Are a corporate aircraft division's aircraft purchases and maintenance services exempt from New York sales tax as commercial aircraft, and are its cost-based intercompany flight charges to affiliates exempt air transportation rather than a taxable aircraft rental?

Plain-English summary

Tropicana Products, Inc., a first-tier PepsiCo subsidiary, runs its own corporate flight operations through an internal division called "SoBe," based at White Plains Airport. SoBe isn't a separate legal entity — it's just a division of Tropicana — but it holds title to the aircraft, staffs about 31 of its own aviation employees, and handles all flight scheduling, maintenance, and costs itself. More than 90% of flight time carries employees, customers, and potential customers of PepsiCo and its affiliates, who reimburse SoBe for the aircraft's operating costs (both fixed and variable) allocated by flight hours, under a written transportation services agreement. Unlike the companion ruling issued the same day for a different American Express subsidiary, there's no lease here at all — SoBe simply operates the aircraft directly for its affiliates from the start.

The Department reached the same two-part conclusion as in that companion ruling, and for the same reasons. First, because more than 50% (here, over 90%) of the aircraft's use is for-hire transportation of persons for compensation that reasonably reflects operating cost, the aircraft qualify as exempt "commercial aircraft" under § 1115(a)(21) — meaning the aircraft purchases, installed equipment, and maintenance/repair services are all exempt from New York sales and use tax. Second, because SoBe (legally just Tropicana itself, since a division isn't a separate taxable entity) retains complete dominion and control over the aircraft — its own staff, its own scheduling authority, its own maintenance responsibility — the intercompany charges to PepsiCo affiliates are a nontaxable transportation service, not a taxable rental of the aircraft.

What this means for you

Corporate flight departments structured as an internal division

Whether your aviation operation is a separate subsidiary or, like SoBe here, just an internal division of the parent company doesn't change the sales tax analysis — the Department treated Tropicana and SoBe as one and the same taxpayer for sales tax purposes. What matters is (1) whether your aircraft is used primarily (more than 50%) for for-hire transportation, and (2) whether you keep actual dominion and control (crew, scheduling, maintenance) rather than handing the aircraft over under a lease.

Aircraft owners billing affiliates for flight costs

Charging affiliates based on genuine operating costs, allocated by flight hours, supports treating the arrangement as a transportation service rather than equipment rental — as long as there's no separate lease and the owner keeps operational control.

Accountants and tax professionals

This ruling and its same-day companion (TSB-A-02(22)S) both apply the Department's settled "dominion and control" test from 20 NYCRR § 526.7(e), citing the same line of prior opinions (Philip Morris Management Corp., Citiflight, The Gap, Federal Express, Pasquale & Bowers). The only structural difference here is that SoBe is a division rather than a subsidiary with an aircraft lease still in place — which simplified the analysis since there was no lease to terminate.

Common questions

Q: Does operating aircraft through an internal division instead of a separate subsidiary change the sales tax analysis?
A: No. The Department treated the division and its parent corporation as the same taxpayer, so the same commercial-aircraft and dominion-and-control tests apply either way.

Q: Is the purchase of the aircraft, and equipment installed on it, exempt from sales tax?
A: Yes, because over 90% of the aircraft's use is for-hire transportation for compensation, well above the 50% threshold for "commercial aircraft."

Q: Are maintenance and repair services on the aircraft exempt too?
A: Yes, since the aircraft itself qualifies as exempt commercial aircraft, services that maintain, service, or repair it are exempt under § 1105(c)(3)(v).

Q: Are the intercompany flight charges to PepsiCo affiliates taxable as a rental?
A: No — since the division retains complete dominion and control over the aircraft (its own crew, scheduling, and maintenance) and there's no lease to affiliates, the charges are a nontaxable transportation service.

