including leases and rentals)
• Tax Law § 1101(b)(4), (5), (6) (definitions of "retail sale," "sale," and "tangible personal property")
• Tax Law § 1132(c) (presumption of taxability; resale certificate shifts the burden to the customer)
• Tax Law § 1133 (personal liability of the person required to collect the tax)
• Sales and Use Tax Regulations §§ 528.1(c), 532.4, 533.2 (exemptions strictly construed; burden of proof; good-faith certificate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_54s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92(54) S
Sales Tax
July 1, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S920206E

On February 6, 1992, a Petition for Advisory Opinion was received from Damar Aviation,
7271 State Fair Blvd., Baldwinsville, N.Y. 13027.
The issue raised by Petitioner, Damar Aviation, is whether it was liable for collecting sales
tax on receipts from monthly charges to a lessee for the rental of an aircraft owned by Petitioner.
Petitioner, the owner of an aircraft, entered into a verbal contract with Kamp Airport
(hereinafter "lessee") whereby the lessee would lease the aircraft from Petitioner for rental and
training purposes. Petitioner did not collect sales tax on the receipts from the monthly rental charges
received from the lessee.
Petitioner contends that the lessee used the aircraft for rental purposes and for pilot training
purposes and that the lessee collected sales tax whenever a taxable rental occurred.
Petitioner does not indicate whether a sales tax resale or other exemption certificate or some
other form of documentation indicating that the leased aircraft was to be used exclusively for resale
purposes was received from the lessee.
Section 1101 of the Tax Law states, in part:
(b) 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:
(4) Retail sale. (i) A sale of tangible personal property to any person for any purpose,
other than (A) for resale as such. . .
(5) Sale, selling or purchase. Any transfer of title or possession or both. . .rental,
lease or license to use. . . , in any manner or by any means. . . .for a consideration, or
any agreement therefore, . . .
(6) Tangible personal property. . . .personal property of any nature. . .
Section 1105 of the Tax Law states, in part:
Imposition of sales tax.- - . . .there is hereby imposed and there shall be paid a tax.
. .upon:
(a) The receipts from every retail sale of tangible personal property, except as
otherwise provided in this article.

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TSB-A-92(54) S
Sales Tax
July 1, 1992
Section 1133 of the Tax Law states, in part:
Liability for the tax.- - (a). . .every person required to collect any tax imposed by this
article shall be personally liable for the tax imposed, collected or required to be
collected under this article.
Section 528.1 of the Sales and Use Tax Regulations states, in part:
(c) Exemptions from the sales and compensating use tax are strictly construed. For
an exemption to be allowed, it must clearly appear that a transaction is eligible for
the exemption. The burden of proving nontaxability is on the person claiming the
exemption.
Section 1132 of the Tax Law states, in part:
(c) For the purpose of the proper administration of this article and to prevent evasion
of the tax hereby imposed, it shall be presumed that all receipts for property or
services of any type mentioned in subdivisions (a). . .of section eleven hundred five,
. . .are subject to tax until the contrary is established and the burden of proving that
any receipt. . .is not taxable hereunder shall be upon the person required to collect
tax or the customer,. . .unless. . .a vendor, not later than ninety days after delivery
of the property, shall have taken from the purchaser a certificate. . ., to the effect
that the property. . .was purchased for resale or for some use by reason of which the
sale is exempt from tax under the provisions of section eleven hundred fifteen . . .,
the sale shall be deemed a taxable sale at retail.
Section 533.2 of the Sales and Use Tax Regulations states, in part:
(a) General. (1) For the proper administration of the Sales and Use Tax Law and to
prevent evasion of the sales tax, it is statutorily presumed that all receipts from sales
and purchases of property or services of any type mentioned in subdivisions (a)
through (d) of section 1105 of the Tax Law, all rents for occupancy of the type
mentioned in subdivision (e) of such section, and all amusement charges of any type
mentioned in subdivision (f) of such section are subject to the tax until the contrary
is established. The burden of proving that any receipt, amusement charge or rent is
not taxable is on the vendor or the customer. To satisfy his burden of proof, a vendor
must maintain records sufficient to verify all transactions.
Section 532.4 of the Sales and Use Tax Regulations states, in part:
(a) General. (1) It is presumed that all receipts for property or service of any type
mentioned in subdivisions (a), . . .of section 1105 of the Tax Law, . . . are subject
to tax until the contrary is established.
...

