Can a company claim the resale exemption on aircraft it also used to fly its own personnel before reselling them?

Plain-English summary

John B. Pike and Son, Inc. bought a Rockwell 500 S Shrike Commander aircraft in June 1983 (paying no sales tax). In October 1983 it traded the 500 S, plus cash, for a 1975 Rockwell Turbo Commander 690 A, delivered to it in Rochester. It said it had agreed in principle to sell and lease back the 690 A to a known buyer, Thomas Judson, Jr., before buying it — but the sale-leaseback did not close until December 29, 1983, while the lawyers finished the paperwork. During the interim periods, the company used both aircraft to transport corporate personnel on company business. It claimed both purchases were exempt as purchases for resale.

The Department held that neither aircraft qualifies for the resale exemption — both are taxable.

• The resale exclusion is narrow. Tax Law 1105(a) taxes receipts from every retail sale of tangible personal property, and 1101(b)(4)(i) defines "retail sale" to exclude a sale "for resale as such." Property truly bought to resell isn't a taxable retail purchase.
• The June 500 S: no basis for exemption. The company "established no basis whatsoever" for treating the June 1983 purchase of the 500 S as exempt.
• The 690 A: interim use defeats resale. Using the 690 A to fly corporate personnel from its October 17 purchase until the December 29 sale-leaseback precludes the resale exemption. To qualify, property must be purchased with the singular purpose of resale (Jacobs v. Joseph, 282 App. Div. 622). Because the plane was also used to transport personnel, it was put to an additional purpose and is taxable (Matter of Airco Alloys; Matter of Naum Brothers).
• Result. Neither airplane is exempt "by reason of being purchased solely for resale," so both are subject to State and local sales and use tax.

What this means for you

"I intended to resell it" is not enough if you use it in the meantime. New York's resale exemption requires that the property be bought with the single purpose of resale. Any interim business use of the item — even briefly, even while paperwork is pending — knocks it out of the exemption.

A known buyer and a signed plan don't save you if you fly (or drive, or use) the asset. The company had a specific buyer lined up and a sale-leaseback in the works, yet using the aircraft for company travel made both planes taxable.

If you must hold an asset before resale, keep it out of service. The moment you use it for your own operations, you've converted it to a taxable use and owe sales or use tax on the purchase.

Common questions

Q: I bought equipment to resell but used it myself for a while first. Is it still exempt?
A: No. The resale exemption requires the singular purpose of resale. Any interim use for your own business defeats it, and the purchase becomes taxable.

Q: Does having a specific resale buyer already lined up protect the exemption?
A: No. Even with a known buyer and a resale plan, using the item yourself before the resale makes it taxable.

Q: I paid no tax at purchase because I planned to resell. What now?
A: If you used the item before reselling, the resale exemption doesn't apply, and you owe State and local sales or use tax on the purchase.

Citations and references

Tax Law:

• 1105(a) — taxes receipts from every retail sale of tangible personal property
• 1101(b)(4)(i) — defines "retail sale" to exclude a sale for resale as such

Cases and determinations cited:

• Jacobs v. Joseph, 282 App. Div. 622 — property must be purchased with the singular purpose of resale to qualify
• Matter of Airco Alloys, Division of Airco, Inc., STH 77-26; Matter of Naum Brothers, Inc., TSB-H-84(51) — interim use for another purpose defeats the resale exemption

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_29s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(29)S
Sales Tax
July 26, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841026A

On October 26, 1984 a Petition for Advisory Opinion was received from John B. Pike and
Son, Inc., One Circle Street, Rochester, New York 14607.
The issue raised is whether two airplanes purchased by Petitioner, in June and October 1983
respectively, are exempt from New York State and local sales and use tax by reason of their being
purchased solely for resale.
In June, 1983, Petitioner purchased a Rockwell 500 S Shrike Commander aircraft. No sales
tax was paid by Petitioner on this purchase.
On October 7, 1983 Petitioner entered into a sales agreement with a vendor called the
Airplane Company. Petitioner traded-in the Rockwell 500 S, plus a stated amount of cash, for a
1975 Rockwell Turbo Commander 690 A aircraft. The aircraft was delivered to Petitioner in
Rochester, New York on October 17, 1983.
Petitioner states that it had agreed in principle with one Thomas Judson, Jr. to the purchase
and lease-back of the Rockwell 690A prior to its purchase. Petitioner states further that the
consummation of the sale and the lease-back did not occur until December 29, 1983 because of the
time required by its lawyers to draft and finalize all the necessary paperwork. During the time from
the date of purchase of the Rockwell 500 S aircraft to its trade-in, and from the time of purchase of
the 1975 Rockwell 690A to its sale to Thomas Judson, Jr., Petitioner used both aircraft to transport
corporate personnel on company business.
Petitioner avers that the 1975 Rockwell 690A was purchased for the sole purpose of reselling
and leasing it back. Petitioner maintains that the identity of the re-purchaser, Thomas Judson, Jr.,
was known to it at the time of initial purchase and there was no purpose for the purchase (such as
corporate use in the interim) other than resale to Thomas Judson, Jr.
Section 1105(a) of the Tax Law imposes a tax on the receipts from every retail sale of
tangible personal property, with certain exceptions.
The Tax Law defines the term "retail sale", in part, as "[a] sale of tangible personal property
to any person for any purpose other than (A) for resale as such. . .". Tax Law 1101(b)(4)(i).
Petitioner has established no basis whatsoever for concluding that Petitioner's purchase of
the Rockwell 500 S Shrike Commander aircraft in June 1983 is exempt from either State or local
sales and use tax.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85(29)S
Sales Tax
July 26, 1985

The fact that Petitioner used the 1975 Rockwell Turbo Commander 690 A aircraft from the
date of purchase on October 17, 1983 through the consummation of the sale and lease-back
transaction on December 29, 1983, precludes qualification for a resale exemption for the October
17, 1983 purchase. To qualify for exemption for resale, the property to be resold must be purchased
with the singular purpose of resale. Jacobs v Joseph, 282 App. Div. 622. In the instant case,
Petitioner's 690 A aircraft was used for the additional purpose of transporting corporate personnel
and is therefore subject to both State and applicable local sales and use tax. Matter of Airco Alloys,
Division of Airco, Inc., Decision of the State Tax Commission, February 28, 1977, STH 77-26;
Matter of Naum Brothers, Inc., Decision of the State Tax Commission, TSB-H-84(51).
Accordingly, neither airplane purchased by Petitioner is exempt from New York State and
local sales and use tax by reason of their being purchased solely for resale.

DATED: July 3, 1985

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.