Were an aircraft owner's charter proceeds taxable rent or nontaxable proceeds under a management agreement?

Plain-English summary

Florida treated the operator as the owner's agent managing the owner's air-charter business, not as a lessee renting the aircraft. The operator conducted revenue flights under its certificates, marketed and invoiced charter customers, supplied crews and management services, and rendered records and accounts to the owner.

Risk allocation was decisive. Except for the operator's risk that charter customers would not pay, the owner bore aircraft operating, maintenance, crew, training, and insurance costs and the economic risk of the revenue flights. The owner also retained oversight through record-inspection rights, spending approvals, scheduling priority for personal flights, and an aircraft coordinator who could approve crew and maintenance personnel.

Because the agreement as a whole created a principal-agent relationship, the owner's share of revenue-flight proceeds was not separate consideration for renting tangible personal property. The ruling separately noted that Florida use of the aircraft could be taxable unless exempt and that hangar rent was taxable under the historical provision cited.

What this means for you

Aircraft agreements are classified from their full economics and operating terms, not their label. Risk of loss, expense responsibility, accounting duties, owner control, operational authority, and the source of payments all matter.

Common questions

Q: Did the operator's operational control make it a lessee?
A: No on these facts. The broader agreement still made it an agent managing the owner's business.

Q: What most strongly supported management treatment?
A: The owner bore nearly all economic risk and retained detailed oversight while the operator accounted to the owner.

Q: Did the ruling exempt all aircraft-related charges?
A: No. It separately flagged aircraft purchase or use and hangar rent.

Citations and references

• Fla. Stat. § 212.02(10)(g) — lease, let, or rental
• Fla. Stat. § 212.05(1)(c) — tangible-personal-property rental tax
• Fla. Admin. Code r. 12A-1.071 — rentals and aircraft
• Fla. Stat. § 212.03(6) — historical hangar-rent provision cited
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03A-017

Original ruling text

SUMMARY

QUESTION: Do payments made to Owner pursuant to the
Agreement entered into with Operator constitute the return
of Owner's nontaxable share of the operational proceeds
from air charter flights and not taxable consideration
received for the rental of tangible personal property?

ANSWER - Based on Facts Below: Yes, payments made to Owner
pursuant to the Agreement represent Owner's share of the
operational proceeds from the Revenue Flights and not
consideration for the lease or rental of tangible personal
property. The terms of the Agreement indicate that the
Agreement creates a principal/agent relationship between
Owner and Operator, whereby Operator has been engaged and
entrusted with the management of Owner's air taxi/charter
business, and has assumed the conduct of the business and
the responsibility of rendering an account to Owner.
Accordingly, there are no separate lease or rental payments
subject to tax pursuant to Section 212.05(1)(c), F.S.

Apr 17, 2003

Re: Technical Assistance Advisement 03A-017
Sales and Use Tax
Aircraft - Management Agreement or Rental of Tangible
Personal Property
XXX (Owner)
Section 212.02(2) and (10)(g), Florida Statutes (F.S.).
Section 212.05(1)(c), F.S.
Section 212.055, F.S.
Rule 12A-1.070(3), Florida Administrative Code (F.A.C.).
Rule 12A-1.071(1), (21) and (22), F.A.C.
Rule 12A-15.003(1), F.A.C.

Dear :

This is a response to your letter of February 11, 2003,

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

Owner owns a XX (the Aircraft). XXX (Operator), owns and
operates an aircraft charter service. Operator is not an
affiliate of or otherwise related to Owner. As part of its
service, Operator manages aircraft owned by other persons and
entities. Operator holds an Air Carrier Operating Certificate
issued by the Federal Aviation Authority (FAA) under Part 135
(FAA Certificate) of the Federal Aviation Regulations. Operator
is also registered with the United States Department of
Transportation (DOT) as an on-demand air taxi operator and is
otherwise authorized to charter aircraft as an air taxi
operator.

