Did transferring a recreational aircraft from four individuals to their newly formed, identically owned LLC trigger Illinois Aircraft Use Tax?

Plain-English summary

Four individuals jointly owned a recreational aircraft and had paid sales tax when they bought it. They wanted to transfer title to a new Illinois LLC owned by the same four people in the same proportions, mainly for liability protection. They argued that beneficial ownership would not change.

IDOR said the transfer was a taxable event under the Aircraft Use Tax Law. The aircraft moved from the individual owners to a separate legal entity—the LLC. The continuity of the same four beneficial owners did not change that legal-entity transfer.

The letter distinguished ordinary Use Tax from special aircraft tax. An isolated or occasional sale might avoid Retailers' Occupation Tax and corresponding Use Tax, but Illinois separately imposed Aircraft Use Tax on aircraft acquired by gift, transfer, or non-retail purchase when the use was not otherwise taxed under the Use Tax Act. The tax applied to use in Illinois regardless of aircraft registration.

Common questions

Did identical ownership before and after the transfer prevent tax? No.

Why was tax triggered? Title moved from individuals to a corporation or LLC, a different legal entity.

Did the occasional-sale discussion eliminate Aircraft Use Tax? No. The letter explained that special Aircraft Use Tax could still apply to a gift, transfer, or non-retail purchase.

Citations and references

• 35 ILCS 157/10-15
• 86 Ill. Adm. Code 152.101(a)
• 86 Ill. Adm. Code 130.110 and 150.101(d)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0062.pdf

Original ruling text

ST 12-0062-GIL 12/20/2012 AIRCRAFT USE TAX
Aircraft Use Tax liability is incurred on aircraft acquired by gift, transfer, or non-retail
purchase. See 86 Ill. Adm. Code 152.101. (This is a GIL.)
December 20, 2012
Dear:
This letter is in response to your letter dated July 10, 2012, in which you request information. The
Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with a GIL.
In your letter you have stated and made inquiry as follows:
I am an attorney who represents four individuals who are currently individually FAA
registered owners of a small single-engine AIRCRAFT, which they use for their personal
recreational use. Sales tax was originally PAID by each of the four partners at the time
of the aircraft’s initial purchase. Now, for the principal purposes of limiting their personal
liability, they would like to set up a corporation (or LLC), and transfer title or ownership
of the aircraft into a four-member Illinois LLC – that the SAME FOUR individuals will
thereafter own. I believe that this is a non-taxable “transfer,” rather than a “sale.” I
reviewed the Illinois Department of Revenue website, and the Ill. Admin. Code, Sec.
130.120, and publication 104; and 35 ILCS Sec. 120/1 to 120/4, but nothing like this
was described. However, this cannot be the first time something like this has occurred.
Therefore, I would like to request an Opinion or ruling with reference to the section of
the code that is involved before proceeding.
The question is: “Would the mere transfer title of a recreational aircraft from an
individual bases [sic] into a limited LLC/corporate form of ownership, when the LLC is
composed of the same, identical individuals constitute or trigger a “sale” for which a
Sales Tax (or Use Tax) would arguably be required by the Illinois Department of
Revenue?”
There would be NO actual “closing out” or termination of their 4 individual equitable
interests in the asset, but rather a mere change in the form of title in which they hold
that same ownership interest. The same four individuals would each have one of four
shares of the corporate form of ownership. Their principal motivation is that they are
each “high worth” individuals, and they want the added “corporate protection” of their
personal assets for the operation of the aircraft by anyone but themselves.
Your attention to this matter would be appreciated.

ST 12-0062-GIL
December 20, 2012
Page 2

DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property to purchasers for use or consumption. See 86 Ill. Adm.
Code 130.101. In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
retailers are then allowed to retain the amount of Use Tax paid to reimburse themselves for their
Retailers' Occupation Tax liability incurred on those sales. If the purchases occur outside Illinois,
purchasers must self assess their Use Tax liability and remit it directly to the Department.
A person does not incur Retailers' Occupation Tax liability on the gross receipts from an isolated or
occasional sale. See 86 Ill. Adm. Code 130.110 regarding "Occasional Sales." Consequently, the
purchaser of that tangible personal property does not incur a corresponding Use Tax liability on that
purchase. See 86 Ill. Adm. Code 150.101(d). As a general proposition, the occasional sale exemption
is only available when a person (as defined in Section 1 of the Retailers’ Occupation Tax Act, 35
ILCS 120/1) purchases an item and then, after using the item, disposes of it by selling it. See 86 Ill.
Adm. Code 130.110. However, the sale will not qualify as an isolated or occasional sale if the person
holds himself out as being engaged in the retail sale of that item or similar type of tangible personal
property.
Even though a purchaser may not incur a Use Tax liability on a purchase of tangible personal
property in an occasional sale transaction, the purchaser of specific types of tangible personal
property may still incur a tax liability in this State under the Aircraft Use Tax Law (35 ILCS 157/10-1
et. seq.), Watercraft Use Tax Law (35 ILCS 158/15-1 et. seq.), or Vehicle Use Tax (625 ILCS 3/31001 et. seq.).
Under the Aircraft Use Tax Law, a tax is imposed on the privilege of using, in this State, any aircraft
as defined in Section 3 of the Illinois Aeronautics Act acquired by gift, transfer, or purchase. This tax
does not apply if the use of the aircraft is otherwise taxed under the Use Tax Act. 35 ILCS 157/10-15.
The tax is imposed on the use of aircraft in this State regardless of whether the aircraft is actually
registered under the Illinois Aeronautics Act. See 86 Ill. Adm. Code 152.101(a).
For general information purposes, the transfer of an aircraft from individual owners to a newly formed
corporation is a taxable event. This result is because the aircraft is being transferred from one legal
entity to another (from persons to a corporation). Aircraft Use Tax liability is incurred on aircraft
acquired by gift, transfer, or non-retail purchase. See 86 Ill. Adm. Code 152.101. The fact that the
beneficial ownership of the aircraft will not change after the transfer does not change the outcome
under the Aircraft Use Tax Law.
I hope this information is helpful. If you require additional information, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Sincerely,

ST 12-0062-GIL
December 20, 2012
Page 3

Samuel J. Moore
Associate Counsel