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TSB-A-92(54) S
Sales Tax
July 1, 1992
(b) Burden of proof. (1) The burden of proving that any receipt, amusement charge, or rent
is not taxable shall be upon the person required to collect the tax and the customer.
(2) A vendor who in good faith accepts from a purchaser a properly
completed exemption certificate or, as authorized by the Department, other
documentation evidencing exemption from tax not later than 90 days after delivery
of the property or the rendition of the service is relieved of liability for failure to
collect the sales tax with respect to that transaction. The timely receipt of the
certificate or documentation itself will satisfy the vendor's burden of proving the
nontaxability of the transaction and relieve the vendor of responsibility for collecting
tax from the customer.
...
(iii) A certificate or document in substantiation of an exempt sale is
considered timely received by the vendor when it is received within 90 days after the
delivery of the property or the rendition of the service.
(a) For the purposes of this section, the term "90 days after the delivery of the
property" means that day which is 90 days after the date actual possession of the
property or a portion thereof is transferred to the purchaser.
...
(3) When a vendor has met the criteria in paragraph (2) of this subdivision,
it is protected from liability for failure to have collected tax from the purchaser and
the burden of proving the nontaxability of such transaction rests solely on the
purchaser.
...
(5) A vendor is not relieved of the burden of proof when it failed to obtain an
exemption certificate or accepted an improper certificate, or had knowledge that the
exemption certificate issued by the purchaser was false or fraudulently presented.
(6) The fact that a vendor has failed to receive timely or proper
documentation of the claimed exempt status of any particular transaction does not
change the tax status of the transaction. Thus, a vendor which has timely protested
a determination of tax always has the right to prove the nontaxability of any
transaction through the presentation of proper documentation. However, the vendor
has lost the opportunity to rely solely upon the receipt of the exemption certificate or
document in satisfaction of its burden of proof as to its responsibility to collect tax.

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TSB-A-92(54) S
Sales Tax
July 1, 1992
In the instant case, Petitioner's leasing of the aircraft to the lessee was a retail sale of tangible
personal property under the provisions of Section 1101 of the Tax Law and subject to the tax
imposed under Section 1105(a) of the Tax Law unless Petitioner can prove that the transaction was
exclusively for resale purposes. If Petitioner obtained a sales tax resale certificate or some other form
of documentation from the lessee which would substantiate that the lessee's use of the aircraft was
exclusively for resale purposes as required under Section 1132(c) of the Tax Law and Section
533.2(a)(1) of the Sales and Use Tax Regulations, Petitioner would not be required to collect sales
tax on the monthly rental charges for the aircraft.
Absent such resale certificate and in accordance with Sections 528.1(c) and 532.4 of the Sales
and Use Tax Regulations the burden of proving that the receipts from the lessee's lease payments
were not subject to State and local sales taxes falls directly on Petitioner and cannot be shifted to the
lessee. If Petitioner fails to present substantiation to the contrary, Petitioner will be considered to be
liable, under the provisions of Section 1133 of the Tax Law, for the tax imposed under Section
1105(a) of the Tax Law on the total of the lessee's payments to the Petitioner for the rental of the
aircraft.
It is not within the scope of an Advisory Opinion to determine questions of fact such as
whether Petitioner obtained a resale certificate or other proper documentation to substantiate that the
receipts in question were excluded from the tax imposed under section 1105(a) of the Tax Law.
Because the issue presented here arises within the context of an audit, the resolution of questions of
fact must be made within such context.

DATED: July 1, 1992

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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