Owner and Operator entered into the XX (the Agreement) dated XX
a copy of which was attached to your request. In addition, you
included with your request a letter clarifying some provisions
of the Agreement, also dated XX. Pursuant to the Agreement,
Owner engaged Operator to operate the Aircraft for Client
Flights and Revenue Flights under Operator's FAA Certificate and
DOT registration. Revenue Flights are the operation of the
Aircraft for the use of third parties, pursuant to charters
arranged by Operator. Client Flights are Owner's personal use
of the Aircraft. The Aircraft will be based primarily in Ocala,
Florida, or other place agreed by the parties. The Agreement is
for one year, renewable for an indefinite number of successive
one-year periods. The Agreement terminates upon failure of the
parties to renew the Agreement, or upon the sale of the aircraft
by Owner without an assignment of the Agreement. Sections XX
and XX (all Section references are to the Agreement). Owner may
terminate the Agreement upon a "change in control" of Operator
or without cause upon 90 days written notice. Sections XX and
XX. Either party may terminate the Agreement in the event of
default, as defined in Section XX of the Agreement.

After execution of the Agreement, Owner is required, pursuant to
Section XX, to position the aircraft at Operator's facility for
evaluation of compliance and eligibility for compliance with FAR
parts 135 and 119 and inclusion on Operator's operating
certificate. Owner is responsible on a time and materials basis
for the inspection, the cost of which cannot exceed $3,000.00
without Owner's consent. Owner is also responsible for costs to
correct discrepancies, equipment upgrades and repairs identified
during the inspection. At Owner's sole discretion, if the
compliance requirements place an undue burden on Owner, Owner
has the right to terminate the Agreement.

Owner is required to pay Operator XX annually as a "management
fee." Section XX. Owner will also pay XX per month to Operator
for hangar rent at the base (Operator pays the hangar rent to
the lessor of the hangar). Section XX. Operator is required to
market Revenue Flights based upon prevailing market rates but
not, without prior consent of Owner, below XX per flight hour.
Section XX (Revenue Flights). Section XX also provides that
Owner is entitled to XX of the revenue from Revenue Flights,
except: Operator will receive only XX of the invoiced amount for
any charter arranged by Owner; Owner may designate that up to XX
Revenue Flight hours be charged at XX per flight hour with
Operator receiving no compensation; and, Owner is entitled to XX
of revenue connected with the resale of a positioning or
repositioning flight. Operator invoices Revenue Flights and
incidental charges, and bears the risk of non-collection from
charter customers. Section XX provides that Operator will
perform as an independent contractor and nothing in the
Agreement will be deemed to create a joint venture or
partnership.

In return for the fees paid by Owner in accordance with Section
XX, Operator agrees to provide all services related to the
Aircraft and perform or cause to be performed for Client Flights
and Revenue Flights the following regarding the operation,
maintenance, and administration of the Aircraft: employ, train,
and monitor flight crew assigned to the Aircraft and any
personnel required by Operator to operate the Aircraft; provide
or arrange maintenance, coordinate maintenance at contract
facilities, and related maintenance support functions; arrange

for and/or fuel the Aircraft at all airports at which the
Aircraft operates; coordinate and/or obtain insurance as
provided in Section XX; liaise with the FAA and other government
entities and monitor compliance with applicable statutes, rules,
and regulations; secure and maintain Aircraft hangar at the
Base; provide recordkeeping, reporting, budgeting and other
bookkeeping, accounting and administrative functions, including
payment of invoices and expenses related to the Aircraft;
provide Aircraft and crew scheduling, Aircraft utilization
management, passenger services, and travel support services for
the Owner; and, consult with Owner and provide information
relating to Operator's operation, maintenance, and
administration of the aircraft. Section XX.

Operator has "operational control" of the Aircraft, including
command and control, and including exclusive control over: crew
members; determining whether a particular flight may be safely
undertaken; assigning crew members to flights; initiating and
terminating flights; directing crew members to conduct flights;
and, dispatch or release of flights. Section XX. However,
Section XX, outlining Operator's services with regard to Client
Flights, requires Operator to make arrangements (e.g.,
scheduling Revenue Flights) based upon Owner's travel schedule,
including positioning the Aircraft and accommodating special
requests by Owner.

The Agreement provides Owner the right to inspect the aircraft
and examine and copy the financial, flight, maintenance and
other records or documents relating to the aircraft or
performance under the Agreement at any reasonable time (as long
as inspection does not unreasonably interfere with the conduct
of Operator's business). Section XX. The Operator is required
to maintain on behalf of Owner all aircraft, flight, passenger
and cost records, and to provide Owner with any reports
reasonably requested by Owner. Sections XX and XX.

Operator hires and trains the flight crew for the Aircraft.
Section X. Section XX declares that the crew furnished by
Operator are to be considered Operator's employees or agents,
and that Operator is solely responsible for payment of all
required costs and taxes with regard to their employment.

