My holding company leases a corporate jet to me, and I use it mostly to fly a paying affiliate's people and cargo -- is the lease exempt from New York sales tax as a 'commercial aircraft,' and will a later merger of my holding company into me trigger sales tax on the plane?

Plain-English summary

Invemed Securities, Inc. ("Petitioner") is a New York corporation that owns 100% of Invemed Aviation Services LLC ("Aviation"), a New York LLC. In May 2007, Aviation acquired a Bombardier Aerospace Global 5000 aircraft (the "Aircraft"), taking delivery in Connecticut and then flying it into New York, where it has since been permanently hangared and based. Aviation doesn't fly the Aircraft itself — it bought the plane solely to hold it for lease to, and operation by, other parties. At first, Aviation leased the Aircraft to Richmor Aviation, which operated it almost exclusively in on-demand charter service under Part 135 of the Federal Aviation Regulations (FAR) until June 30, 2007.

Right after that charter arrangement ended, Aviation leased the Aircraft to Petitioner instead, for rent of $291,666.67 per month ($3.5 million per year). Petitioner operates the Aircraft under the less-restrictive Part 91 of the FAR, mainly to fly its wholly-owned affiliate, Invemed Associates LLC ("Associates"), on intrastate, interstate, and foreign trips. Under a Transportation Services Agreement, Associates pays Petitioner $8,000 per flight hour, and Petitioner expects to fly roughly 250 hours a year for Associates, plus a limited number of additional hours each year on non-revenue flights for its own personnel and property. Petitioner says the $8,000 hourly rate is comparable to what commercial charter operators charge in the New York market for similar aircraft, and reasonably reflects its own direct and indirect operating costs — though that rate alone doesn't cover both the operating costs and the rent Petitioner pays to Aviation.

Petitioner and Aviation also plan to merge Aviation into Petitioner, so Aviation ceases to exist and Petitioner becomes the surviving entity, taking title to the Aircraft directly and ending the lease/rent payments. After the merger, eliminating those lease payments would mean Petitioner's $8,000/hour charge to Associates equals or exceeds its full operating costs.

Petitioner asked the Department three questions, and got three answers:

1. Is the lease rent Petitioner pays to Aviation exempt from sales/use tax as a "commercial aircraft" lease? It depends on whether the Aircraft is "primarily engaged" in for-hire commerce — meaning at least 50% of its use is transporting persons or property for hire (citing Technical Services Bureau Memorandum TSB-M-96(14)S). Based on the roughly 250 hours/year Petitioner flies for compensation to Associates at market-comparable, cost-reflective rates, versus only a limited number of hours for its own non-revenue use, the Department concluded that — assuming the Aircraft is in fact used primarily for compensated transportation — it qualifies as a commercial aircraft under Tax Law §1115(a)(21). That makes Petitioner's rent payments to Aviation exempt from both the sales tax (§1105(a)) and the compensating use tax (§1110), provided Petitioner gives Aviation a properly completed Exempt Use Certificate (Form ST-121). This conclusion assumes Petitioner and its affiliates are respected as separate legal entities; if their activities are so intertwined that they're really operating as alter egos rather than separate companies, the corporate structure would be disregarded and the exemption would not apply.

2. Does the planned merger of Aviation into Petitioner trigger sales tax on the Aircraft's transfer? No — if the Aircraft passes to Petitioner solely in consideration for the issuance of Petitioner's stock as part of a merger under New York or other jurisdiction's law, that transfer isn't a "retail sale" at all under Tax Law §1101(b)(4), so no sales tax applies to the merger transaction.

3. After the merger, does Petitioner's continued use of the Aircraft still qualify it as a commercial aircraft? Ordinarily, using property that was bought for resale (here, for leasing) for something other than resale can trigger a use-tax liability. But if Petitioner, as the surviving entity, keeps using the Aircraft primarily to provide compensated transportation services — the same 50%-plus-for-hire pattern described in Issue 1 — the Aircraft keeps qualifying for the commercial-aircraft exemption under §1115(a)(21) even after the merger.

