Did changing an aircraft's N-number or moving it from a corporation to an LLC trigger Illinois Aircraft Use Tax?

Plain-English summary

An aircraft owner asked whether changing the aircraft's federal N-number or moving the aircraft from its current corporation into a new LLC would create another Illinois Aircraft Use Tax charge.

IDOR said an N-number change was not subject to Aircraft Use Tax when no transfer, gift, or purchase of the aircraft occurred.

A transfer between separate legal entities generally was different. Illinois had no general related-party exemption, and a corporation-to-LLC aircraft transfer generally was taxable unless another exemption applied.

The letter distinguished a qualifying merger. When the surviving or new entity assumed assets and liabilities by operation of law and the original entity ceased to exist, the Department's cited reasoning treated the event as entity continuation rather than a taxable transfer. That reasoning could apply to a corporation-LLC merger.

The owner did not explain the proposed restructuring in enough detail, so IDOR did not decide whether it was a taxable transfer or qualifying merger.

What this means for you

A registration-number change and a legal-ownership change were not equivalent. The first could occur without tax; the second required close review of the entities and transaction form.

Common questions

Did changing the N-number alone trigger tax? No, absent a transfer, gift, or purchase.

Were related-party transfers automatically exempt? No.

Did IDOR approve the proposed corporation-to-LLC change? No.

Citations and references

• 35 ILCS 157/10-15.
• 86 Ill. Adm. Code 152.101(a) and (a)(3).
• 805 ILCS 5/11.30 and 5/11.39(f).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0026.pdf

Original ruling text

ST 14-0026-GIL 04/30/2014 AIRCRAFT USE TAX
The Aircraft Use Tax Law applies to non-retail transactions, gifts, or transfers of aircraft. See 86 Ill. Adm.
Code 152.101. (This is a GIL.)
April 30, 2014
Dear Xxxx:
This letter is in response to your letter dated April 21, 2014, 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 hoping I can possibly get some clarification in writing of concern that I need to get
addressed.
I was told by an apparently unreliable source that if in fact you do change your “N”
number that the “Use Tax” will applicable again on the same aircraft.
After speaking to one of your agents, I was informed that this is not correct and the info I
was given was in fact incorrect. I would like two items addressed to make sure that I
will not be liable to another tax use charge.

1. Change of “N” number
2. If I decide to change from Corporation that it is now registered in to a new LLC
   to get out of the Corporation.
   Please respond to the above two issues at your convenience.
   If you have any issued [sic] that need to addressed, pleaswe [sic] feel free to contact
   myself.

DEPARTMENT’S RESPONSE:
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
after June 30, 2003. This tax does not apply if the use of the aircraft is otherwise taxed as a retail
transaction 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).

Page 2
April 30, 2014

There is no exemption under the Aircraft Use Tax Law for aircraft transferred between related
parties. Any transfer of an aircraft between separate legal entities, even related entities, that is not
otherwise exempt under the Law, is subject to Aircraft Use Tax. 86 Ill. Adm. Code 152.101(a)(3). A
transfer from a corporation to an LLC generally would be taxable.
Please note that the Department has issued a Private Letter Ruling relating to a transfer
between corporations as part of a merger. ST-10-0007-PLR.
“When corporations are merged or consolidated, as a matter of law, the new corporation
takes over the prior corporation’s liabilities and benefits as if it were the prior
corporation. The assumption of the assets and liabilities by the surviving corporation or
new company takes place as a matter of law. There is not a “transfer” between two
separate legal entities, rather, one entity becomes another entity, or is consolidated into
a separate entity, while the original entity ceases to exist. A transfer that is taxable
under the Aircraft Use Tax does not occur in these instances.”
See 805 ILCS 5/11.30. The Department stated that this reasoning applies to a merger between a
corporation and a limited liability company. 805 ILCS 5/11.39(f). However, your letter does not
explain the nature of the transfer, and we cannot advise whether or not the transfer you are
contemplating is subject to Aircraft Use Tax.
A person that changes the “N” number on an aircraft is not subject to Aircraft Use Tax if no
transfer, gift or purchase of the aircraft occurs.

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.
Very truly yours,

Richard S. Wolters
Associate Counsel

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