However, Owner must reimburse Operator for all costs associated
with the employment of the flight crew, including salaries,
benefits, taxes, and insurance, and for all costs of training
the flight crew. Sections XX. Furthermore, in the event any
member of the flight crew is terminated, Owner is responsible
for all costs associated with the discharge and for all costs
associated with hiring and training a replacement. Section XX.
While Section X of the Agreement provides that Operator is
responsible for performing maintenance on the Aircraft, Owner is
responsible for all maintenance costs. In addition, Operator
only has the authority to expend or commit XX per month for
maintenance on Owner's behalf without prior written approval.
Section XX.

Owner bears responsibility for all operating costs associated
with the Aircraft. Section XX. Also, Owner is required to pay
Operator for all incidental costs and expenses associated with
Client Flights. Section XX. Owner is responsible for obtaining
and keeping in place insurance coverage on the risks with
respect to the air taxi/charter operations. Section XX.
Section XX. provides that, except as otherwise provided in the
Agreement, Owner bears the cost of: loss of use of the Aircraft;
insurance deductibles for damage and loss; hot starts on engines
and APU; diminution of value following damage or a loss;
cosmetic damage; and, mechanical breakdowns and required
repairs.

Although Operator hires flight crews to operate the aircraft,
Section XX gives Owner the right to designate one of the flight
crew as "aircraft coordinator," to provide oversight for Owner.
The aircraft coordinator has authority to approve crew members
assigned to the aircraft, provided that authority is exercised
in coordination with Operator and in accordance with the FAA
Certificate and the FAR's. The aircraft coordinator also has
the right to approve the primary maintenance official for the
aircraft. Section XX.

Requested Advisement

Based on the facts provided, Owner requests advisement
concerning the following issue:

Do payments made to Owner pursuant to the Agreement entered
into with Operator constitute the return of Owner's
nontaxable share of the operational proceeds from the air
charter flights and not taxable consideration received for
the rental of tangible personal property?

Taxpayer's Position

The Owner's position is that the Agreement constitutes a
management agreement and not the lease or rental of tangible
personal property, similar to the agreement considered in TAA
99A-020.

Applicable Law

Section 212.05(1)(c), F.S., provides in pertinent part:

It is hereby declared to be the legislative intent that
every person is exercising a taxable privilege who engages
in the business of selling tangible personal property at
retail in this state, including the business of making mail
order sales, or who rents or furnishes any of the things or
services taxable under this chapter, or who stores for use
or consumption in this state any item or article of
tangible personal property as defined herein and who leases
or rents such property within the state.

(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and
payable as follows:

(c) At the rate of 6 percent of the gross proceeds derived
from the lease or rental of tangible personal property....

"Business" is defined by Section 212.02(2), F.S., to include
"any activity engaged in by any person, or caused to be engaged
in by him or her, with the object of private or public gain,
benefit, or advantage, either direct or indirect." Section
212.02(10)(g), F.S., provides that the term "lease," "let," or
"rental" includes the leasing or rental of tangible personal

property and the possession or use thereof by the lessee or
rentee for a consideration, without transfer of the title of
such property, except as expressly provided to the contrary
therein.

Rule 12A-1.071, F.A.C., provides in pertinent part:

(1)(a) For the purpose of this rule, the term "lease"
includes any rental or license to use tangible personal
property.... All leases of tangible personal property other
than conditional-sale type leases as described in paragraph
(1)(d) of this rule, are operating leases....

(b) Transfer of possession with respect to an operating
lease means that one of the following attributes of
tangible personal property ownership has been transferred:

1. Custody or possession of the property, actual or
   constructive;
2. The right to custody or possession of the property; or,
3. The right to use and control or direct the use of the
   property.

(21) The rental of aircraft is taxable.

(22) The charge made by an air taxi (charter) to transport
a passenger to a certain destination (the passenger does
not pilot or take possession of the aircraft) is a charge
for transportation service rather than a rental and is
exempt from tax. (emphasis supplied)

Rule 12A-1.070(3), F.A.C., provides that the lease or rental of
tie-down or storage space for aircraft at airports is taxable
under Section 212.03(6), F.S.

Section 212.055, F.S., authorizes the imposition of
discretionary surtaxes by local governments. Rule 12A-15.003(1),
F.A.C., provides: "All transactions occurring in a county
imposing the surtax which are subject to the state tax imposed
on sales, use, rentals, admissions, services, and other
transactions by Chapter 212, F.S., are subject to the surtax."

