Were aircraft transfers to a new Florida LLC exempt when one transfer occurred by merger and another supplied aircraft for rental and flight instruction?

Plain-English summary

The two groups of aircraft received different tax treatment. Aircraft owned by the Florida corporation passed to the surviving LLC through a statutory merger and were exempt, provided applicable sales or use tax had been paid when they were originally acquired.

Aircraft transferred separately by the nonprofit organization to the LLC were taxable. Although the LLC planned aircraft rental, the contract also included flight instructors and supervised solo flights. Because the aircraft were not acquired exclusively for rental, a resale certificate did not establish the rental-purchase exemption.

What this means for you

Corporate-reorganization treatment did not automatically cover every asset moved around the same transaction. The legal transfer mechanism, prior tax payment, and actual post-transfer aircraft use each mattered.

Common questions

Q: Was the merger transfer exempt? Yes, if applicable tax was paid on original acquisition.

Q: Was the nonprofit's separate aircraft transfer exempt for rental? No.

Q: Why did rental treatment fail? The aircraft also supported supervised flight instruction, so use was not exclusively rental.

Citations and references

• Fla. Stat. §§ 212.06(10) and 212.08(7)(p) — vehicle transfers and section 501(c)(3) organizations
• Fla. Stat. §§ 330.27(1) and 607.1108 — aircraft and merger provisions cited
• Fla. Admin. Code r. 12A-1.007(14)(b)1., (26)(a), (d) — aircraft rental and ownership transfers
• Fla. Admin. Code r. 12A-1.071(23) — flight instruction and supervised solo flights
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-007

Original ruling text

SUMMARY

QUESTION: Whether, upon the merger of a Florida corporation
(Corporation) and a Florida limited liability company
(LLC), Florida sales tax should be applied to aircraft
transferred from Corporation to LLC and aircraft
transferred from another entity (Entity X) to the LLC.

ANSWER - Based on Facts Below: Entity X owns XXX of the
outstanding shares of common stock of Corporation, a
Florida for-profit corporation. Entity X intends to merge
Corporation with and into a Florida limited liability
company (LLC) and thereby transfer ownership of
Corporation's airplanes to the LLC. Pursuant to Rule 12A1.007(26)(d), F.A.C., a transfer between a corporation and
a limited liability company would be subject to Florida
sales tax, unless expressly exempt. Rule 12A-1.007(26)(a),
F.A.C., provides an exemption for the transfer of title of
an aircraft into the name of the surviving corporation by
reason of a corporate merger in accordance with Chapter 607
or 617, F.S. It is the Department's position that the
transfer of title of the aircraft into the LLC, pursuant to
the proposed merger, is exempt from Florida sales tax under
Rule 12A-1.007(26)(a), F.A.C., provided the applicable tax
was paid on the original acquisition.

Entity X, a not-for-profit corporation, also intends to
transfer the title of Entity X's aircraft to LLC,
subsequent to its formation. Pursuant to Rule 12A1.007(26)(d), F.A.C., a transfer between Entity X and LLC
would be subject to Florida sales tax, unless expressly
exempt. LLC will be in the business of XXX, as was its
predecessor, Corporation. Rule 12A-1.007(14)(b)1., F.A.C.,
provides that the purchase of an aircraft exclusively for
rental purposes may be made tax exempt when the purchaser
issues a resale certificate to the dealer at the time of
purchase in lieu of paying tax. The transferred aircraft
would be used for providing aircraft rental and both
supervised and unsupervised solo flights to Entity X
students. Rule 12A-1.071(23), F.A.C., provides that a
charge for flight instruction, which includes supervised

solo flights, is exempt and that the purchase of an
aircraft for this use is taxable. Entity X states that
contract services provided by LLC to Entity X would include
flight instructors for solo flights by Entity X students.
The contract services LLC will provide to Entity X are
comprised of a mixture of aircraft rental (unsupervised
solo flights) and flight instruction (supervised solo
flights). Because the transfer of the Entity X aircraft
would not be "exclusively for rental purposes," as required
for exemption pursuant to Rule 12A-1.007(14)(b)1., F.A.C.,
the transfer of the aircraft would be subject to Florida
sales tax.

