Is a corporate-aviation subsidiary's cost-allocated charges to its affiliated companies for aircraft use exempt from New York sales tax as a commercial-aircraft transportation service, and does the exemption extend to buying, repairing, and maintaining the aircraft?

Plain-English summary

IBM Credit Corporation is a separate legal subsidiary of IBM that owns or leases aircraft and staffs them with its own roughly 50-person aviation division (pilots, licensed technicians, dispatchers) based at Westchester County Airport. Petitioner alone decides where and when the aircraft fly and pays all costs of flying and maintaining them — neither IBM nor any of IBM's other affiliated companies owns an interest in the aircraft or controls their operation. Under a written transportation agreement, IBM's affiliated companies are billed monthly for use of the aircraft, with the total charge equal to Petitioner's actual operating and maintenance costs, allocated in proportion to each company's flight hours. Over 90% of all flight hours carry employees, customers, and potential customers of IBM and its affiliates; less than 5% is Petitioner's own staff travel.

The first question was whether these cost-allocated charges were a taxable "rental" of the aircraft or a nontaxable transportation service. New York's regulations test a rental by whether the customer receives possession, the right to possession, or the right to control/direct the aircraft's use. Here, Petitioner — not the affiliated companies — retained complete dominion and control: it alone set schedules, staffed the flights, and bore all operating costs. That makes the arrangement a transportation service rather than a rental, so the charges themselves aren't taxed as a sale of tangible personal property.

That conclusion then opened the door to a second, broader exemption. Because the affiliates' payments reasonably reflected only cost (no markup) and more than half of the aircraft's use was devoted to transporting people for compensation, the aircraft qualified as "commercial aircraft primarily engaged in intrastate, interstate or foreign commerce" under § 1115(a)(21). That exemption is not limited to the transportation charges — it also covers the purchase or lease of the aircraft itself, machinery or equipment installed on it, and services or property used to repair and maintain it.

What this means for you

Corporate flight departments and intercompany aviation subsidiaries

Structuring aircraft ownership in a separate subsidiary that bills sister companies for flight time isn't automatically taxable — but the exemption hinges on that subsidiary genuinely retaining operational control (crew, scheduling, maintenance costs), not just legal title. If the "customer" companies could direct where or when the plane flies, this would look more like a taxable equipment rental.

Multi-entity corporate groups

The billing method matters less than who calls the shots. A pure cost-allocation formula (no profit built in) supports treating the charges as a service; charging a markup or letting affiliates dictate flight schedules would undercut both the transportation-service and commercial-aircraft analyses.

Accountants and tax professionals

Track the aircraft's flight-hour mix carefully — the exemption depends on more than 50% of use being devoted to compensated transportation of others, and self-use by the aviation entity's own personnel does not count toward that threshold. The Department's citation trio here — Pasquale & Bowers, Citiflight, Inc., and Philip Morris Management Corp. — is the standing precedent on this dominion-and-control test.

Common questions

Q: Does it matter that the aviation entity is a wholly owned subsidiary rather than an outside charter company?
A: No — the controlling test is who has dominion and control over the aircraft, not corporate affiliation. A subsidiary that operates independently, staffs its own crew, and bears its own costs can still provide an exempt transportation service to its parent's affiliated group.

Q: What if the aviation entity's own employees fly on the plane too?
A: Self-use by the aviation entity (or its affiliates) to transport their own personnel doesn't qualify as an exempt "commercial aircraft" use, and if it grew large enough it could jeopardize the more-than-50%-for-compensation threshold. Here it stayed under 5% of flight hours.