"Agency" refers to a contract, express or implied, by which one
party (the principal) confides to another (the agent) the
management of some business to be transacted for the account of
the principal and by which the agent assumes to do the business
and render an account of it. See King v. Young, 107 So.2d 751,
753 (Fla. 2d DCA 1958) (quoting 2 Am. Jur., Agency, s. 2, page
13). The agent is distinguished from an independent contractor
in that the principal has the right (whether or not exercised)
to control the agent regarding the details of the engagement,
rather than only regarding the result to be achieved. Id.

Personal Jet Charter, Inc.

In Personal Jet Charter, Inc. v. Department of Revenue, DOAH
Case Number 95-2527 (June 24, 1996), the Department of Revenue
(the Department) asserted on audit that payments made to an
owner of an aircraft pursuant to a "aircraft management
agreement" (the Agreement) constituted taxable consideration
received for the rental of tangible personal property. Personal
Jet Charter, Inc. (PJC) owned and operated an air taxi service
in which PJC used three jets owned by three corporations (the
Owners) unrelated to PJC or to each other. None of the Owners
possessed the Federal Aviation Administration (FAA) licensure
necessary to transport passengers for hire.

PJC's responsibilities under the Agreement included: placing
each aircraft on its Air Carrier Certificate for the purpose of
utilizing the aircraft for transporting passengers; overseeing
aircraft maintenance and records in accordance to applicable
guidelines; training and providing flight crews and maintaining
crew records; scheduling all aircraft, flight, crew and
passenger activity through its dispatch department; insuring the
aircraft on its fleet operators policy and reimbursing each
Owner for the additional insurance premium required for
commercial operations; hangaring the aircraft at its facility at
no charge; providing fuel to the Owner at $.25 per gallon above
cost; providing Owners with an aircraft statement and activity
report, and paying for utilization of the aircraft, on a monthly
basis; providing Owners with a flight crew at a charge less than
its taxi service rate; and, paying each Owner XX per flight hour

when the aircraft was used in passenger transport operations.

When an Owner used the aircraft, the Owner was responsible for
all direct costs incurred from the flight. The Owner was
responsible for the cost of maintaining the aircraft, and for
all direct costs of operation for maintenance test flights.
There was no charge to an Owner for crew on maintenance test
flights. PJC bore responsibility for the direct costs of flight
crew training. In addition to the XX per flight hour payment to
the owner for use of the aircraft, PJC bore responsibility for
all costs incurred in providing air taxi service using the
aircraft.[FN 1]

Except when its aircraft was undergoing a major inspection or
was down for maintenance, each Owner could use its aircraft at
any time; and each Owner had a key and unlimited access to its
aircraft. When an Owner wanted to use its aircraft, the Owner
contacted PJC which coordinated its use. Each Owner had
"bumping" privileges with respect to its aircraft. If an
Owner's aircraft was booked for a flight by PJC when the Owner
wanted to use it, PJC would make the Owner's aircraft available
to the Owner and re-book the passenger on another aircraft.

The hearing officer found that "[e]ach agreement required the
owner to deliver its aircraft to [PJC] for use pursuant to the
terms of the agreement." In addition, the hearing officer
concluded that the "owner gave up its exclusive possession,
control, and dominion of its aircraft pursuant to the terms of
the agreement," and that PJC "controlled the use of the
aircraft, subject to the terms of the agreement." The hearing
officer concluded that the aircraft management agreements
between the owners and PJC constituted taxable leases of
tangible personal property pursuant to Section 212.05(1)(d),
Florida Statutes.

TAA 99A-020 [FN 2]

In TAA 99A-020, the operator of an aircraft charter service
entered into aircraft management agreements with owners of
personal aircraft. As part of the services the operator provided
to the owners pursuant to the aircraft management agreements,

the operator placed the aircraft on its Air Carrier Certificate
on behalf of the owners, scheduled and utilized the aircraft for
charter flights provided to third parties, maintained the
aircraft, stored the aircraft, and provided flight crews for the
aircraft charters. The operator, in its request for advisement,
asserted that the relationship between the parties was a true
management/agency relationship, and that because a true
management relationship had arisen, there were no separate
rental payments to tax.

