Is an aircraft owned by a single-purpose affiliate that flies its parent companies' employees and guests for a fee an exempt commercial aircraft?

Plain-English summary

Cleveland Browns Transportation LLC is a separately organized affiliate created solely to own and operate aircraft for the Cleveland Browns' corporate family (the stadium company, the football operating company, and their parent holding company). It owns one jet already and is acquiring another. It has its own officers, books, bank accounts, and business purpose distinct from its affiliates, hires its own pilots and mechanic, and retains full command and control over where, when, and for whom the aircraft flies. About 90% of the aircraft's use is dedicated to flying the affiliates' officers, employees, and business guests, billed at cost (direct and indirect operating expenses) plus a profit margin.

New York exempts "commercial aircraft" — meaning an aircraft used primarily (at least 50% of the time) either to transport persons/property for hire or by the purchaser to transport its own property in its business. Because Cleveland Browns Transportation genuinely operates as its own legal entity and devotes about 90% of its aircraft use to for-hire transportation service billed on a cost-reflective basis to its affiliates, the Department found the aircraft qualifies as a commercial aircraft. That means the purchase of the aircraft itself, machinery/equipment installed on it, materials used for maintenance and repair, and the maintenance/repair SERVICES themselves are all exempt from sales and use tax — and the fees the affiliate charges its parent companies for flights are nontaxable transportation services, not taxable rentals.

There's a significant catch built into the ruling: this whole analysis depends on treating the LLC as a genuinely separate legal entity from its corporate family. If the affiliates are later found to be so intertwined — dominated, controlled, or commingled — that they're really operating as each other's alter egos, the corporate structure would be disregarded, the aircraft would be reclassified as ordinary self-use property (not "for hire"), and the commercial-aircraft exemption would be lost (though a separate, now-expired maintenance/repair exemption under § 1115(dd) could still have applied through 2009).

What this means for you

Corporate groups using a related-party aircraft-holding entity

Setting up a separate LLC to own and operate a company jet CAN qualify for New York's commercial aircraft exemption, but only if that entity is run as a real, independently operating business — its own name, books, officers, contracts, and genuine cost-based billing to affiliates — and at least half its flight time is dedicated to transporting people or property for that compensation.

Corporate aviation and tax counsel

The alter-ego risk here is real: if the IRS or Department later views the aircraft-holding affiliate as a sham or as functionally indistinguishable from its parent, the whole exemption can retroactively unravel, so document the separateness (contracts, cost-based billing methodology, independent decision-making) carefully and on an ongoing basis, not just at setup.

Accountants and tax professionals

This is a useful template for the "at least 50% for-hire use" threshold under § 1101(b)(17) and § 1115(a)(21), and for how cost-based intercompany billing (rather than a flat internal transfer price) supports genuine "for hire" transportation rather than disguised self-use.

Common questions

Q: Can a company create a subsidiary to own its jet and still get New York's commercial aircraft exemption?
A: Yes, if the subsidiary is genuinely operated as a separate business and at least 50% of the aircraft's use is transportation for hire billed on a cost-reflective basis.

Q: What happens if the subsidiary is found to be a sham or alter ego of its parent?
A: The commercial aircraft exemption is lost entirely, and the aircraft is treated as ordinary self-use property purchased by the related entities.

Q: Does the exemption cover maintenance and repairs too?
A: Yes — machinery/equipment installed on a qualifying commercial aircraft, and materials and services for its maintenance and repair, are also exempt.

Q: Can another company rely on this Advisory Opinion for its own aircraft-holding structure?
A: No. It binds the Department only for the petitioner and facts described; another company's corporate separateness and billing practices should be verified independently.