What this means for you

Aviation-holding entities leasing aircraft to affiliates

If you set up a separate LLC to buy and hold an aircraft purely for leasing to an operating affiliate, the lease rent can be exempt from sales and use tax — but only if the affiliate-lessee actually uses the plane primarily (50%+) to transport people or property for hire, at rates that look like real market charter pricing rather than a nominal or symbolic charge. Keep records showing the split between for-hire flight hours and any personal/non-revenue use, and have the lessee give you a completed Exempt Use Certificate (Form ST-121).

Corporations planning an aircraft-owning-LLC merger

A merger where an aircraft-holding LLC folds into its parent, with the aircraft passing to the parent solely in exchange for stock, is excluded from the "retail sale" definition and isn't taxed on the transfer itself. But don't assume that's the end of the analysis — you still need to keep meeting the commercial-aircraft, primarily-for-hire usage test afterward, since the plane was originally purchased "for resale" (i.e., for leasing), and non-qualifying use post-merger could otherwise expose you to use tax.

Multi-entity corporate groups (alter-ego risk)

The Department's exemption analysis explicitly assumes the holding LLC, the operating company, and the affiliate paying for flights are all respected as genuinely separate legal entities. If the facts show they're so commingled or commonly controlled that they're really operating as alter egos, the Department can disregard the corporate structure entirely and deny the exemption — so keep the entities' operations, billing, and agreements clearly distinct.

Accountants and tax professionals

This opinion applies the same 50%-of-use "primarily engaged in commerce" test from TSB-M-96(14)S that governs commercial vessel and commercial aircraft exemptions generally, and layers on the separate merger-exclusion analysis under §1101(b)(4) and §526.6(d)(1) of the regulations. It's a useful template whenever a client structures aircraft ownership through a holding entity, charges an affiliate a per-flight-hour fee, and is contemplating collapsing that structure through a merger.

Common questions

Q: Is rent I pay to lease a corporate jet from my own holding company exempt from New York sales tax?
A: It can be, if the aircraft is a "commercial aircraft" — meaning at least 50% of its use is transporting people or property for hire at rates that reflect real market charter pricing, not just moving the plane between related companies for nominal consideration.

Q: Does flying my own executives or cargo on the plane count toward the "for hire" test?
A: No. In this opinion, the Department distinguished the roughly 250 hours per year flown for compensation to the affiliate (which counts toward the for-hire test) from the limited additional hours used for the petitioner's own non-revenue flights (which don't).

Q: If my aircraft-holding LLC merges into my operating company, does that trigger sales tax?
A: Not if the aircraft transfers to the surviving company solely in exchange for that company's stock as part of the merger — that kind of transfer falls outside the definition of a taxable "retail sale."

Q: Could I lose this exemption if the Department decides my companies aren't really separate?
A: Yes. The opinion expressly conditions its conclusion on Petitioner and its affiliates being respected as separate legal entities; if they're so commingled or commonly controlled that they're effectively alter egos of one another, the Department can disregard the corporate structure and the exemption would not apply.

Q: Does this ruling mean my aircraft leasing arrangement is automatically tax-exempt?
A: No. This is an Advisory Opinion binding only on Invemed Securities, Inc. and conditioned on assumptions the Department flagged as unverified (e.g., that the Aircraft is "in fact" used primarily for compensated transportation) — a different mix of for-hire versus personal use, or evidence of commingled corporate operations, could change the outcome.

Citations and references

Statutes and regulations:

• Tax Law §1101(b)(4) (definition of "retail sale"; merger stock-transfer exclusion)
• Tax Law §1101(b)(5) (definition of "sale, selling or purchase")
• Tax Law §1101(b)(17) (definition of "commercial aircraft")
• Tax Law §1105(a) (tax on retail sales of tangible personal property)
• Tax Law §1105(c)(3) (tax on maintaining/servicing tangible personal property)
• Tax Law §1110(a) (compensating use tax)
• Tax Law §1115(a)(21) (exemption for commercial aircraft)
• Sales and Use Tax Regulations §526.6(d)(1) (merger/consolidation exclusion from retail sale)

Prior opinions and guidance referenced:

