Does a bank's dedicated aviation subsidiary -- a genuinely separate corporation that owns and flies its own planes for related companies' employees and customers, charged at cost -- qualify for the commercial aircraft sales tax exemption on new aircraft purchases and on the fees it charges affiliates?

Plain-English summary

Citiflight, Inc. is a first-tier subsidiary of Citibank N.A. (itself under Citigroup) dedicated entirely to operating a small fleet of aircraft out of Newark Airport, with about 42 employees including pilots, technicians, dispatchers, and flight attendants. It's not a certificated air carrier under FAA rules, but it owns and titles the aircraft itself, controls all scheduling and maintenance, and flies employees, customers, and prospective customers of Citigroup-related companies, who pay Citiflight based on the aircraft's actual operating costs under a written transportation services agreement. Over 90% of aircraft use is this compensated affiliate transportation. Crucially, Citiflight operates as a genuinely independent business: its own $93 million in assets, its own leased office and hangar (from an unrelated landlord), its own bank accounts, its own employees, officers, and board, and its own vendor relationships and credit lines -- none of the related companies own any interest in the aircraft. Citiflight was considering moving its operations to Westchester County, New York, and planned to buy two new aircraft (trading in two older ones) using its own funds.

The Department confirmed that the commercial aircraft exemption isn't limited to certificated airlines or FAA-licensed air taxi operators -- an aircraft can qualify as "commercial" even when owned by a company like Citiflight that doesn't hold that kind of operating certificate, as long as the underlying use genuinely constitutes commerce rather than self-use dressed up as a separate transaction. The key test is whether Citiflight is truly a separate legal entity from the related companies it serves: given its own capital, employees, facilities, bank accounts, and independent business relationships, the Department found it clearly is -- so its aircraft use isn't treated as self-use by its Citigroup affiliates. Since over 50% (here, over 90%) of aircraft use goes to transporting people for compensation that reflects the actual cost of operating the planes, the aircraft are "commercial aircraft primarily engaged in commerce," making both the purchase of new aircraft and the use of existing aircraft brought into New York exempt from sales and use tax (with a properly completed Form ST-121 exemption certificate given to the seller within 90 days).

On the second question -- whether the affiliates' payments to Citiflight are exempt transportation-service charges or a taxable aircraft rental -- the answer turns on dominion and control. Because Citiflight (not the related companies) employs the crews, decides where and when the planes fly, and bears all maintenance and cost responsibility, it never relinquishes control of the aircraft, so what it provides is a nontaxable transportation service rather than a taxable equipment rental.

What this means for you

Corporate groups considering a dedicated, separately incorporated aviation subsidiary

Structuring your flight operations as a genuinely independent subsidiary -- with its own capital, staff, facilities, bank accounts, and vendor relationships, not merely a shell or a cost center -- can support both the commercial aircraft purchase exemption and exempt (rather than taxable) intercompany transportation charges, as long as the subsidiary retains real operational control and bills affiliates at cost-reflecting rates for the bulk of its flight activity.

Financial institutions and other regulated entities operating their own aircraft

You don't need to be an FAA-certificated commercial airline or air-taxi operator to qualify for New York's commercial aircraft exemption -- what matters is genuine separateness from the companies you serve and that the compensation you receive reflects real operating costs for genuinely commercial (not self-serving) use.

Accountants and tax professionals

This ruling reaches the same "over 50%-of-use-for-cost-reflecting-compensation" and "dominion-and-control" conclusions as the same-batch Philip Morris opinion (TSB-A-00(38)S), but adds an extra layer of analysis specific to closely affiliated corporate structures: whether the aviation entity is a genuinely separate legal person (Spencer Gifts factors: own assets, employees, bank accounts, business relationships) rather than a self-use arrangement in substance. That separateness analysis is the piece worth flagging in any similar closely-held-group aviation fact pattern.

Common questions

Q: Does an aircraft owner need an FAA commercial operating certificate to qualify for New York's commercial aircraft exemption?
A: No. The exemption isn't limited to certificated air carriers or air-taxi operators -- what matters is whether the aircraft is genuinely used primarily for commerce (transporting people or property for compensation), not the owner's FAA certification status.

