When a company buys a 25% 'interest' in a private jet through a fractional-ownership program -- where a separate management company controls scheduling, pilots, maintenance, and can substitute other aircraft -- is that purchase a taxable acquisition of an aircraft, or a nontaxable transportation service?

Plain-English summary

The Gap, Inc. planned to purchase a 25% "interest" in a non-commercial aircraft to transport company personnel and guests, through a program with up to sixteen "Additional Interest Owners" who become tenants-in-common of the plane. As a condition of the sale, Gap had to sign a Joint Ownership Agreement (governing the co-owners' relationship), a Management Agreement (appointing an independent Manager to run the aircraft's operations), and a Master Interchange Agreement (letting Gap use other aircraft in the program if its own plane is unavailable, and vice versa). The seller kept a right of first refusal and could force Gap to sell back after five years at fair market value. Gap would get an allotted number of flight hours per year, choosing dates, times, and destinations -- but the Manager provided and paid all pilots (subject to Manager approval even if Gap suggested one), handled all maintenance, FAA recordkeeping, insurance, and operating costs (fuel, hangar fees, weather/flight planning), and could itself use the aircraft for pilot training or demonstration flights (keeping any money earned) whenever an owner wasn't using it. The aircraft would be registered at the Manager's Texas address, constantly in motion with no fixed home base, and Gap couldn't predict how much of its use would occur in New York.

The threshold legal question was whether this arrangement is really a transfer of possession of the aircraft (making it a taxable purchase or rental) or instead a nontaxable transportation service, which turns on who retains "dominion and control." Applying the same factors New York uses for chartered buses and boats (does the owner/manager retain hire-and-fire authority over operators, exercise discretion over routes, bear responsibility for the vehicle, and pay all operating costs?), the Department found the Manager -- not Gap -- checked every box: providing and paying pilots, handling all upkeep and regulatory recordkeeping, making all flight-operations arrangements, paying every operating expense, and retaining its own right to use the plane. Layered on top, the interchange program (which can substitute an entirely different aircraft) and the seller's repurchase rights further showed that Gap never obtained the kind of custody or control that would make the "bill of sale" a real transfer of aircraft ownership in the tax-law sense.

Because Gap never actually received possession or control of a specific aircraft, what it's buying is a nontaxable transportation service, not a taxable retail sale or rental of tangible personal property -- so no New York compensating use tax applies, regardless of where delivery is nominally taken. That conclusion made Gap's second, contingent question (about the aircraft resting in New York, being serviced here, or making intrastate flights) moot, since none of those facts change a transportation-service characterization.

What this means for you

Companies considering fractional aircraft ownership programs

The tax treatment of a "fractional interest" purchase depends heavily on who really controls the aircraft day-to-day -- a program where an independent manager handles pilots, maintenance, scheduling logistics, and operating costs, and can substitute other aircraft or use the plane itself when you're not, is more likely to be treated as buying a transportation service (no use tax) rather than buying/leasing tangible personal property (potentially taxable). Review your program's management and interchange agreements against these same dominion-and-control factors.

Fractional ownership program managers and aviation management companies

Structuring your program so the management company retains genuine operational control (pilot employment, maintenance authority, flight-operations decisions, cost responsibility) supports treating owner payments as exempt transportation services rather than taxable rentals -- but note this is a different doctrine from the "commercial aircraft" exemption applicable to genuinely commercial/for-hire aircraft (see the same-era CB Applications ruling, TSB-A-00(6)S); this ruling instead treats the arrangement as not even a taxable transfer of the aircraft in the first place.

Accountants and tax professionals

This ruling applies the same "dominion and control" test used for buses, limousines, and cruise boats (TSB-M-84(7)S and its progeny, including Klondike Cruises and Henry F. Geerken) to a fractional aircraft ownership program -- a genuinely novel extension worth flagging for any client considering NetJets-style or similar fractional aviation programs. Note this is analytically distinct from the commercial-aircraft exemption under § 1115(a)(21), which requires actual commercial/for-hire use; here the aircraft was explicitly non-commercial, and the exemption instead rests on the absence of a taxable transfer at all.

Common questions

Q: Is buying a "share" or "interest" in a private jet always a taxable purchase?
A: Not necessarily -- if an independent manager retains real operational control (pilots, maintenance, scheduling, costs) and the program allows aircraft substitution, the arrangement can be treated as a nontaxable transportation service rather than a taxable transfer of the aircraft itself.