Q: Can another company with a similar internal aviation division rely on this ruling?
A: No. It's binding only on Tropicana/SoBe based on the specific facts described, and can't be relied on by any other taxpayer.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5), (7), (17) (sale/purchase; use; commercial aircraft definition)
• Tax Law § 1105(a), (c)(3)(v) (imposition on retail sales; maintenance/repair exemption)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(a)(21) (commercial aircraft exemption)
• 20 NYCRR § 526.7(e)(4) (transfer of possession)
• 20 NYCRR § 527.5(a)(3) (maintaining, servicing, repairing)

Prior opinions cited:

• TSB-A-00(38)S, Philip Morris Management Corp., Oct. 11, 2000
• TSB-A-00(30)S, Citiflight, Inc., Aug. 3, 2000
• TSB-A-96(81)S, Federal Express Corporation, Dec. 26, 1996
• TSB-A-00(3)S, The Gap, Inc., Jan. 28, 2000
• TSB-A-96(49)S, Pasquale & Bowers, Aug. 1, 1996

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_23s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(23)S
Sales Tax
July 10, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020104A

On January 4, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Tropicana Products, Inc., 700 Anderson Hill Road, Purchase, NY
10577-1444.
The issues raised by Petitioner, Tropicana Products, Inc., are:
(1) Whether, under the circumstances described below, its aircraft operations division’s
purchases of new aircraft, machinery or equipment installed on new or existing aircraft, property
purchased for the maintenance and repair of new or existing aircraft, and services rendered for the
maintenance and repair of its aircraft are exempt from sales and compensating use taxes under
Sections 1115(a)(21) and 1105(c)(3)(v) of the Tax Law.
(2) Whether, under the circumstances described below, the compensation paid to Petitioner’s
aircraft operations division 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 1986. Petitioner’s principal place of
business is located in Bradington, Florida, with offices and operations in Purchase and White Plains,
New York. Petitioner is a first tier subsidiary of PepsiCo, Inc. (“PepsiCo”). Petitioner is a separate
and distinct legal entity that operates independently of its parent, PepsiCo, and related companies.
Petitioner is responsible for its own business operations, including finances, administration, and
management.
Petitioner’s aircraft operations division (“SoBe”) is fully dedicated to providing aircraft
related services. SoBe is not a separate legal entity, but is a distinct operating division within
Petitioner. The SoBe division of Petitioner holds title to its aircraft, and is the sole owner of these
aircraft. None of the related companies in the PepsiCo affiliated group will have any ownership
interests in any of the aircraft. SoBe has approximately 31 employees consisting of airline transport
rated pilots, licensed aircraft technicians, certified dispatchers, and administrative personnel.
Employees dedicated to aircraft operations work at White Plains Airport where Petitioner regularly
owns and operates aircraft. SoBe provides aircraft transportation services to employees, customers,
and potential customers of PepsiCo (parent) and PepsiCo’s subsidiaries (affiliates of Petitioner) on
intrastate, interstate, and international flights. On rare occasions, i.e., less than 2% of all annual
flights, Petitioner may use aircraft for the transportation of its own employees.

-2­
TSB-A-02(23)S
Sales Tax
July 10, 2002

SoBe is not required to obtain a FAR 135 Air Carrier Operating Certificate under Part 135
of the Federal Aviation Administration (“FAA”) Regulations. SoBe will operate its aircraft under
Part 91, Subpart F, of the FAA Regulations, and will be responsible for all flight services,
scheduling, fuel, repairs and maintenance, pilots and flight staff for the aircraft.
SoBe will maintain its own aircraft related staff, and will be responsible for its own finances
and administration. SoBe exercises complete dominion and control over all aircraft owned or
leased by SoBe, including operations and maintenance, as it determines where and when the aircraft
fly, and is responsible for all maintenance and costs associated with the aircraft operations.
The related companies compensate SoBe for flights. The compensation charged by SoBe
is based on the operating costs of the aircraft; and the related companies pay these costs based on
their usage of the aircraft. More than 90 percent of the use of SoBe’s aircraft will be devoted to
transporting employees, customers, and potential customers of related companies for compensation.
SoBe charges out all its expenses relating to aircraft operations, including both fixed and variable
costs, to its users. This charge is allocated between the affiliated entities in proportion to their
flight hours in using the aircraft. This formula should result in an intercorporate allocation of
almost all of the aircraft’s costs, as measured by flight hours. SoBe provides air transportation
services to its affiliates pursuant to a written transportation service agreement.
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,