Jan 30, 2002

Re: Technical Assistance Advisement 02A-007
Sales and Use Tax
Transfer of Aircraft
Section 212.06(10), F.S.
Section 212.08(7)(p), F.S.
Section 330.27(1), F.S.
Section 607.1108, F.S.
Rule 12A-1.007, F.A.C.
Rule 12A-1.071(23), F.A.C.
XXX ("Entity X"), Taxpayer I.D. No. XX
XXX ("Corporation"), Taxpayer I.D. No. XX
XXX ("LLC")

Dear :

This is a response to your letter of September 26, 2001,
requesting a Technical Assistance Advisement (TAA) regarding the
above-referenced matter. This response to your request
constitutes a TAA under Chapter 12-11, Florida Administrative
Code (F.A.C.), and is issued to you under the authority of
Section 213.22, Florida Statutes (F.S.).

FACTS

Entity X is an organization exempt from taxation under Section
501(c)(3), I.R.C. XXX. In connection with the XXX, students may
complete the necessary requirements to receive various Federal
Aviation Administration ("FAA") ratings, including: FAA private
pilot certificate, FAA commercial pilot and instrument rating,
FAA commercial certificate, FAA certified flight instructor
certificate, FAA instrument rating, and FAA multi-engine
airplane rating. In connection with the training of student
pilots and the granting by Entity X of the various FAA pilot
certifications and ratings, Entity X currently owns XXX aircraft
of varying descriptions ("Entity X aircraft"). None of the
Entity X aircraft are, or will be, certified for charter
purposes.

In addition, Entity X owns XXX of the outstanding shares of
common stock of Corporation, a Florida for-profit corporation.
Corporation is engaged in the business of XXX. In connection
therewith, Corporation currently owns title to XXX aircraft
("Corporation aircraft") of varying descriptions (these are in
addition to the XXX aircraft owned by Entity X as described
above). XXX of the Corporation aircraft were recently purchased
pursuant to financing leases and Corporation paid Florida sales
tax on the full purchase price of those aircraft. The remaining
XXX Corporation aircraft are free from debt.

Entity X has proposed to form a new Florida limited liability
company, LLC. Entity X has proposed to merge Corporation with
and into LLC, pursuant to Section 607.1108, F.S. For federal
and state income tax purposes, LLC will be treated as a
disregarded entity and, therefore, all items of income, loss and
deductions will be treated as the income, loss, or deductions of
Entity X for such federal and state income tax purposes. In
connection with the formation of LLC, Entity X will transfer
right, title, and interest to all XXX Entity X aircraft. LLC
will be registered with the Florida Department of Revenue as a
sales and use tax dealer prior to the transfer of any Entity X
aircraft and will issue Entity X a resale certificate at the
time of the transfer of the Entity X aircraft to LLC. LLC will
continue to be engaged in the business of XXX, as was its
predecessor, Corporation. In addition, LLC will contract with

Entity X to provide the Entity X aircraft (which are to be
transferred to LLC as described above) for use in connection
with both supervised and unsupervised solo flights for students
completing their courses through Entity X's XXX (the proposed
agreement between Entity X and LLC has not been prepared).
Entity X's representative has indicated that LLC will be
providing flight instructors, in addition to the aircraft, for
the supervised solo flights. Entity X will continue to provide
all classroom time and ground schooling.

LLC has proposed to designate the XXX Entity X aircraft,
transferred to LLC, to be used solely for aircraft rental and
for providing flight training for Entity X students pursuant to
the agreement between LLC and Entity X. The XXX Entity X
aircraft will not be used for any other purposes. LLC will
designate the XXX Corporation aircraft transferred to LLC
pursuant to the proposed merger to be used for all purposes,
including flight instruction to non-Entity X students, aircraft
rental, and aircraft charter.