Citations and references

Statutes, regulations, and guidance:

• Tax Law §§ 1101(b)(17); 1105(a), (c)(3)(v); 1110(a); 1115(a)(21); 1115(dd)
• 20 NYCRR 526.7(e)(4)
• TSB-M-96(14)S (commercial vessel/aircraft definitions)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a06_8s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-06(8)S
Sales Tax
March 6, 2006

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S051031A

On October 31, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Cleveland Browns Transportation LLC, 76 Lou Groza Boulevard, Berea,
Ohio 44017.
The issues raised by Petitioner, Cleveland Browns Transportation LLC, are:

1. Whether an aircraft acquired by Petitioner is exempt from sales and use tax under section
   1115(a)(21) of the Tax Law.
2. Whether Petitioner’s charges to its affiliates for transportation services are subject to
   sales tax.
3. Whether maintenance costs and related equipment purchased in connection with
   Petitioner’s use of the aircraft are subject to sales tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Cleveland Browns Holdings Co. LLC (“Holdings”), a Delaware limited liability
   company, owns all the membership interests in Cleveland Browns Stadium Co. LLC (“Sub 1”)
   and Cleveland Browns Football Co. LLC (“Sub 2”). Both Sub 1 and Sub 2 are also Delaware
   limited liability companies and are disregarded entities for federal income tax purposes.
   Sub 1 has organized Petitioner, also a Delaware limited liability company, and holds all
   the membership interests in Petitioner. Petitioner is also a disregarded entity for federal income
   tax purposes. Petitioner has a name that is different from each of its affiliates and maintains its
   own books, records, and bank accounts, which are separate from the books, records, and bank
   accounts of Holdings, Sub 1 and Sub 2. Petitioner’s Certificate of Organization and its
   Operating Agreement set out organizational purposes different from those of its affiliates.
   Petitioner also has its own officers, who overlap with, but differ from, the officers of its
   affiliates.
   Petitioner, like each of its affiliates, holds itself out to the public as a separate legal entity
   and enters into business relationships and contractual obligations in its own name. Petitioner has
   substantial equity capital, approximately $50 million, and no debt. Petitioner presently owns one
   jet aircraft and will be acquiring an additional aircraft in 2006. Petitioner is responsible for
   providing transportation services to Holdings, Sub 1 and Sub 2. The additional aircraft acquired
   and operated by Petitioner will be registered under Federal Aviation Regulations (FAR) Part 91.
   Petitioner is not required to obtain a FAR 135 Air Carrier Operating Certificate.

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Sales Tax
March 6, 2006

Petitioner will be the sole owner of the newly acquired aircraft, will set the specifications
for and will contract for modifications to the aircraft, and will be the sole owner of all rights
under all related warranties. Petitioner will determine where and when the aircraft will fly, will
determine the passengers carried, and will at all times have possession, command and control of
the aircraft. Petitioner will lease hangar space and retain related services for the aircraft in
Suffolk County, New York, and will obtain insurance on the aircraft.
Petitioner has hired three full-time pilots and one full-time mechanic to operate and
maintain the aircraft. Petitioner uses the services of an affiliate to coordinate scheduling and use
of the aircraft, along with bookkeeping and other administrative services, including billing
affiliates for use of the aircraft. Petitioner will pay the affiliate fair value for its services. In
addition, Petitioner will directly contract for and pay the costs of all other aspects of the aircraft’s
operation, maintenance, inspection, repairs and overhauls.
Approximately 90% of the use of Petitioner’s aircraft will be for transportation services
for hire to Holdings, Sub 1 or Sub 2. Petitioner will provide these services pursuant to a written
agreement. These services will consist of the transport of officers and employees of the affiliated
companies and their customers, vendors, prospective customers and business colleagues.
Petitioner will charge the recipient of the air transportation services (i.e., Holdings, Sub 1 or Sub
2) for these services based on the direct and indirect operating costs of the aircraft under the
applicable FAA Regulations and precedents. During the year, affiliates will be billed based on
an estimated cost (direct and indirect) per hour of flight time. After year end, the billings will be
adjusted to capture all actual direct and indirect costs, plus a profit margin.
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:
*

*

*

(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 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 . . . upon:

