If a company leases an aircraft and uses it mostly for charter flights to the public and its owners, with the rest for its own affiliates' business travel, does the lease qualify for New York's commercial aircraft sales-tax exemption?

Plain-English summary

GSO Capital Partners (Texas) GP LLC leased an aircraft from its parent company's trustee and set up two supporting contracts: an aircraft management agreement (for maintenance, insurance, and pilots) and a charter services agreement with a licensed air carrier that would market and operate the plane for paying charter customers. The plan was for the aircraft to fly about 400 hours a year — 300 hours as paid charter service (200 of those for the parent company's individual owners at a discounted-but-still-market rate, 100 for the general public) and 100 hours for the company's own and its affiliates' business travel.

The Department confirmed the aircraft qualifies as an exempt "commercial aircraft" under Tax Law § 1115(a)(21) because at least 50% of its use is transporting people for compensation that reflects the actual cost of operating the plane — meeting the statutory threshold even though a meaningful chunk of flying time serves the company's own affiliates rather than the paying public. As a commercial aircraft, the lease payments themselves, plus machinery/equipment installed on the plane and property used for its maintenance and repair, are all exempt from sales and use tax, and maintenance/repair services on the aircraft are excluded from the taxable installation-service category entirely.

Two important caveats limited the ruling:

1. Dominion and control matters. Because the company (through its Charter Company acting as its agent) retains full control over how, when, and for whom the plane flies, the Department treated this as an exempt transportation service rather than a taxable equipment rental. If the facts were different — say, if the affiliates or individual owners actually controlled the plane's use — the lease payments might not qualify for the exemption at all.

2. The corporate structure must be real, not an alter ego. The whole analysis assumes the company, the Texas limited partnership, the parent, and their affiliates are genuinely separate legal entities. If they're so intertwined or commonly controlled that they're really operating as each other's alter ego, the exemption evaporates — the aircraft would then be seen as bought for self-use by the related group, not for commercial charter service, and the commercial aircraft exemption would not apply (though a separate, now-expired temporary exemption for third-party maintenance/repair services could still have applied through November 30, 2009).

What this means for you

Companies structuring aircraft ownership through leasing/management arrangements

Hitting the 50%-or-more paid-transportation threshold is the core test for the commercial aircraft exemption — track your actual flight-hour mix (charter vs. internal use) carefully, and make sure charges to related parties (like a parent company's individual owners) still reasonably reflect market rates or actual operating costs, not a steep internal discount that could look like disguised self-use.

Businesses leasing planes to or through affiliates

Keep the corporate lines clean. If your entities share offices, personnel, and decision-making to the point that a regulator could call them alter egos, you risk losing this exemption (and others) entity-wide. Maintain separate books, contracts, and genuine independent decision-making at each entity.

Anyone providing equipment with an operator

Whether an arrangement is an exempt transportation service or a taxable rental again comes down to dominion and control — who directs routes, hires/fires crew, and bears operating costs and risk. Retaining that control (rather than handing it to the customer) supports service, not rental, treatment.

Common questions

Q: What percentage of charter/paid use does an aircraft need for the commercial aircraft exemption?
A: At least 50% of the aircraft's use must be transporting people or property for compensation, at rates reflecting the actual cost of operation, to qualify as a "commercial aircraft" primarily engaged in qualifying commerce.

Q: Does using an aircraft partly for the owner's own affiliated companies disqualify the exemption?
A: Not necessarily — as in this ruling, if the majority of use is genuine paid charter service at market-reflective rates, some affiliate self-use in the remaining time doesn't defeat the exemption.

Q: What happens if the leasing structure is later found to be an alter-ego arrangement among affiliates?
A: The commercial aircraft exemption would not apply — the aircraft would be treated as purchased for self-use by the related group rather than for commercial transportation, though a since-expired temporary maintenance/repair services exemption could have separately applied.

Q: Does this ruling apply to any aircraft leasing arrangement?
A: This is a fact-specific Advisory Opinion binding only on the petitioner. The precise use percentages, rate structure, dominion-and-control facts, and corporate separateness all mattered to the outcome.