Q: Does it matter where the aircraft is delivered, based, or serviced?
A: Not under this ruling's reasoning -- since no taxable transfer of possession/control occurred in the first place, questions about the aircraft's location, maintenance venue, or intrastate flights within New York became irrelevant (the Department called the second issue "moot").

Q: How is this different from the commercial-aircraft sales tax exemption?
A: The commercial-aircraft exemption (Tax Law § 1115(a)(21)) applies to aircraft actually engaged in commerce/for-hire use with cost-reflecting compensation. This ruling instead found there was no taxable "sale" or "use" at all, because the purchaser never obtained dominion and control over a specific aircraft -- a different, broader escape route available even for non-commercial aircraft.

Q: Can another company rely on this ruling?
A: No. It binds the Department only as to this petitioner's facts and this specific fractional-ownership program's agreements. A program giving the purchaser more real control over the aircraft could be analyzed differently.

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 § 1105(a), (c) (tax on tangible personal property and enumerated services)
• Tax Law § 1110(a) (compensating use tax)
• 20 NYCRR § 526.7(e)(4) (transfer of possession for rental/lease/license to use)
• TSB-M-84(7)S, Apr. 10, 1984 (bus company transactions -- transportation service vs. equipment rental; dominion-and-control factors)

Prior rulings referenced:

• Klondike Cruises, Inc., Adv Op Comm T&F, July 29, 1998, TSB-A-98(46)S
• Henry F. Geerken, Adv Op Comm T&F, Aug. 25, 1997, TSB-A-97(52)S
• Limousine Operators of Western New York, Inc., Adv Op Comm T&F, Oct. 27, 1988, TSB-A-88(55)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_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(3)S
Sales Tax
January 28, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S990720A

On July 20, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from The Gap, Inc., 900 Cherry Avenue MIC:1TX1, San Bruno, CA 94066. Petitioner, the
Gap, Inc., provided additional information pertaining to the Petition on September 15, 1999.
The issues raised by Petitioner are:

1. Whether its purchase of a 25% interest in a non-commercial aircraft as described below,
   where delivery of the aircraft is taken outside of New York State, is subject to New York
   State compensating use tax.
2. If Petitioner’s purchase of a 25% interest in a non-commercial aircraft as described below
   is not subject to New York State compensating use tax, would the following additional facts
   subject Petitioner to New York State compensating use tax on the aircraft?
   a. The aircraft comes to rest in New York for a substantial period of time.
   b. The aircraft is regularly maintained, serviced or repaired in New York.
   c. The aircraft is, on occasion, maintained, serviced or repaired in New York.
   d. The aircraft makes intrastate flights in New York.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner (“Owner”) is a California corporation which has merchants in New York State.
   Owner maintains nine headquarter buildings in California and one in New York City. Owner is
   currently building a distribution center in Fishkill, New York.
   Owner will be purchasing a 25% undivided interest in a non-commercial aircraft (“Aircraft”)
   from “Seller” to be used for transportation of its company personnel and guests for pleasure or
   business purposes through the following arrangement.
   Under the terms of the Purchase Agreement, Seller’s obligations to sell the interest to Owner
   are subject to Owner becoming a party to the Management, Joint Ownership and Master Interchange
   Agreements described below. Seller has the right of first refusal to purchase Owner’s interest in
   Aircraft and may, after five years, compel Owner to sell its interest to Seller at a repurchase price
   based on the then fair market value of Aircraft.