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Sales Tax
March 6, 2006

(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 . . . not held for sale in the regular course of business . . .
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 twentyone of subdivision (a) of section eleven hundred fifteen of this article; . . .
(Emphasis added)
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 two, three and seven of subdivision (c) of section eleven
hundred five of this part have been performed. . . .
Section 1115(a)(21) of the Tax Law exempts commercial aircraft from the sales tax
imposed by section 1105(a) of the Tax Law and from the compensating use tax imposed under
section 1110, as follows:
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. (Emphasis added)
Section 1115(dd) of the Tax Law provides:

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Sales Tax
March 6, 2006

(1) Services otherwise taxable under paragraph three of subdivision (c) of section
eleven hundred five or under section eleven hundred ten of this article, and tangible
personal property purchased and used by the person who sells such services in
performing such services, where such property becomes a physical component part of the
property upon which the services are performed or where such property is a lubricant
applied to aircraft, shall be exempt from tax under this article where such services are
performed on aircraft.
(2) The service of storing an aircraft provided by a person who sells a service
exempt under paragraph one of this subdivision, when such storing is rendered in
conjunction with, and during the rendering of, such service to such aircraft, shall be
exempt from the tax imposed under paragraph four of subdivision (c) of section eleven
hundred five of this article.
(This exemption expires December 1, 2009, pursuant to Chapter 60 of the Tax
Laws of 2004.)
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 Service Bureau Memorandum, entitled Tax Law Defines Commercial Vessels
and Commercial Aircraft, November 7, 1996, TSB-M-96(14)S, states, in part:
Statutory changes in the definitions of commercial vessels and commercial
aircraft have expanded the current sales and use tax exemptions for commercial vessels
and aircraft, effective December 1, 1996. The expanded exemptions now also include
vessels and aircraft that transport, in qualifying commerce, tangible personal property in
the conduct of the business of the purchaser of the vessels or aircraft. (Purchaser includes,
for example, a buyer, renter or lessee of the vessel or aircraft.) The exemption covers
certain purchases of tangible personal property necessary to operate the exempt vessels
and aircraft, and also exempts maintenance and repair services to the exempt vessels or
aircraft, and fuel used by the exempt vessels and aircraft.
Previously, only vessels and aircraft used by the purchaser primarily (at least 50%
of the time) in the transportation for hire of other persons or their property qualified for

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Sales Tax
March 6, 2006

the exemption. Thus, self-use of a vessel or aircraft to transport one’s own property was
not a qualifying use.
*

*

*

Commercial Aircraft
The expanded definition of a commercial aircraft is an aircraft used primarily:
•

to transport persons or property, for hire;

•

by the purchaser of the aircraft primarily to transport the purchaser’s own tangible
personal property in the conduct of the purchaser’s business; or

•

for both of the above purposes.

To be exempt, a commercial aircraft must be primarily engaged in intrastate,
interstate or foreign commerce. . . .
In addition to the exemption applicable to the aircraft, the exemption also applies
to:
•

machinery and equipment installed on the aircraft;

•

property used by or purchased for the use of the aircraft for maintenance and
repairs;

•

the services of maintaining, servicing and repairing the aircraft, machinery or
equipment installed on the aircraft, and property used by or purchased for the use
of the aircraft; (Emphasis added)

•

flight simulators purchased by commercial airlines.

Permanent air cargo containers suitable for repeated use, and specifically
designed to facilitate the carriage of goods on aircraft, are exempt from New York State
sales and use taxes. Repairs to air cargo containers are likewise exempt.
For more information about the exemptions granted to commercial aircraft
primarily engaged in intrastate, interstate or foreign commerce, see TSB-M-80(4)S,
Exemptions For Commercial Aircraft, and TSB-M-80(4.1)S, Air Cargo Containers. In
reading TSB-M-80(4)S, please read-in the expanded definition of a commercial aircraft
. . . and also substitute 50% for the out-of-date 75% threshold for determining when a
commercial aircraft is primarily used in the qualifying commerce.