Q: Does the exemption cover only the flight charges, or also buying and maintaining the plane?
A: Both. Once the aircraft qualifies as "commercial aircraft" under § 1115(a)(21), the exemption extends to its purchase or lease, equipment installed on it, and repair/maintenance services and parts.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(5) (definition of sale, rental, lease)
• Tax Law § 1101(b)(7) (definition of use)
• Tax Law § 1101(b)(17) (definition of commercial aircraft)
• Tax Law § 1105(a) (retail sales tax), § 1105(c)(3)(v) (aircraft repair/maintenance exception)
• Tax Law § 1110(a) (compensating use tax)
• Tax Law § 1115(a)(21) (commercial aircraft exemption)
• 20 NYCRR § 526.7(e)(4) (transfer-of-possession test); § 528.10(b)(1) (definition of airline)

Prior rulings referenced:

• Citiflight, Inc., TSB-A-00(30)S
• Philip Morris Management Corp., TSB-A-00(38)S
• Pasquale & Bowers, TSB-A-96(49)S
• Harfred Operating Corporation, TSB-A-86(28)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_17s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(17)S
Sales Tax
April 4, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020710A

On July 10, 2002, the Department of Taxation and Finance received a Petition for Advisory
Opinion from IBM Credit Corporation, North Castle Drive, Armonk, New York 10504.
The issue raised by Petitioner, IBM Credit Corporation, is whether, under the circumstances
presented, New York State sales and compensating use tax applies to:
1.
2.
3.
4.
5.

Purchase or lease of new aircraft,
Purchase of machinery or equipment to be installed on new or existing aircraft,
Purchase of property to repair or maintain new or existing aircraft,
Purchase of services to repair or maintain new or existing aircraft, or
Charges paid by IBM Corporation’s affiliated companies for air transportation
services.

Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner was incorporated in the State of Delaware on March 4, 1981. Its principal place
of business is located in North Castle Drive, Armonk, New York, and it has offices and operations
located in Armonk and White Plains, New York. Petitioner is a first tier subsidiary of IBM
Corporation (“IBM”). Petitioner is a separate and distinct legal entity that operates independently
of its parent, IBM, and IBM’s affiliated group (collectively “IBM’s Affiliated Companies”).
Petitioner is responsible for its own business operations, including finances, administration, and
management.
Petitioner either owns or leases aircraft that are used to provide transportation services.
Petitioner is the sole owner of the aircraft and the only entity within IBM’s affiliated group
providing aircraft related services. Neither IBM nor IBM’s Affiliated Companies have any
ownership interest in any of Petitioner’s aircraft. Additionally, Petitioner exercises complete
dominion and control over any aircraft that it owns or leases, including all flight services,
scheduling, fuel, repairs and maintenance, pilots and flight staff for the aircraft (i.e., operations and
maintenance). In this respect, Petitioner determines where and when the aircraft fly and is
responsible for all maintenance and costs associated with the aircraft operations.
Petitioner operates its aircraft under Part 91, Subpart F of the FAA Regulations and is not
required to obtain an air taxi/commercial operating certificate. Additionally, Petitioner is not
required to obtain a FAR 135 Air Carrier Operating Certificate under Part 135 of the FAA
Regulations.
Petitioner maintains its own aircraft staff. Petitioner’s aircraft division has approximately
50 employees composed of airline transport rated pilots, licensed aircraft technicians, certified

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dispatchers, and administrative personnel. Petitioner employees that are dedicated to providing
aircraft services work at Westchester County Airport.
Petitioner’s aircraft are used primarily (i.e., over 90% of all flights) to transport employees,
customers and potential customers of IBM and IBM’s Affiliated Companies on intrastate, interstate,
and international flights. However, on occasion (i.e., less than five percent of all annual flights),
Petitioner may use aircraft to transport its own employees.
Pursuant to a written transportation service agreement, IBM’s Affiliated Companies are
charged a fee equal to Petitioner’s costs of operating and maintaining the aircraft (i.e., total fixed
and variable costs). This fee is allocated each month to IBM’s Affiliated Companies in proportion
to each company’s flight hours in relation to total flight hours. This formula is intended to result
in an intercorporate allocation of almost all of Petitioner’s aircraft costs, as measured by flight hours.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, 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. . . .
*