Q: If a company's aviation subsidiary only flies people from related, affiliated companies, does that count as taxable self-use rather than exempt commercial use?
A: Not necessarily -- if the aviation subsidiary is a genuinely separate legal entity (its own capital, employees, facilities, and business relationships, independent of the related companies) rather than a mere pass-through, its flights for those affiliates at cost-reflecting compensation count as commerce, not self-use.

Q: Are the intercompany charges the affiliates pay to Citiflight taxable as equipment rental?
A: No, because Citiflight retains complete dominion and control over the aircraft -- its own crews, scheduling, and maintenance responsibility -- which makes the charges payment for a nontaxable transportation service rather than a taxable rental of tangible personal property.

Q: Can another closely affiliated corporate group rely on this exact outcome for its own aviation subsidiary?
A: No. This advisory opinion binds the Department only for the petitioner on the facts described, though it applies the Department's general commercial-aircraft and dominion-and-control tests that would likely extend to a similarly structured, genuinely independent aviation subsidiary.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (definition of "sale, selling or purchase")
• Tax Law § 1101(b)(7) (definition of "use")
• Tax Law § 1101(b)(17) (definition of "commercial aircraft")
• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1105(c) (tax on enumerated services)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(a)(21) (exemption for commercial aircraft primarily engaged in commerce)
• 20 NYCRR § 526.7(e)(4) (transfer of possession; dominion and control)
• TSB-M-96(14)S, Tax Law Defines Commercial Vessels and Commercial Aircraft

Prior rulings referenced:

• Matter of Aero Instruments & Avionics, Inc., Dec Tax App Trib, Oct. 5, 1995, TSB-D-95(43)S
• Pasquale & Bowers, Adv Op Comm T&F, Aug. 1, 1996, TSB-A-96(49)S
• Spencer Gifts, Inc., Adv Op St Tx Comm, Sept. 18, 1986, TSB-A-86(37)S
• CB Applications, LLC, Adv Op Comm T&F, Feb. 1, 2000, TSB-A-00(6)S
• The Gap, Inc., Adv Op Comm T&F, Jan. 28, 2000, TSB-A-00(3)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_30s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(30)S
Sales Tax
August 3, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000724A

On July 24, 2000, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Citiflight, Inc., Newark International Airport, Hangar 15, Newark, NJ 07114.
Petitioner, Citiflight, Inc., submitted additional information with respect to the Petition on July 26,
2000.
The issues raised by Petitioner are:
(1) Whether, under the circumstances described below, its purchases of new aircraft and its
use of existing aircraft brought into New York State are exempt from sales and compensating use
taxes under Section 1115(a)(21) of the Tax Law.
(2) Whether, under the circumstances described below, the compensation paid to Petitioner
by related companies constitutes payment for air transportation services which are exempt from sales
and compensating use taxes.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner was incorporated in the State of Delaware in 1981. Petitioner is a first-tier
subsidiary of Citibank N.A., which is a subsidiary of Citigroup Inc. Petitioner’s principal place of
business and only office is located at Hangar 15, Newark International Airport, Newark, New Jersey.
Petitioner has approximately 42 employees consisting of airline transport rated pilots, licensed
aircraft and power plant technicians, certified dispatchers, flight attendants, and administrative
personnel. The employees work at Hangar 15, where Petitioner owns and operates several aircraft.
The aircraft are used for providing air transportation services to employees, customers, and potential
customers of related companies. Title to the aircraft is held by Petitioner, and Petitioner is the sole
owner of the aircraft. None of the related companies has any ownership interests in any of the
aircraft. Petitioner is considering relocating its New Jersey air transportation operations to
Westchester County, New York.
Petitioner is not required to obtain a FAR 135 Air Carrier Operating Certificate under Part
135 of the Federal Aviation Administration (“FAA”) Regulations. Petitioner exercises complete
possession, dominion, and control over the aircraft. Petitioner determines where and when the
aircraft fly, and is responsible for all maintenance and costs associated with the aircraft operations.
Petitioner transports individuals employed by related companies, as well as customers and potential
customers of such related companies, on intrastate, interstate, and international flights. The related
companies compensate Petitioner for the flights. The compensation charged by Petitioner is based