REQUESTED ADVISEMENT

Entity X requests advisement on the Florida sales and use tax
consequences of the transfer of title of the Corporation
aircraft to LLC pursuant to the proposed merger and the transfer
of title of the Entity X aircraft to LLC.

APPLICABLE LAW

Section 212.06(10), F.S., relating to the titling, licensing, or
registration of a vehicle in Florida provides in part:

No title certificate may be issued on any boat, mobile
home, motor vehicle, or other vehicle,... unless there is
filed with such application for title certificate or
license or registration certificate a receipt, issued by an
authorized dealer or a designated agent of the Department
of Revenue, evidencing the payment of the tax imposed by
this chapter where the same is payable. A presumption of
sales and use tax applicability is created if the motor
vehicle is registered in this state.... All transfers of

title to boats, mobile homes, motor vehicles, and other
vehicles are taxable transactions, unless expressly exempt
under this chapter.

Section 212.08(7)(p), F.S., provides:

(p) Section 501(c)(3) organizations.--Also exempt from the
tax imposed by this chapter are sales or leases to
organizations determined by the Internal Revenue Service to
be currently exempt from federal income tax pursuant to s.
501(c)(3) of the Internal Revenue Code of 1986, as amended,
when such leases or purchases are used in carrying on their
customary nonprofit activities.

Section 330.27(1), F.S., provides in part:

(1) "Aircraft" means any motor vehicle... used or designed
for navigation of or flight in the air....

Section 607.1108, F.S., provides in part:

(1) As used in this section... the term "other business
entity" means a limited liability company... or any other
entity that is formed pursuant to the requirements of
applicable law....

(2) Pursuant to a plan of merger complying and approved in
accordance with this section, one or more domestic
corporations may merge with or into one or more other
business entities formed, organized, or incorporated under
the laws of this state or any other state, the United
States, foreign country, or other foreign jurisdiction....

Rule 12A-1.007, F.A.C., provides in part:

(14) Lease or Rental

(b)1. The purchase of an aircraft, boat, mobile home, or
motor vehicle exclusively for rental purposes may be made
tax exempt when the purchaser/lessor issues a resale

certificate to the dealer at the time of purchase in lieu
of paying tax. The lessor shall collect tax from his
customers on the total rental charge.

(26)(a) The following transfers of ownership of any
aircraft, boat, mobile home, motor vehicles, or other
vehicles of a class or type required to be registered,
licensed, titled, or documented in this state or by the
United States Government are exempt from tax, provided that
a certificate setting forth the facts and signed under
penalty of perjury accompanies the application for title
transfer, or if no title certificate is required by law,
the application for transfer of license or registration:

4. The transfer of title into the name of the surviving
   corporation by reason of a corporate consolidation or
   merger in accordance with Chapters 607 or 617, F.S., or a
   reorganization as defined in Section 368(a)(1) of the
   Internal Revenue Code solely in exchange for stock.

(d) When title to an aircraft, boat, mobile home, motor
vehicle, or other vehicle of a class or type required to be
registered, licensed, titled, or documented in this state
or by the United States Government is transferred... from
one corporation to another,... it is presumed that a
consideration flows from the transferee to the transferor,
and if no consideration is stated, then it shall be
presumed to be the fair market value of the vehicle. This
is true even when the two corporations are owned by the
same stockholders.

Rule 12A-1.071(23), F.A.C., provides:

(23) A charge for flight instruction, which includes
supervised solo flights, is exempt. The purchase of an
aircraft for this use is taxable.