-3­
TSB-A-02(23)S
Sales Tax
July 10, 2002

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 sales tax, in part, upon:
The receipts from every sale, except for resale, of the following services:
*

*

*

(3) Installing tangible personal property . . . or maintaining, servicing or
repairing tangible personal property . . . not held for sale in the regular course of
business . . . except:
*

*

*

(v) such services rendered with respect to commercial aircraft, machinery
or equipment and property used by or purchased for the use of such aircraft as such
aircraft, machinery or equipment, and property are specified in paragraph twenty­
one of subdivision (a) of section eleven hundred fifteen of this article. . . .
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:

-4­
TSB-A-02(23)S
Sales Tax
July 10, 2002

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;
(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.
Section 527.5(a)(3) of the Sales and Use Tax Regulations provides, in part:
Maintaining, servicing and repairing are terms used to cover all activities
that relate to keeping tangible personal property in a condition of fitness, efficiency,
readiness or safety or restoring it to such condition.
Opinion
Petitioner’s aircraft operations division (SoBe) will purchase and operate aircraft that will
be used to transport, for compensation, employees, customers, and potential customers of related
companies on intrastate, interstate, and international flights. Petitioner represents that it is a
separate and distinct legal entity that operates independently of its parent and the related
companies. It is noted that as SoBe is simply a division of Petitioner, Petitioner and SoBe are not
separate entities for sales tax purposes.
With respect to Issue (1), since more than 50 percent of the use of Petitioner’s aircraft is
devoted to transporting employees, customers, and potential customers of related companies for
compensation, and the compensation reasonably reflects the cost of operating the aircraft, the
aircraft will be considered commercial aircraft primarily engaged in intrastate, interstate, or foreign
commerce, within the meaning of Section 1115(a)(21) of the Tax Law. See Philip Morris
Management Corp., Adv Op Comm T&F, October 11, 2000, TSB-A-00(38)S; Citiflight, Inc., Adv
Op Comm T&F, August 3, 2000, TSB-A-00(30)S; Pasquale & Bowers, Adv Op Comm T&F,
August 1, 1996, TSB-A-96(49)S. This presumes treatment of Petitioner and the related companies
as separate legal entities as represented by Petitioner.

-5­
TSB-A-02(23)S
Sales Tax
July 10, 2002

As Petitioner’s aircraft qualifies as “commercial aircraft” for purposes of Section
1115(a)(21) of the Tax Law, purchases of machinery or equipment to be installed on the aircraft
and of tangible personal property purchased or used by Petitioner to maintain or repair its aircraft
will be exempt from New York State and local sales and compensating use taxes. See Federal
Express Corporation, Adv Op Comm T&F, December 26, 1996, TSB-A-96(81)S. Likewise,
service charges for the maintenance or servicing of the aircraft within the meaning of Section
527.5(a)(3) of the Sales and Use Tax Regulations would be exempt. See Section 1105(c)(3)(v) of
the Tax Law.
Concerning 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 potential 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; Philip Morris Management
Corp., supra; Citiflight, Inc., supra. In this case, Petitioner employs the personnel who maintain
and operate the aircraft, including pilots, licensed aircraft technicians, certified dispatchers, and
administrative personnel. Petitioner determines where and when the aircraft fly, and is responsible
for all maintenance and costs associated with the aircraft operations. 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. Citiflight, Inc., supra; The Gap, Inc., supra.

DATED: July 10, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

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