Does a nonresident company owe New York sales or use tax on an aircraft delivered out of state but then hangared and maintained in New York?

Plain-English summary

Arepo Corporation is a Delaware company formed solely to hold title to aircraft for liability, registration, and convenience reasons — with no profit motive, no New York office, no employees, and no New York business. Its shares are ultimately owned by a non-U.S., non-New York individual. Arepo took title and possession of two Gulfstream jets in Delaware, but the aircraft were hangared and maintained by an unrelated servicing company at Westchester County Airport in New York. Arepo asked whether buying a noncommercial aircraft delivered outside New York — but later hangared and maintained here — is subject to New York sales or use tax.

The Department said no, on both taxes:

• No sales tax — delivery was out of state. New York sales tax is a destination tax (§ 525.2(a)(3)): the point where possession is transferred controls. Because title and possession passed to Arepo in Delaware, the purchases are not subject to New York sales tax.
• No use tax — Arepo is a nonresident not doing business here. The compensating use tax (§ 1110) reaches property "used" in New York, and "use" includes storage or retention. But § 1118(2) excludes property purchased by the user while a nonresident, and under § 526.15(b)(1) a corporation is a New York resident only if incorporated here or doing business / maintaining a place of business here. Arepo is a Delaware corporation not doing business or maintaining a place of business in New York, so it is a nonresident, and its purchases are not subject to use tax under §§ 1110 and 1101(b).
• The caveat in the statute: § 1118(2) provides that a person carrying on a trade, business, or profession in New York is not treated as a nonresident with respect to property used in that business. Arepo's passive holding and servicing of the aircraft was not carrying on a New York business.

What this means for you

Where the aircraft (or other property) is delivered controls the sales tax

New York's destination rule means an out-of-state closing keeps the purchase out of New York sales tax, even for property that will spend time in New York afterward. Documenting that title and possession transferred outside New York is the key fact.

Storing or servicing property in New York is not, by itself, a taxable "use" by a nonresident

The use tax has a nonresident exclusion. A genuine nonresident — an individual or a corporation not incorporated here and not doing business or keeping a place of business here — can hangar, store, or maintain property in New York without triggering use tax on the purchase. The line is carrying on a business in New York: cross it, and the nonresident protection drops away for property used in that business.

Holding-company structures are judged on substance

Arepo's status as a bare title-holding company with no employees, office, revenue, or New York activity is what made it a nonresident. A company that actually operates in New York would be a resident for use-tax purposes.

Common questions

Q: I'm a nonresident and bought a plane delivered out of state, but I keep it in New York. Do I owe New York tax?
A: On these facts, no. No sales tax (delivery was out of state under the destination rule) and no use tax (a nonresident's purchase is excluded under § 1118(2)) — provided you aren't carrying on a business in New York.

Q: Does hangaring and maintaining the aircraft in New York create a use tax?
A: Not by itself. Storage and servicing by a nonresident that isn't doing business in New York does not make the company a resident or trigger use tax.

Q: When would a nonresident owe New York use tax on such property?
A: If it is carrying on a trade, business, or profession in New York and uses the property in that business — then § 1118(2) does not treat it as a nonresident for that use.

Citations and references

Statutes and regulations:

• 20 NYCRR § 525.2(a)(3) — sales tax is a destination tax; point of delivery/transfer of possession controls
• Tax Law § 1110 and § 1101(b) — compensating use tax; "use" includes receiving, storage, or retention
• Tax Law § 1118(2) — use-tax exclusion for property purchased while a nonresident (with the carrying-on-a-business proviso)
• 20 NYCRR § 526.15(b)(1) — definition of a resident corporation

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_35s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (35)S
Sales Tax
April 25, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910208A