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Owner will enter into a Joint Ownership Agreement pursuant to which up to sixteen joint
owners (“Additional Interest Owners”) will be tenants-in-common of Aircraft. The Joint Ownership
Agreement will not create a joint venture, partnership, any business organization of any kind or other
relationship whereby any party will be held liable for the omissions or commissions of any other
party. Under Section 4. of the Joint Ownership Agreement, each owner is entitled to the use of the
Aircraft for a defined and specified period of time each year (the “Allocated Hours”) as identified
and governed by the Management Agreement described below.
Each of the joint owners will enter into a Management Agreement under which an
independent manager (“Manager”), will manage Aircraft for the benefit of the joint owners. Seller
and Manager appear to be related corporations. Each of the joint owners will also enter into a Master
Interchange Agreement with Manager for the purpose of facilitating access to alternate aircraft of
other persons participating in an Interchange Program in the event use of Aircraft is unavailable for
any reason. Under Section 2. of the Master Interchange Agreement, each of the joint owners agrees
to participate in the Interchange Program and to share Aircraft and pilots with such other persons,
who are also each a party to the Master Interchange Agreement.
Under the terms of the Management Agreement, Manager will provide management services
for the benefit of the joint owners. Such services, at Manager’s expense, include arranging for
Aircraft to be inspected, maintained, serviced and repaired in accordance with approved Federal
Aviation Administration standards and guidelines, administrative services and aircraft hull insurance
(naming Manager and all owners as insureds and providing for any insurance proceeds to be paid
to Manager for repair or replacement of Aircraft). Manager will pay and provide licensed pilots to
operate Aircraft, as well as recurrent pilot training, pilot medical examinations and uniforms. In
some instances a pilot may be chosen by Owner but only subject to the approval of Manager.
Manager will also pay all operating expenses such as fuel, hangar and general storage fees, and flight
planning and weather services. While Owner will select the date, time, point of departure and
destination of a particular flight, Manager will make all necessary take-off, flight and landing
arrangements. The pilots select their own routes and use their own discretion in performing flight
services. Manager will also maintain, on behalf of Owner, all records and logs required by the
Federal Aviation Administration (“FAA”). Aircraft will be repaired and maintained at a variety of
Manager’s facilities located throughout the United States. Payment is made directly to Manager’s
Texas address on a monthly basis and is based, in part, on the actual hours flown for the month.
Owner is entitled to use Aircraft for a defined number of hours each year. In the event that
use of Aircraft is unavailable to Owner, Manager will provide use of another available aircraft to
Owner through the Master Interchange Agreement. Manager is entitled to use Aircraft for flight
training for its pilots and for demonstration flights when it is not in use by one of the owners, and
to retain any money it earns in this use of Aircraft.

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Owner will not pay sales tax when it purchases its undivided interest in Aircraft because the
sale will occur in a jurisdiction that exempts the sale of aircraft. FAA documents will show that
Aircraft has Manager’s Texas address. Due to the nature of the joint ownership arrangement,
Aircraft will be in continual motion and will not be hangared in any identifiable location. Owner
will have no control over the location to which other joint owners fly Aircraft. There is no guarantee
that Owner will be using Aircraft each time it flies. Owner is unable to estimate how much of the
total usage of Aircraft will be in New York State, or the durations of stays, flight plans or purposes
of flights into New York.
Petitioner has submitted copies of the Bill of Sale and the Purchase, Joint Ownership,
Management and Master Interchange Agreements as part of its Petition.
Applicable Law and Regulations
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 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. . . .
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.

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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 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;
(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.
Technical Services Bureau Memorandum TSB-M-84(7)S, dated April 10, 1984, entitled Bus
Company Transactions -- Transportation Service vs. Equipment Rental, provides, in part:

1. Where a bus company conducts a tour for which it determines the time and
   destination and sells tickets at a predetermined price, the company is providing a
   transportation service which is exempt.
2. Where a bus company charters a bus to a group, and the bus company
   retains dominion and control over the bus, the bus company is engaged in providing
   a transportation service and, therefore, the charges are exempt from sales tax. A
   chartering party’s rights are limited to boarding the bus and riding to the agreed
   destination. . . .
   Dominion and control remains with the owner of a vehicle when pursuant
   to an agreement or contract:
3. there is no transfer of possession, control and/or use of the vehicle during
   the terms of the agreement or contract; and

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2. the owner maintains the right to hire and fire the drivers; and
3. the owner uses his own discretion in performing the service . . . and
   generally selects his own routes; and
4. the owner retains the responsibility for the operation of the vehicle; and
5. the owner directs the operation, pays all operating expenses, including
   drivers’ wages, insurance, tolls and fuels.
   Opinion
   Petitioner (“Owner”) is purchasing from “Seller” an “interest” in what appears to be a
   specified aircraft. Seller’s obligations to sell the interest to Petitioner are subject to Petitioner
   becoming a party to the Joint Ownership, Management and Master Interchange Agreements under
   which Manager provides management services in connection with the operation of the aircraft and
   a time sharing arrangement with other private aircraft “owners.” Interest in the aircraft is to be
   shared by various other purchasers who are referred to in the agreements as “Additional Interest
   Owners.” There may be up to sixteen “owners” of this particular aircraft, and each of these owners
   has entered into these same agreements with Seller and each other:
   (1) Purchase Agreement, under which Seller, as owner of the aircraft, sells to Petitioner an
   “interest” in the aircraft;
   (2) Management Agreement under which Petitioner engages Manager to provide
   management services in connection with the operation of the aircraft;
   (3) Joint Ownership Agreement setting forth the relationship among all the owners of an
   interest in the aircraft; and
   (4) Master Interchange Agreement between Manager and all persons, including Petitioner,
   participating in an Interchange Program which enables Petitioner to share its aircraft with
   such other persons taking part in the interchange arrangement, and to use the aircraft of those
   persons should use of its own aircraft be unavailable.
   The documents furnished by Petitioner provide that the interest in the aircraft conveyed by
   Seller to each owner is subject to the rights of each of the other additional interest owners. All of
   the owners of an interest in the aircraft have entered into the Master Interchange Agreement with
   Manager, whereby another aircraft may be substituted by Manager if the aircraft in which Petitioner
   purchases an interest is not available. When the aircraft is not in use by one of the owners, Manager
   retains the right to use it. These arrangements among each of the owners and between each owner