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on the operating costs of the aircraft; and the related companies pay these costs based on their usage
of the aircraft. Over ninety percent of the use of Petitioner’s aircraft will be devoted to transporting
employees, customers, and potential customers of related companies, for a fee. Petitioner will
provide its air transportation services to these affiliates pursuant to a written transportation service
agreement.
Petitioner is a separate and distinct legal entity that operates independently of the related
companies. It has $93 million in assets and $75 million in equity capital. Petitioner leases office
space and an aircraft hangar at Newark airport from an unrelated company. Rent for the office space
and hangar is paid by Petitioner. Petitioner maintains its own bank accounts from which funds are
used to pay the operating expenses of its aircraft operations. Petitioner is part of a consolidated
group for federal income tax purposes. It files separate income tax returns in New Jersey and payroll
tax returns in New Jersey, New York, Pennsylvania and Connecticut for its resident pilots. Petitioner
has its own employees, officers and board of directors. Petitioner operates under its own name and
holds itself out to the public as a separate legal entity. It has its own business relationships and lines
of credit with vendors, who are unique to Petitioner’s operations. Petitioner plans to purchase two
new aircraft by trading in two existing aircraft and paying cash for the costs in excess of the trade­
ins. The new aircraft will be purchased out of Petitioner’s own surplus and capital funds.
Applicable Authority
Section 1101(b) of the Tax Law states, in part:
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:
*

*

*

(5) Sale, selling or purchase. Any transfer of title or possession or both,
exchange or barter, rental, lease or license to use or consume (including, with respect
to computer software, merely the right to reproduce), conditional or otherwise, in any
manner or by any means whatsoever for a consideration, or any agreement therefor,
including the rendering of any service, taxable under this article, for a consideration
or any agreement therefor.
*

*

*

(7) Use. The exercise of any right or power over tangible personal property
. . . by the purchaser thereof, and includes, but is not limited to, the receiving, storage

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or any keeping or retention for any length of time, withdrawal from storage, any
installation, any affixation to real or personal property, or any consumption of such
property. . . .
*

*

*

(17) Commercial aircraft. Aircraft used primarily (i) to transport persons or
property, for hire, (ii) by the purchaser of the aircraft primarily to transport such
person’s tangible personal property in the conduct of such person’s business, or (iii)
for both such purposes.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided.
Section 1105(c) of the Tax Law imposes tax upon the receipts from every sale, except for
resale, of certain enumerated services.
Section 1110(a) of the Tax Law provides, in part:
Except to the extent that property or services have already been or will be
subject to the sales tax under this article, there is hereby imposed on every person a
use tax for the use within this state on and after June first, nineteen hundred seventy­
one except as otherwise exempted under this article, (A) of any tangible personal
property purchased at retail. . . .
Section 1115(a)(21) of the Tax Law exempts from the sales tax imposed by Section 1105(a)
of the Tax Law and from the compensating use tax imposed under Section 1110:
Commercial aircraft primarily engaged in intrastate, interstate or foreign
commerce, machinery or equipment to be installed on such aircraft and property used
by or purchased for the use of such aircraft for maintenance and repairs and flight
simulators purchased by commercial airlines.
Section 526.7(e)(4) of the Sales and Use Tax Regulations provides, in part:
Transfer of possession with respect to a rental, lease or license to use, means
that one of the following attributes of property ownership has been transferred:
(i) custody or possession of the tangible personal property, actual or
constructive;