*

*

(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

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person’s tangible personal property in the conduct of such person’s business, or (iii)
for both such purposes.
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) 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 . . . whether or not the services are performed
directly . . . or by any other means, and whether or not any tangible personal property
is transferred in conjunction therewith, 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 . . . except as otherwise exempted under this
article, (A) of any tangible personal property purchased at retail . . . (D) of any
tangible personal property, however acquired, where not acquired for purposes of
resale, upon which any of the services described in paragraphs (2), (3) and (7) of
subdivision (c) of section eleven hundred five of this part have been performed. . . .
Section 1115 of the Tax Law provides, in part:
(a) Receipts from the following shall be exempt from the tax on retail sales
imposed under subdivision (a) of section eleven hundred five and the compensating
use tax imposed under section eleven hundred ten:

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*

*

*

(21) 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 528.10(b)(1) of the Sales and Use Tax Regulations provides the following definition
of airline:
An airline is:
(i) an air carrier of persons, property and mail operating under a
certificate of public convenience and necessity issued by the Civil
Aeronautics Board, or a foreign air carrier holding an equivalent certificate
issued by the carrier's respective sovereign government;
(ii) an air carrier holding a certificate for all-cargo air service issued
by the Civil Aeronautics Board; or
(iii) an air taxi operator, who is classified by the Civil Aeronautics
Board as a commuter air carrier, or who (a) performs at least five round trips
per week between two or more points, and publishes flight schedules which
specify the times and days of the week and places between which such flights
are performed, or (b) transports mail by air pursuant to contract with the
United States Postal Service. This exemption shall extend to the purchase of
fuel for use in such commuter flights.
Opinion
To qualify for the exemption provided by Section 1115(a)(21) of the Tax Law, Petitioner
must be providing transportation services, rather than renting its aircraft, and over 50% of the use

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of such aircraft must be devoted to transportation services for compensation. Self-use by Petitioner
or IBM’s Affiliated Companies in transporting their own personnel would not qualify for the
exemption.1
Petitioner is a separate legal entity which owns, operates and maintains dominion and control
of the aircraft. The fact that Petitioner maintains dominion and control over the aircraft indicates
that Petitioner’s fees are charges for a transportation service rather than the rental of tangible
personal property. See Section 526.7(e)(4) of the Sales and Use Tax Regulations. Therefore,
Petitioner’s charges to the related companies for use of such aircraft are exempt from tax, as the
charges are for the provision of a nontaxable transportation service. See Pasquale & Bowers, supra;
Citiflight, Inc., Adv Op Comm T & F, August 3, 2000, TSB-A-00(30)S; and Philip Morris
Management Corp., Adv Op Comm T & F, October 11, 2000, TSB-A-00(38)S.
Since over 50% of the use of Petitioner’s aircraft is devoted to transporting employees,
customers, and potential customers of IBM, and IBM’s Affiliated Companies, for compensation as
described above, 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 Pasquale & Bowers,
supra; Citiflight, Inc., supra; and Philip Morris Management Corp., supra. Accordingly, the
purchase and use of such aircraft are exempt from New York State and local sales and compensating
use taxes. In addition, machinery or equipment installed on, repair or maintenance services rendered
with respect to, and property used or purchased for use for maintenance and repair of Petitioner’s
commercial aircraft are exempt from New York State sales and compensating use tax, as provided
by Sections 1105(c)(3)(v) and 1115(a)(21) of the Tax Law.

DATED: April 4, 2003

NOTE:

1

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

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

Under certain circumstances in order to prevent fraud or injustice, the corporate
structure may be disregarded and a corporation may be considered to be the alter ego of its
parent or affiliate. See Harfred Operating Corporation, Adv Op St Tax Comm, July 18, 1986,
TSB-A-86(28)S; and Pasquale & Bowers, Adv Op Comm T&F, August 1, 1996,
TSB-A-96(49)S.