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and Manager significantly limits the control any single owner may exercise over the aircraft.
Therefore, the interest that will be conveyed to Petitioner by the “bill of sale” is not the transfer of
possession of tangible personal property and the word “owner” as used in the context of the
agreements does not denote ownership in the typical sense which involves the holding of title to
property.
Transportation is not one of the enumerated services upon which sales tax is due (see Matter
of Firelands Sewer & Water Construction Co., Inc., State Tax Commission, November 17, 1983,
TSB-H-83(184)S). Whether Petitioner’s purchase constitutes a taxable rental of tangible personal
property rather than the purchase of an exempt transportation service turns upon the question of
dominion and control (see Klondike Cruises, Inc., Adv Op Comm T&F, July 29, 1998,
TSB-A-98(46)S; Henry F. Geerken, Adv Op Comm T&F, August 25, 1997, TSB-A-97(52)S).
While the provisions of TSB-M-84(7), supra, do not specifically apply to the chartering of an
aircraft, the criteria set forth therein are useful in determining whether Petitioner has obtained
dominion and control of the aircraft within the meaning of Section 526.7(e) of the Sales and Use Tax
Regulations (see Limousine Operators of Western New York, Inc., Adv Op Comm T&F, October
27, 1988, TSB-A-88(55)S; Klondike Cruises, Inc., supra; Henry F. Geerken, supra). In Petitioner’s
case, the Management Agreement provides that Manager will furnish qualified pilots to operate the
aircraft. The pilots are paid by Manager, who also provides, at its own expense, recurrent pilot
training, pilot medical examinations and uniforms. In some instances a pilot may be chosen by
Petitioner but only subject to the approval of Manager. While Petitioner will select the date, time,
point of departure and destination with regard to a particular flight, Manager makes all necessary
take-off, flight and landing arrangements, and the pilots use their own discretion in performing the
flight services and select their own routes. Manager has the overall responsibility to manage and
operate the aircraft and pays all operating expenses such as fuel, hangar and general storage fees,
flight planning and weather services and aircraft hull insurance (which names Manager and all
owners as insureds and provides for any insurance proceeds to be paid to Manager for repair or
replacement of the aircraft).
In its purchase of an interest in the aircraft for the purpose of transportation of its officials,
employees and guests, Petitioner has fulfilled none of the requirements listed in TSB-M-84(7)S,
supra, necessary to retain dominion and control over the aircraft. Some additional factors set forth
in the agreements which support the view that sufficient custody over the aircraft along with the right
to exercise the necessary direction and control have not been transferred to Petitioner for there to be
a retail sale of such aircraft are:

1. Manager arranges for the aircraft to be inspected, maintained, serviced, repaired,
   overhauled and tested in accordance with approved Federal Aviation Administration
   standards and guidelines.

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2. Manager maintains all records, logs and other materials required by the FAA to be
   maintained in respect to the aircraft.
3. Manager retains the right to use the aircraft during periods it is not being utilized in the
   transportation of Petitioner or other owners and to retain any money it earns in this use of the
   aircraft.
4. Seller’s obligations to sell the interest to Petitioner are subject to Petitioner becoming a
   party to the Management, Joint Ownership and Master Interchange Agreements.
5. Seller has the right of first refusal to purchase Owner’s interest in Aircraft and may, after
   five years, compel Owner to sell its interest to Seller at a repurchase price based on the then
   fair market value of Aircraft.
   Therefore, possession, command and control of the aircraft have not been transferred to
   Petitioner, and what is being furnished to Petitioner 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 Limousine Operators of Western New York, Inc., supra; Revenue
   Rulings 76-394, 1976-2 C.B. 355 and 68-343, 1968-1 C.B. 491).
   Since the additional facts set forth by Petitioner in “Issue 2" are irrelevant for purposes of
   determining the taxability of transportation services furnished to Petitioner as described above,
   “Issue 2" is moot, and need not be addressed in this opinion.

DATED: January 28, 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.