Citations and references

• Tax Law § 1101(b)(17) (definition of commercial aircraft)
• Tax Law § 1105(a), (c)(3)(v) (imposition of sales tax; exclusion for commercial aircraft services)
• Tax Law § 1115(a)(21) (commercial aircraft exemption)
• Tax Law § 1115(dd)(1) (temporary aircraft maintenance-service exemption, expired Dec. 1, 2009)
• TSB-M-96(14)S (commercial aircraft/vessel definitions memorandum)
• TSB-M-80(4)S, TSB-M-80(4.1)S (commercial aircraft/air cargo container exemptions)
• Ernst & Young, LLP, Adv Op Comm T&F, Jan. 28, 2004, TSB-A-04(2)S
• Cleveland Browns Transportation LLC, Adv Op Comm T&F, Mar. 6, 2006, TSB-A-06(8)S
• Harfred Operating Corporation, Adv Op St Tx Comm, July 18, 1986, TSB-A-86(28)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a08_20s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-08(20)S
Sales Tax
April 28, 2008

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

PETITION NO. S071108A

On November 8, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from GSO Capital Partners (Texas) GP LLC, 11 Greenway Plaza, Suite 3050,
Houston, Texas 77046.
The issues raised by Petitioner, GSO Capital Partners (Texas) GP LLC, are:

1. Whether an aircraft leased by Petitioner, if based in New York, would be exempt
   from sales and use tax as a commercial aircraft under section 1115(a)(21) of the Tax
   Law.
2. Whether Petitioner’s charges to its affiliates for flight services would be exempt from
   sales and use tax.
3. Whether Petitioner’s purchases of aircraft maintenance and related equipment from a
   New York vendor would be exempt from sales and use tax.
   Petitioner submitted the following facts as the basis for this Advisory Opinion.
   Petitioner is a general partner of GSO Capital Partners (Texas) LP which is a Texas­
   based limited partnership (hereinafter “Texas LP”). Petitioner is solely owned by GSO Capital
   Partners LP (“Parent”), a Delaware limited partnership based in New York. On or about June 4,
   2007, Petitioner entered into a lease with Utah-based Wells Fargo National Association (as
   trustee for Parent) and Parent, pursuant to which Petitioner obtained a leasehold interest in an
   aircraft. Petitioner took possession of the aircraft in Connecticut. Prior to taking possession,
   Petitioner entered into the following two agreements regarding the management and operations
   of the aircraft:
   A. An aircraft management agreement (the “Management Agreement”), pursuant to
   which an aircraft management company (“the Manager”) agreed to provide
   management, maintenance, insurance, pilot, and other services required to support the
   operation of the aircraft; and
   B. A charter service agreement (“the Charter Services Agreement”), pursuant to which a
   licensed air carrier (the “Charter Company”) agreed to market and operate the aircraft
   for charter services, and to contract for, invoice, and collect charter fees.
   It is anticipated that the aircraft will be operated 400 hours per year, including 300 hours
   in charter service for compensation and 100 hours to support the business activities of Petitioner

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and affiliated companies, including Texas LP, Parent, and Parent’s affiliated companies. Of the
100 non-charter hours, more than 75% of those hours will be operated for Petitioner’s affiliated
companies. The 300 charter service hours will be operated under Part 135 of the Federal
Aviation Regulations (“FAR”). The remaining 100 hours will be operated under FAR Part 91.
Petitioner will be reimbursed by Texas LP, Parent, or Parent’s affiliated companies, for
the costs incurred by Petitioner to provide non-charter flight services to the respective entities.
Of the anticipated 300 annual charter hours, 200 hours will be flown for the benefit of the
individual owners of Parent, under charter contracts entered into between the individuals and the
Charter Company. The hourly charter rate charged to the individual owners of Parent will be
92.5% of that charged to the public with respect to the other 100 annual charter hours. The
charter rate charged to the public is equal to or greater than the relevant market rate.
Petitioner is a Texas-based single member LLC and is a disregarded entity for federal
income tax purposes. However, Petitioner holds itself out to the public as a legal entity separate
from Parent and Texas LP. Petitioner enters into business relationships and contractual
obligations in its own name; maintains its own books, records, and bank accounts; and has its
own officers, some of which are also officers of Parent. For all flights, Petitioner decides when,
where, and for whom the aircraft will be flown.
As a party to the Management Agreement and the lease, Petitioner is directly and
exclusively responsible for paying all fixed and variable costs incurred in connection with the
operation of the aircraft. As a party to the Charter Services Agreement, Petitioner is the sole
beneficiary of net revenues from all charter flights.
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.