On February 8, 1991, a Petition for Advisory Opinion was received from Arepo Corporation,
1209 Orange Street, Wilmington, Delaware 19801.
The issue raised by Petitioner, Arepo Corporation, is whether the purchase of a non­
commercial aircraft by a non-resident where the delivery of the aircraft is taken outside of New York
State, but later hangered and maintained in New York State is subject to New York State and local
sales and use tax.
Petitioner was incorporated in the State of Delaware on April 29, 1987. Its registered office
is at 1209 Orange Street, Wilmington, Delaware. The Petitioner does not maintain, and has not at
any time since its incorporation maintained, an office in New York State. The Petitioner does not
have, nor has it at any time since its incorporation had, any employees. The sole shareholder of
Petitioner is Diefco Inc., a company incorporated in the Republic of Panama on April 1, 1987. The
voting rights of all of Petitioner's shares are, pursuant to a voting trust agreement entered into on
May 6, 1987, held by Mercantile Safe Deposit and Trust Co., a Maryland banking corporation, as
voting trustee. At all times since its incorporation the assets of Petitioner have consisted entirely of
cash and the aircraft described below.
On May 13, 1987, Petitioner acquired a Gulfstream II aircraft ("Gulfstream II"). Title to, and
possession of, Gulfstream II were transferred to Petitioner at Newcastle County Airport, Wilmington,
Delaware. On June 13, 1988, Petitioner acquired a Gulfstream III aircraft ("Gulfstream III"). Title
to, and possession of, Gulfstream III were transferred to Petitioner at Newcastle County Airport,
Wilmington, Delaware.
On July 13, 1988, Petitioner sold Gulfstream II back to its original owner. Title to, and
possession of, Gulfstream II were transferred by Petitioner at Newcastle County Airport,
Wilmington, Delaware.
At all times while owned by Petitioner, Gulfstream II was, and Gulfstream III has been,
maintained by Wayfarer Ketch Corporation ("Wayfarer Ketch") and hangered at the Westchester
County Airport, White Plains, New York. Wayfarer Ketch is a corporation engaged in the business
of servicing aircraft, and has been so engaged for over 30 years. Wayfarer Ketch is not related,
directly or indirectly, to Petitioner, nor does it have any common shareholders or directors with
Petitioner. The servicing and maintenance contract which Petitioner has entered into with Wayfarer
Ketch is the standard contract which Wayfarer Ketch enters into with all of its clients, all of which
are dealt with on an arm's-length basis.

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TSB-A-91 (35)S
Sales Tax
April 25, 1991
Moreover, at all times while owned by Petitioner, Gulfstream II was, and Gulfstream III has
been, used solely for the personal use of the beneficial owner of the shares of Diefco Inc. (the
"Shareholder"). The Shareholder is neither a citizen nor a resident of the United States and is not a
resident of New York State. The Shareholder is not engaged in any business in New York State and
has no office in New York State.
Petitioner was established for the sole purpose of holding title to the subject aircraft for
liability, registration and convenience reasons and in accordance with common industry practice.
Petitioner was not established for profit-producing purposes and has never had any earnings,
revenues or receipts from investments or operations. All cash requirements of the Petitioner have
been met through contributions to Petitioner's capital by the Shareholder.
Section 525.2(a)(3) of the Sales Tax Regulations provides, in pertinent part, as follows:
"The sales tax is a 'destination tax', that is, the point of delivery or point at which
possession is transferred by the vendor to the purchaser or designee controls both the
tax incident and the tax rate."
Moreover, Section 1110 of the Tax Law which imposes a compensating use tax provides, in
part, as follows:
"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. . . ."
Section 1101(b) of the Tax Law defines the term "use" to mean:
"[t]he 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. . . ." (emphasis added)
In addition, Section 1118(2) of the Tax Law provides that the following uses of property shall
not be subject to the compensating use tax:
"In respect to the use of property purchased by the user while a nonresident
of this state, except in the case of tangible personal property which the user, in the
performance of a contract, incorporates into real property located in the state. A
person while engaged in any manner in carrying on in this state any employment,
trade, business or profession, shall not be deemed a nonresident with respect to the
use in this state of property in such employment, trade, business or profession."
Moreover, 526.15(b)(1) of the Sales Tax Law defines a resident corporation as follows:

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TSB-A-91 (35)S
Sales Tax
April 25, 1991

"Any corporation incorporated under the laws of New York, and any
corporation, association, partnership or other entity doing business in the State or
maintaining a place of business in the State, or operating a hotel, place of amusement
or social or athletic club in the State is a resident."
Accordingly, since title and possession of Gulfstream II and Gulfstream III were transferred
to Petitioner outside of New York State such purchases are not subject to New York State and local
sales tax pursuant to Section 525.2(a)(3) of the Sales Tax Regulations. Moreover, pursuant to
Section 1118(2) of the Tax Law and Section 526.15(b)(1) of the Sales Tax Regulations since
Petitioner is a non-resident corporation and is not maintaining a place of business or carrying on a
business in New York State, such purchases are not subject to the use tax imposed pursuant to
Sections 1110 and 1101(b) of the Tax Law.

DATED: April 25, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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