The operator in TAA 99A-020 presented the following differences
between the agreement in TAA 99A-020 and the agreement in
Personal Jet Charter, Inc., as summarized below by the
Department in that advisement:

1. In Personal Jet Charter, Inc., supra, the individual
   aircraft owners were paid a flat rate per flight hour for
   the use of the aircraft by Personal Jet Charter, Inc., in
   its air carrier operations. Pursuant to Article V of the
   Taxpayer's Aircraft Management Agreement, the Taxpayer will
   receive a percentage of rental fees earned through leasing
   the individual owner's aircraft for charter flights. You
   state that by receiving a fixed percentage of the proceeds
   generated by the aircraft charter services, the Taxpayer is
   compensated for management services based upon profits
   generated by the charter activities and the Owners' benefit
   from the charter services based upon the profitability of
   those services. (emphasis in original)

2. Under the Taxpayer's Aircraft Management Agreement, the
   Owner is responsible for all costs of the operation from
   the charter flights. In Personal Jet Charter, Inc., supra,
   the air carrier/operator (Personal Jet Charter, Inc.) was
   responsible for the costs incurred in the air carrier
   flights, in addition to the stipulated per hour amount paid
   to the owners. You state that under the Taxpayer's Aircraft
   Management Agreement, the Taxpayer is providing charter
   services to customers on behalf of the Owner, and the Owner
   pays the expenses incurred during these services.

3. The Taxpayer's Aircraft Management Agreement reflects

that the intention of the parties is to enter into an
agreement for the management and operation of a charter
service. Under the agreement, the Owners will be entering
an express contract which entrusts to the Taxpayer the
management of the aircraft, and the Taxpayer will assume
the obligation to manage the aircraft and make an
accounting to the Owners for the business conducted on the
Owners' behalf. You state that this establishes a
principal/agent relationship, and a true management
relationship results. In Personal Jet Charter, Inc., supra,
there was no evidence that this issue was contemplated by
the parties before the commencement of that audit nor was
there any record that the parties consulted a legal or tax
professional prior to structuring the agreements. Personal
Jet Charter, Inc., supra, at paragraph 40.

4. Pursuant to the Taxpayer's Aircraft Management
   Agreement, the Owner has the authority to control the
   performance of the Taxpayer. The Owner has the ability to
   determine how the aircraft will be used in the event there
   is a conflict between the chartered flights and the Owner's
   use of the aircraft. The Owners have the right to inspect
   the Taxpayer's books during normal business hours; The
   Owner has the authority to direct the Taxpayer not to sue a
   party for an incident concerning the aircraft, and the
   agreement is not assignable by the Taxpayer unless the
   assignment is to a company that has merged or consolidated
   with the Taxpayer. You state that the Taxpayer's lack of
   control over the aircraft establishes that the Taxpayer
   lacks both possessory rights and the operational control
   accompanied by a lease. In Personal Jet Charter, Inc.,
   supra, the individual owners gave up their exclusive
   possession, control, and dominion of their aircraft
   pursuant to the terms of the agreement. The air carrier
   controlled the use of the aircraft, subject to the terms of
   the agreement, which set forth the rights of the owners.

5. The Owners have the ability to terminate the
   relationship during the term of the agreement, without
   cause, upon thirty days notice provided that any amounts
   due the Taxpayer are paid. You state that this arrangement

is typical in a management agreement because the principal
needs the ability to terminate the relationship if the
performance by the agent is not satisfactory. You state
that it is not typical for the lease of an aircraft to be
terminable at will.

The Department found that the aircraft management agreement in
TAA 99A-020 was factually distinguishable from the aircraft
management agreements in Personal Jet Charter, Inc.
Importantly, the Department found that, pursuant to the terms of
the agreement, the taxpayer was acting on behalf of the aircraft
owners in providing charter flights to customers.[FN 3] The
Department therefore determined that payments to an owner of an
aircraft pursuant to an aircraft management agreement entered
into with the operator constituted the return of the owner's
nontaxable share of the operational proceeds from the charter
flights and were not taxable consideration received for the
rental of tangible personal property.