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Sales Tax
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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)(3) of the Tax Law imposes sales tax on the receipts from every sale,
except for resale, of the following services, in part:
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 twenty-one of
subdivision (a) of section eleven hundred fifteen of this article; . . .
Section 1115(a)(21) of the Tax Law provides an exemption from the sales tax imposed by
section 1105(a) of the Tax Law and from the compensating use tax imposed under section 1110
for:
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 1115(dd)(1) of the Tax Law provides:
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.
(This exemption expires December 1, 2009, pursuant to Chapter 60 of the Laws of 2004)
Technical Services Bureau Memorandum, entitled Tax Law Defines Commercial Vessels
and Commercial Aircraft, November 7, 1996, TSB-M-96(14)S, states in part:

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April 28, 2008
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 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;

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Sales Tax
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•

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
discussed in this memorandum and also substitute 50% for the out-of-date 75% threshold
for determining when a commercial aircraft is primarily used in the qualifying commerce.
Opinion
Petitioner is a Texas-based LLC that is leasing an aircraft from Parent, which is a
New York-based Delaware partnership, and Wells Fargo National Association as trustee for
Parent. Prior to taking possession of the aircraft, Petitioner entered into an aircraft Management
Agreement in which an aircraft management company (the Manager) agreed to provide
management, insurance, pilots and other services required to support the operation of the aircraft.
In addition, Petitioner entered into a Charter Services Agreement with a licensed air carrier that
will market and operate the aircraft for charter services. The aircraft will operate under Part 135
of the Federal Aviation Regulations (“FAR”) 75% of the time providing charter aircraft services.
For the remaining 25% of the time, Petitioner will operate under FAR Part 91 providing flight
services to Texas LP, Parent, and Parent’s affiliated companies.
The taxability of the receipts for the lease of the aircraft will depend on whether the
aircraft qualifies for the exemption for commercial aircraft as provided in section 1115(a)(21) of
the Tax Law. If the primary use of the aircraft is transporting customers for compensation, where
the compensation received reflects the cost of operating the aircraft, the aircraft will be
considered a commercial aircraft primarily engaged in intrastate, interstate, or foreign commerce
for purposes of section 1115(a)(21). See section 1101(b)(17) of the Tax Law.
Petitioner states that the aircraft will be used 25% of the time to provide non-charter air
transportation services to Texas LP, Parent, and affiliated companies and used 75% of the time to
provide charter air transportation services to the public and individual owners of Parent. Charter
flight services to the public will be billed at rates equal to or greater than the relevant market
rate, and services to individual owners of Parent will be billed at 92.5% of the rate charged to the
public. Assuming that Petitioner is providing the charter air services with Charter Company
acting as Petitioner’s agent under the Charter Agreement, and provided that Petitioner’s charges
to the individual owners of Parent reasonably reflect the cost of operating and maintaining the
aircraft, the aircraft will be considered as being used in the transportation of persons for

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compensation. Since at least 50% of Petitioner’s use of the aircraft is in the transportation of
persons for compensation, the aircraft qualifies as a commercial aircraft primarily engaged in
interstate, intrastate, or foreign commerce. Therefore, the receipts paid by Petitioner for the lease
of the aircraft qualify for exemption from sales and use tax as the purchase of a commercial
aircraft pursuant to section 1115(a)(21) of the Tax Law. (See Ernst & Young, LLP, Adv Op
Comm T & F, January 28, 2004, TSB-A-04(2)S; Cleveland Browns Transportation LLC, Adv
Op Comm T & F, March 6, 2006, TSB-A-06(8)S).
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.)
It appears from the facts in this Opinion that Petitioner, and Charter Company acting on
behalf of Petitioner, retain complete dominion and control over the aircraft. Therefore, it is
concluded that Petitioner is providing a transportation service rather than renting the aircraft.
Charges for transportation services are not subject to sales or use tax (See National Express
Company, Adv Op Comm T& F, July 10, 2002, TSB-A-02(22)S).
However, whether Petitioner is providing a transportation service or is renting tangible
personal property is determined in accordance with the facts and circumstances of the particular
transaction and the provisions of any relevant agreements. Were some of the transactions
described in this Opinion determined to be rentals by Petitioner of tangible personal property,
Petitioner’s lease payments for the aircraft might not qualify for the exemption for commercial
aircraft provided in section 1115(a)(21) of the Tax Law. In such case, any use or rental of the
aircraft by Petitioner, its affiliates, or others might be subject to sales and use tax to the extent
that such use or rental occurred in New York.
The analysis in this Opinion assumes Petitioner, Texas LP, and Parent and its affiliates
are separate legal entities. However, if the activities of Petitioner were so dominated and
controlled by Texas LP, Parent, or its affiliates or if their activities were so commingled that they
would be considered to be operating as alter egos of 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, Texas LP, and Parent and its affiliates were to be disregarded as separate
legal entities for purposes of sales and use tax, the aircraft would not be considered to be a
commercial aircraft but rather would be purchased primarily for self use by the related entities.
Under such circumstances, the commercial aircraft exemption would not apply to Petitioner’s

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purchase or use of the aircraft and equipment for the aircraft. However, repair and maintenance
services performed on such aircraft by third-party service providers could be purchased tax
exempt (through November 30, 2009) pursuant to the provisions of section 1115(dd) of the Tax
Law.

DATED: April 28, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.