• TSB-M-96(14)S, Tax Law Defines Commercial Vessels and Commercial Aircraft, November 7, 1996 (50%-of-use test for "primarily engaged" in commerce)
• Pasquale & Bowers, TSB-A-96(49)S
• CB Applications, LLC, TSB-A-00(6)S
• Philip Morris Management Corp, TSB-A-00(38)S
• Cleveland Browns Transportation LLC, TSB-A-06(8)S (alter-ego/corporate-disregard analysis)
• Harfred Operating Corporation, TSB-A-86(28)S (alter-ego/corporate-disregard analysis)

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_43s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-08(43)S
Sales Tax
October 2, 2008

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S070618B

On June 18, 2007, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Invemed Securities, Inc., 375 Park Avenue, Suite 2205, New York,
New York 10152. Petitioner, Invemed Securities, Inc., provided additional information
pertaining to the Petition on February 28, 2008.
The issues raised by Petitioner are:

1. Whether its lease of an aircraft is exempt from sales tax as the lease of a commercial
   aircraft.
2. Whether the transfer of an aircraft in connection with a corporate merger is excluded
   from the definition of retail sale for sales tax purposes.
   3.

Whether use of the aircraft by the surviving entity as described below qualifies the
aircraft as a commercial aircraft for sales tax purposes.

Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner is a corporation organized and existing under the laws of the state of
New York.
Petitioner owns 100% of the issued and outstanding membership interests in Invemed
Aviation Services LLC (“Aviation”), a New York limited liability company.
On or about May 14, 2007, Aviation acquired a Bombardier Aerospace Global 5000 (the
“Aircraft”), and accepted delivery of the Aircraft at Bradley International Airport in Windsor
Locks, Connecticut. The Aircraft was subsequently flown from Bradley International Airport
into New York, and thereafter has been permanently hangared and based in New York.
Aviation does not operate the Aircraft. Rather, Aviation acquired the Aircraft solely for
the purpose of holding the Aircraft for lease to, and operation by, other parties. Consistent with
the foregoing, Aviation initially entered into an agreement with Richmor Aviation (the “Richmor
Agreement”), effective from the date Aviation acquired the Aircraft until June 30, 2007, pursuant
to which Richmor operated the Aircraft exclusively, or nearly so, in on-demand intrastate,
interstate, and foreign charter operations for hire under Part 135 of the Federal Aviation
Regulations (FAR).

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Immediately upon termination of the Richmor Agreement, and pursuant to the terms of a
lease between Aviation and Petitioner dated as of the date of the termination of the Richmor
Agreement, Aviation leased the Aircraft to Petitioner. Pursuant to this lease, Petitioner currently
remits to Aviation on a monthly basis rent in the amount of $291,666.67 per month (i.e.,
$3.5 million per year).
Petitioner operates the Aircraft under Part 91 of FAR and utilizes the Aircraft primarily to
provide intrastate, interstate, and foreign air transportation services to its wholly-owned affiliate,
Invemed Associates LLC, a New York limited liability company (“Associates”).
Pursuant to a Transportation Services Agreement between Petitioner and Associates,
Associates pays Petitioner $8,000.00 per flight hour for the transportation provided by Petitioner
to Associates. Petitioner estimates that it will operate the Aircraft approximately 250 flight hours
per year in connection with the transportation services it provides to Associates. Petitioner also
estimates that it will operate the Aircraft a limited number of flight hours each year in non­
revenue operations to transport its own personnel and property.
Petitioner asserts that the hourly rate charged to Associates is comparable to the rates
charged by commercial charter operators in the New York market for charters of similar aircraft,
and reasonably reflects Petitioner's direct and indirect costs of operating the Aircraft. However,
the hourly rate charged to Associates does not cover both the operating costs and the rent
currently payable by Petitioner to Aviation.
Prospectively, Petitioner and Aviation intend to cause Aviation to merge with and into
Petitioner, such that Aviation will cease to exist as a separate entity, and Petitioner will remain as
the surviving entity. As a result of such merger, Petitioner will acquire title to the Aircraft as the
successor in interest to Aviation, and the requirement to pay rent under Petitioner's lease will
terminate. By eliminating the lease payments under its lease, the hourly rate charged to
Associates by Petitioner for air transportation services will equal or exceed Petitioner's direct and
indirect costs of operating the Aircraft.
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:
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*