DETERMINATION

Entity X states its intent to merge Corporation with and into a

Florida limited liability company (LLC) and thereby transfer
ownership of Corporation's XXX airplanes to the LLC. Pursuant
to Rule 12A-1.007(26)(d), F.A.C., when title to an aircraft is
transferred from a corporation to another entity, it is presumed
that a consideration flows from the transferee to the
transferor. Thus, a transfer between a corporation and a limited
liability company would be subject to Florida sales tax, unless
expressly exempt. Rule 12A-1.007(26)(a), F.A.C., provides that
the transfer of title of an aircraft into the name of the
surviving corporation by reason of a corporate consolidation or
merger in accordance with Chapters 607 or 617, F.S., or a
reorganization as defined in Section 368(a)(1) of the Internal
Revenue Code solely in exchange for stock, is exempt from
Florida sales tax.

Section 607.1108(2), F.S., provides that pursuant to a plan of
merger, one or more domestic corporations may merge with or into
one or more other business entities formed, organized, or
incorporated under the laws of this state or any other state,
the United States, foreign country, or other foreign
jurisdiction. A limited liability company is included as an
"other business entity" under Section 607.1108(1), F.S. Thus,
it is the Department's position that the transfer of the XXX
Corporation aircraft to LLC pursuant to the proposed merger, as
governed by Section 607.1108, F.S., between Corporation and LLC,
would be exempt from Florida sales tax, provided the applicable
tax was paid on the original acquisition. Furthermore, note
that the transfer by a dissolved corporation to a surviving
corporation of title on equipment used exclusively for rental
and for which no tax was paid on acquisition is exempt provided
the surviving corporation uses the equipment in the same manner
as the dissolved corporation. However, if the equipment is not
going to continue to be used exclusively for rental purposes,
such transfer is taxable.

In its letter, Entity X, a not-for-profit corporation, also
states its intent to transfer the title of the XXX Entity X
aircraft to LLC, subsequent to its formation. As mentioned
above, pursuant to Rule 12A-1.007(26)(d), F.A.C., when title to
an aircraft is transferred from a corporation to another entity,
it is presumed that a consideration flows from the transferee to

the transferor. Thus, a transfer between Entity X and LLC would
be subject to Florida sales tax, unless expressly exempt.

Entity X states that LLC will be in the business of XXX as was
its predecessor, Corporation. In addition, LLC will contract
with Entity X to provide the XXX transferred aircraft for use in
connection with both supervised and unsupervised solo flights
for students completing courses through Entity X's XXX. LLC has
proposed to designate the XXX Entity X aircraft, transferred to
LLC, to be used solely for aircraft rental and for providing
flight training for the Entity X students pursuant to the
agreement between Entity X and LLC. The XXX aircraft will not
be used for any other purposes.

Rule 12A-1.007(14)(b)1., F.A.C., provides that the purchase of
an aircraft exclusively for rental purposes may be made tax
exempt when the purchaser issues a resale certificate to the
dealer at the time of purchase in lieu of paying tax. As stated
above, the XXX transferred aircraft would be used solely for
providing aircraft rental and both supervised and unsupervised
solo flights to Entity X students. Rule 12A-1.071(23), F.A.C.,
provides that a charge for flight instruction, which includes
supervised solo flights, is exempt and that the purchase of an
aircraft for this use is taxable. Entity X has stated that the
contract services provided by LLC to Entity X would include
flight instructors for solo flights by Entity X students. It is
the Department's position that the contract services LLC will
provide to Entity X are comprised of a mixture of aircraft
rental (unsupervised solo flights) and flight instruction
(supervised solo flights). Because the transfer of the XXX
Entity X aircraft would not be "exclusively for rental
purposes," as required for exemption pursuant to Rule 12A1.007(14)(b)1., F.A.C., the transfer of the aircraft would be
subject to Florida sales tax.

This response constitutes a Technical Assistance Advisement
under Section 213.22, F.S., which is binding on the Department
only under the facts and circumstances described in the requests
for this advice, as specified in Section 213.22, F.S. Our
response is predicated on those facts and the specific situation
summarized above. You are advised that subsequent statutory or

administrative rule changes or judicial interpretations of the
statutes or rules, upon which this advice is based, may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

M. Chris Lyon, Attorney
Technical Assistance & Dispute Resolution

Control #: 46910
MCL/