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(ii) the right to custody or possession of the tangible personal property;
(iii) the right to use, or control or direct the use of, tangible personal property.
Opinion
Petitioner owns and operates several aircraft used to transport, for compensation, employees,
customers and potential customers of related companies on intrastate, interstate and international
flights. Under FAA regulations, Petitioner is not required to obtain an air taxi/commercial operator
operating certificate. Petitioner is a separate and distinct legal entity operating independently of the
related companies, and is the sole owner of the aircraft. The compensation charged to the related
companies by Petitioner is based on the operating costs of the aircraft and is pursuant to a written
transportation service agreement. Over ninety percent of the use of Petitioner’s aircraft is devoted
to its air transportation services.
With respect to Issue (1), the exemption for commercial aircraft is not limited to aircraft
owned or purchased by commercial airlines (see Matter of Aero Instruments & Avionics, Inc., Dec
Tax App Trib, October 5, 1995, TSB-D-95(43)S). Although aircraft used by airlines or by air
taxi/commercial operators holding FAA operating certificates generally qualify as commercial
aircraft for purposes of sales and use tax exemption, the fact that Petitioner does not fall within these
categories does not preclude its aircraft from qualifying as commercial aircraft exempt from New
York State and local sales and use taxes. However, use of the aircraft by or on behalf of other
entities which are not separate legal entities for sales tax purposes would be considered self use by
the related companies and the aircraft at issue would not qualify for exemption as commercial
aircraft. See Pasquale & Bowers, Adv Op Comm T&F, August 1, 1996, TSB-A-96(49)S.
Petitioner represents that it and the related companies are separate and distinct legal entities.
It operates under its own name and holds itself out to the public as a separate legal entity. Petitioner
operates independently of the related companies, with aircraft that are owned, registered to and
operated by Petitioner under its own name. None of the related companies holds any ownership
interests in the aircraft. Petitioner has its own assets; leases its own office space and aircraft hangar;
pays its own rent; maintains its own bank account and funds its own operating expenses. It has its
own employees including pilots, dispatchers and flight attendants, its own officers and its own board
of directors. The totality of these circumstances establishes the character of Petitioner as a validly
existing corporation, separate and distinct from its parent and related companies (see Spencer Gifts,
Inc., Adv Op St Tx Comm, September 18, 1986, TSB-A-86(37)S). Therefore, Petitioner’s aircraft
are not considered to be purchased for self use by the related companies and will be deemed to have
been purchased to provide transportation services for compensation.
Commercial aircraft is regarded as primarily engaged in qualifying commerce if over fifty
percent of its use is in such activity (see Technical Services Bureau Memorandum, Tax Law Defines

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Commercial Vessels and Commercial Aircraft, November 7, 1996, TSB-M-96(14)S). Accordingly,
since over fifty percent of the use of Petitioner’s aircraft is devoted to transporting employees,
customers, and potential customers for compensation, and since the compensation reflects the costs
of operating the aircraft, such aircraft are considered commercial aircraft within the meaning of
Section 1115(a)(21) of the Tax Law; and the purchase of new aircraft and the use of existing aircraft
by Petitioner are exempt from sales and compensating use taxes (see CB Applications, LLC, Adv
Op Comm T&F, February 1, 2000, TSB-A-00(6)S; Pasquale & Bowers, supra). Petitioner must
render to its supplier, within 90 days of the date of sale, a properly completed Form ST-121, Exempt
Use Certificate, when purchasing new or used commercial aircraft. See Section 1132(c) of the Tax
Law.
With regard to Issue (2), whether payments to Petitioner by the related companies constitute
payments for the purchase of an exempt air transportation service, as opposed to the taxable rental
of the aircraft, turns upon the question of dominion and control. If Petitioner retains complete
dominion and control over the aircraft, the transactions are considered to be the provision of a
transportation service and Petitioner’s charges to the related companies to transport their employees,
customers, and prospective customers would not be subject to sales or use tax (see The Gap, Inc.,
Adv Op Comm T&F, January 28, 2000, TSB-A-00(3)S; Pasquale & Bowers, supra). In this case,
Petitioner employs the personnel who maintain and operate the aircraft, including pilots, aircraft and
power plant technicians and flight attendants. Petitioner determines where and when the aircraft fly,
and is responsible for all maintenance and costs associated with operation of the aircraft. Therefore,
Petitioner does not relinquish dominion and control of the aircraft within the meaning of Section
526.7(e) of the Sales and Use Tax Regulations; and what is being furnished to the related companies
is a nontaxable transportation service and not a taxable purchase or rental of tangible personal
property pursuant to Sections 1101(b)(5) and 1105(a) of the Tax Law (see The Gap, Inc., supra).

DATED: August 3, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

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