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Sales Tax
March 6, 2006

Opinion
Petitioner’s Certificate of Organization and its Operating Agreement set out
organizational purposes different from those of its affiliates. Petitioner has a name that is
different from each of its affiliates; holds itself out to the public as a separate legal entity; enters
into business relationships and contractual obligations in its own name; maintains its own books,
records, and bank accounts; and has its own officers. Petitioner presently owns one jet aircraft
and will be acquiring an additional aircraft in 2006. This Opinion is limited to the purchase and
modification of, as well as related services performed on, the additional aircraft.
The taxability of Petitioner’s purchase of the aircraft is dependent on whether the aircraft
qualifies as a commercial aircraft as defined by section 1101(b)(17) of the Tax Law. Where at
least 50% of an aircraft’s use is devoted to transporting customers or property for compensation
and the compensation reasonably reflects the cost of operating the aircraft, such aircraft will be
considered a commercial aircraft primarily engaged in intrastate, interstate or foreign commerce
for purposes of section 1115(a)(21) of the Tax Law. Therefore, the purchase or use of an aircraft
qualifies for the exemption from sales and use tax provided by section 1115(a)(21) for
commercial aircraft if at least 50% of the use of the aircraft is in the provision of air
transportation services for hire. (See TSB-M-96(14)(S); supra; and Pasquale & Bowers, Adv
Op Comm T & F, August 1, 1996, TSB-A-96(49)S; CB Applications, LLC, Adv Op Comm T&F,
February 1, 2000, TSB-A-00(6)S; Philip Morris Management Corp, Adv Op Comm T&F,
October 11, 2000, TSB-A-00(38)S.)
Petitioner will retain complete dominion and control over the aircraft and its operations
and maintenance, and approximately 90% of the use of the aircraft will be to provide air
transportation services for hire to its affiliates. Therefore, Petitioner’s aircraft will qualify for the
commercial aircraft exemption provided by section 1115(a)(21) of the Tax Law. Petitioner’s
charges to its affiliates are for the provision of nontaxable transportation services.
Maintenance services in connection with Petitioner’s use of the commercial aircraft
qualify for exclusion from sales tax under section 1105(c)(3)(v) of the Tax Law. Purchases of
machinery or equipment to be installed on the aircraft and of tangible personal property to be
used for the maintenance and repair of the aircraft are exempt under section 1115(a)(21) of the
Tax Law. See Federal Express Corporation, Adv Op Comm T&F, December 26, 1996,
TSB-A-96(81)S; KPMG LLP, Adv Op Comm T&F, March 25, 2003, TSB-A-03(12)S; IBM
Credit Corporation, Adv Op Comm T&F, April 4, 2003, TSB-A-03(17)S. Petitioner should
submit a properly completed Exempt Use Certificate, Form ST-121, to the seller of the aircraft
and to each seller supplying machinery and equipment or services used in the aircraft that qualify
for exemption.
The above analysis presumes treatment of Petitioner as a separate legal entity. However,
if the activities of Petitioner were so dominated and controlled by the parent or affiliates or their
activities were so commingled that they would be considered to be operating as alter egos of

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Sales Tax
March 6, 2006

each other rather than separate legal entities, then the corporate structures would be disregarded
and the conclusions reached in this Opinion would not apply. See Harfred Operating
Corporation, Adv Op St Tx Comm, July 18, 1986, TSB-A-86(28)S.
If Petitioner and its affiliates should be disregarded as separate legal entities for purposes
of sales tax, the aircraft would not be considered to be a commercial aircraft but rather would be
purchased for self use by the related entities. Under such circumstances, Petitioner’s purchase of
the aircraft and equipment for the aircraft would not qualify for the commercial aircraft
exemption. However repair and maintenance services performed on such aircraft could be
purchased tax exempt (through November 30, 2009) pursuant to the provisions of section
1115(dd) of the Tax Law.

DATED: March 6, 2006

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.