Analysis and Discussion

Section 212.05(1)(c), F.S., imposes a tax upon the privilege of
engaging "in the business of" leasing or renting tangible
personal property. The tax is imposed at the rate of six
percent (6%) upon the gross proceeds derived from the lease or
rental. Section 212.05(1)(c), F.S. For the purposes of Chapter
212, F.S., "business" means "any activity engaged in by any
person, or caused to be engaged in by him or her, with the
object of private or public gain, benefit, or advantage, either
direct or indirect." A person who rents, leases, lets, or grants
a license for the use of one property is engaged in business
just as much as a person doing so with numerous properties. See
Regal Kitchens, Inc. v. Florida Department of Revenue, 641 So.2d
158, 163 (Fla. 1st DCA 1994). As defined in Section
212.02(10)(g), F.S., the term "lease," "let," or "rental"
includes the leasing or rental of tangible personal property and
the possession or use thereof by the lessee or rentee for a
consideration, without transfer of the title to such property.
The rental of an aircraft is taxable. Rule 12A-1.071(21),
F.A.C. However, the charge made by an air taxi/charter to
transport a passenger to a certain destination (the passenger

does not pilot or take possession of the aircraft) is a charge
for transportation service rather than a rental and is exempt
from tax. Rule 12A-1.071(22), F.A.C.

A threshold requirement for imposition of tax under Section
212.05(1)(c), F.S., is that the Owner be "in the business" of
leasing or renting tangible personal property. The Owner's
position is that the relationship created by the Agreement
between the Owner and the Operator is one of principal and agent
rather than lessor/renter and lessee/rentee (i.e., a true
management agreement). A principal/agent relationship would be
one whereby the management of the Owner's business (here, the
air taxi/charter business consisting of Revenue Flights of the
Aircraft) would be transacted by the Operator for the Owner's
account, with the Operator assuming the responsibility to manage
the business and make an account to the Owner. If the
relationship between the parties is a true management agreement,
there are no separate lease or rental payments subject to tax
pursuant to Section 212.05(1)(c), F.S. Therefore, the primary
inquiry should be whether a management agreement, and thus a
principal/agent relationship, was created by the Agreement.

Unless the provisions of an agreement or the actual practice of
the parties indicate otherwise, the intent of the parties to a
contract should govern the construction of that contract. See
American Home Assurance Co. v. Larkin General Hospital Ltd., 593
So.2d 195, 197 (Fla. 1992); Keith v. News & Sun Sentinel Co.,
667 So.2d 167, 171 (Fla. 1995). In determining the intent of
the parties, the terms of a contract are considered as a whole,
and not in isolation. Jerry's Inc. v. City of Miami, 591 So.2d
1000, 1001 (Fla. 3d DCA 1991). Therefore, the proper focus in
determining the relationship created by the Agreement between
Owner and Operator is upon the collective terms of the
Agreement.

As stated above, a principal/agent relationship involves the
principal entrusting the management of some business to the
agent, who carries out that business and makes an accounting to
the principal. In examining the Agreement to determine the
relationship between the parties, three possibilities present
themselves relative to Revenue Flights of Owner's aircraft:

(1) The Owner is in the air taxi/charter business, and the
Operator is engaged to manage that business and make
an account to the Owner (i.e., a principal/agent
relationship has been created).
(2) The Operator is in the air taxi/charter business, and
is leasing or renting the Owner's aircraft for use in
that business.
(3) A partnership or joint venture air taxi/charter
business has been entered into between the Owner and
the Manager. [FN 4]

The paramount consideration when determining whether the
Agreement constitutes a management agreement (possibility (1),
above) or whether a lease, rental, or license to use property
arises (possibility (2), above) is how the Agreement allocates
the risk of economic loss. This inquiry indicates which party,
relative to the Aircraft and the Agreement, is in the air
taxi/charter business, and indicates whether or not a
principal/agent relationship exists.

Owner is required to pay Operator XX annually as a "management
fee." Section XX. Owner is also required to pay XX per month
hangar rent, which is passed by Operator to the lessor of the
hangar. Section XX. Operator is required to pay Owner XX of
revenue from Revenue Flights, and is required to charge a
minimum charter fee, subject to: Owner's right to approve a
lesser fee; Owner's right to designate XX flight hours at XX per
hour (Operator receives no fee for hours so designated); and,
the agreed XX split of resold repositioning flights. Section
XX. Operator hires and trains flight crew for the Aircraft, but
Owner is required to reimburse Operator for all costs of
employment and training. Sections XX. Owner is responsible for
all costs of maintaining and operating the Aircraft, including
the cost of Revenue Flights. Sections XX. In addition, Owner is
responsible for insuring the risks with respect to Revenue
Flights. Section X. Thus, with the exception that Operator
bears the risk of non-collection from charter customers (Section
XX), Owner bears the entire risk of loss pursuant to the
Agreement. This clearly indicates that Owner is in the air
taxi/charter business with regard to Revenue Flights of the

Aircraft. Therefore, the provisions regarding payment and
allocation of the risk of economic loss indicate that the
Agreement is one entrusting Operator with the management of
Owner's air taxi/charter business.