*

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(4) Retail sale. (i) A sale of tangible personal property to any person for
any purpose, other than (A) for resale as such or as a physical component part of
tangible personal property,. . .
*

*

*

(iv) The term retail sale does not include:
(A) The transfer of tangible personal property to a corporation, solely in
consideration for the issuance of its stock, pursuant to a merger or consolidation
effected under the law of New York or any other jurisdiction.
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*

*

(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.
*

*

*

(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:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
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*

(c) The receipts from every sale, except for resale, of the following
services:
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*

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(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:
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*

*

(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 526.6 of the Sales and Use Tax Regulations provides, in part:
(a) The term retail sale or sale at retail means the sale of tangible personal
property to any person for any purpose, except as specifically excluded.
*

*

*

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(d) Exclusions relating to corporate and partnership transactions.
following transfers of property are not retail sales:

(1)The

(i) The transfer of property to a corporation, solely in consideration for the
issuance of its stock, pursuant to a merger or consolidation effected under the law of
New York or any other jurisdiction.
Opinion
Issue 1
Whether Petitioner’s rental of the Aircraft from Aviation is exempt from sales and use tax
pursuant to section 1115(a)(21) of the Tax Law depends, in this case, on whether the Aircraft is a
commercial aircraft primarily engaged in intrastate, interstate or foreign commerce. The term
“commercial aircraft” includes aircraft used primarily to transport persons or property for hire.
See section 1101(b)(17) of the Tax Law. An aircraft is primarily engaged in qualifying
commerce if at least 50% of its use is in transportation of persons or property for hire. See
Technical Services Bureau Memorandum entitled Tax Law Defines Commercial Vessels and
Commercial Aircraft, November 7, 1996, TSB-M-96(14)S. Petitioner will use the Aircraft
approximately 250 hours per year to provide transportation services for compensation that it
asserts is comparable to the rates charged by commercial charter operators in the New York
market for charters of similar aircraft, and is estimated to reasonably reflect Petitioner's direct
and indirect costs of operating the Aircraft. Petitioner estimates that it will use the Aircraft for a
limited number of flight hours each year for its own use. Based on these facts, and assuming the
Aircraft is used primarily to provide transportation services for compensation, the Aircraft will
be considered a 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,
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. Therefore, based on the above facts and assumptions,
Petitioner’s payments for the rental of the Aircraft in New York State are exempt from the sales
tax imposed under section 1105(a) of the Tax Law and the compensating use tax imposed under
section 1110 of the Tax Law. Petitioner should provide Aviation with a properly completed
Exempt Use Certificate (Form ST-121) to avail itself of the exemption provided for commercial
aircraft.
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
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 Cleveland Browns

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Transportation LLC, Adv Op Comm T & F, March 6, 2006, TSB-A-06(8)S; Harfred Operating
Corporation, Adv Op St Tx Comm, July 18, 1986, TSB-A-86(28)S.
Issue 2
Petitioner proposes to merge with Aviation, such that Aviation will cease to exist as a
separate entity and Petitioner will remain as the surviving entity. As a result of such merger,
Petitioner will acquire title to the Aircraft as the successor in interest to Aviation. If the transfer
of the Aircraft from Aviation to Petitioner occurred solely in consideration for the issuance of
Petitioner's stock, pursuant to a merger effected under the law of New York or any other
jurisdiction, such transaction would not be a retail sale as contemplated under section 1101(b)(4)
of the Tax Law, and if such were the case, the merger transaction would not be subject to sales
tax.
Issue 3
Petitioner, as the surviving entity after the merger, is in possession of property that was
purchased for use in leasing and rental to others. The Aircraft was purchased and used by
Aviation for resale. The subsequent use of such property by Petitioner (as the surviving entity
after the merger) other than for resale as such to other persons could result in a liability on
Petitioner’s behalf for use tax. However, if Petitioner's Aircraft qualifies as a commercial
aircraft for sales tax purposes and Petitioner, as the surviving entity after the merger, continues to
use the Aircraft primarily to provide transportation services for compensation as described in
Issue 1, the Aircraft will continue to qualify for exemption from tax under section 1115(a)(21) of
the Tax Law as a commercial aircraft.

DATED: October 2, 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.