A principal/agent relationship also requires the agent to render
an account to the principal, and requires that the principal
retain the right to control the agent over the details of the
engagement. Section XX of the Agreement outlines the services
Operator is obligated to perform for Owner, which includes the
requirement to account to Owner regarding the operation,
maintenance, and administration of the Aircraft. Section XX
requires Operator to schedule and arrange all Client Flights,
including positioning the Aircraft to support Owner's travel
schedule. Section X gives Owner the right to examine all
records with regard to operations, and specifically requires
Operator to maintain all records on behalf of Owner. While
Operator is responsible for having maintenance performed on
Owner's behalf, Owner's written approval is required for monthly
expenditures exceeding XX. Importantly, Section XX gives Owner
the right to designate an "Aircraft Coordinator" to provide
oversight on behalf of Owner. The Aircraft Coordinator has
authority to approve crew members assigned to the Aircraft, as
well as the right to approve the primary maintenance official
for the Aircraft. Thus, the Agreement clearly indicates that
Operator assumes responsibility to conduct Owner's business and
render an account to Owner, as well as control by Owner
regarding details of the engagement.

As noted above, the intent of the parties governs construction
of an agreement unless the provisions of the agreement or
practice of the parties indicate otherwise. See American Home
Assurance Co.; Keith. Section XX provides that Operator will
perform as an independent contractor. However, the preceding
analysis and discussion clearly indicates that the provisions of
the Agreement, viewed as a whole, create a principal/agent
relationship, and thus constitute a management agreement.
Operator will perform as an independent contractor with regard
to the "operational control" of the Aircraft as provided in
Section XX.

Advisement

It is our determination that the Agreement creates a
principal/agent relationship between Owner and Operator, whereby
Operator has been engaged and entrusted with the management of
Owner's air taxi/charter business, and has assumed the conduct
of the business and the responsibility of rendering an account
to Owner. Accordingly, payments made to Owner pursuant to the
Agreement represent Owner's share of the operational proceeds
from the Revenue Flights and not consideration for the lease or
rental of tangible personal property.[FN 5] Accordingly, there
are no separate lease or rental payments subject to tax pursuant
to Section 212.05(1)(c), F.S.[FN 6]

Closing Statement

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice, as specified in s. 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.

If you have any further questions with regard to this matter and
wish to discuss them, you may contact me directly at (850) 922-

4710.

Sincerely,

Thomas K. Butscher
Attorney
Technical Assistance & Dispute Resolution

TKB\
Control No: 53807

FOOTNOTE 1. The owner of the aircraft had no risk with respect
to the air taxi service, indicating that it was PJC, and not the
owners, who was in the air taxi business with respect to the
owners' aircraft. Thus, the hearing officer was correct in
determining, as indicated below, that the agreement did not
constitute one for management of the owners' air taxi business,
but instead the transactions were leases of tangible personal
property by PJC.

FOOTNOTE 2. In its request for advisement, Owner acknowledged
that a TAA issued to another taxpayer has no precedential value.
See Rule 12-11.007, F.A.C. Rather, Owner looks to TAA 99A-020
and Personal Jet Charter as an indication of the views of the
Department in the past.

FOOTNOTE 3. Indicating a determination that a principal/agent
(management) relationship had been created.

FOOTNOTE 4. Mutual exposure to loss is an essential element to
finding that a partnership or joint venture relationship has
been established. See, e.g., Conklin Shows, Inc. v. Department
of Revenue, 684 So.2d 328 (Fla. 4th DCA 1996). As mutual
exposure to loss is absent under the Charter Management
Agreement, there is no need to discuss the possibility that a
partnership or joint venture has been created.

FOOTNOTE 5. Inasmuch as the Agreement does not constitute a
lease or rental, it is noted that the purchase and use of the
Aircraft in Florida is taxable under Chapter 212, F.S., unless

specifically exempted therein.

FOOTNOTE 6. The hangar rent is taxable pursuant to Section
212.03(6), F.S. Local government discretionary surtax also
applies to the hangar rent, determined by the physical location
of the hangar space. Sections 212.055 and 212.054(3)(g), F.S.