Does an aircraft-rental company pay sales tax on fuel it pumps into planes for 'wet' rentals, and can it recover that tax?

Plain-English summary

An aircraft-rental company ("Lessor") rents planes to pilots at an hourly "wet" rate — the rate includes fuel, and customers take the aircraft with full tanks. The Lessor charges sales tax on the entire rental fee. Its CPA asked how the sales tax on the fuel works: does the Lessor pay tax at the pump, can it get a credit for fuel resold as part of the taxable rental, and what forms apply?

New York normally lets a business buy for resale without tax (Tax Law § 1101(b)(4), § 1105(a)). But motor fuel is different: § 1101(b)(4)(ii) requires the sales tax on motor fuel to be prepaid and included in the pump price, even for a resale purchase. So although the wet Lessor is genuinely buying fuel for resale (the fuel is resold to the renter as part of the taxable wet lease), the Lessor still must pay sales tax at the pump on that fuel.

To avoid double taxation, § 1120 lets the Lessor claim a credit. Against the sales tax it collects on the wet lease, the Lessor may take a credit for the sales tax it prepaid on the fuel pumped into the aircraft for that lease. The credit is claimed on the "FF" schedule (Form ST-100.10) with the sales tax return.

One caveat: if the Lessor consumes any of the fuel itself (rather than reselling it through a wet lease), that portion is subject to use tax and no credit or refund is allowed on it.

What this means for you

Aircraft-rental (and similar wet-rental) operators

You can't hand a resale certificate at the fuel pump — motor fuel's prepaid sales tax is baked into the pump price by statute. Pay it, then recover it: because you resell that fuel as part of a taxable wet rental, § 1120 gives you a credit on your sales tax return (the FF schedule / Form ST-100.10) for the prepaid tax on fuel that goes into rented aircraft. Net effect: tax flows through on the rental, not twice.

Watch the self-use carve-out

The credit only covers fuel actually resold through the taxable rental. Fuel you burn for your own purposes (ferry flights, maintenance, personal use) is your own use-taxed consumption — no credit, no refund on that portion. Track resale vs. own-use fuel to claim the right credit amount.

Accountants and tax professionals

This is the motor-fuel prepayment exception to resale treatment (§ 1101(b)(4)(ii)) paired with the § 1120 retail-vendor credit mechanism. The wet lease is a taxable rental of tangible personal property under § 1105(a), the fuel is a resale component, and the FF schedule on Form ST-100.10 is where the prepaid tax is recovered — within the normal claim window.

Common questions

Q: Does a wet aircraft lessor pay sales tax on fuel at the pump?
A: Yes. Even though the fuel is bought for resale as part of the wet lease, motor fuel's sales tax must be prepaid and included in the pump price under Tax Law § 1101(b)(4)(ii), so the lessor pays it.

Q: Can the lessor recover that fuel tax?
A: Yes. Under § 1120 the lessor claims a credit against the sales tax it collects on the wet lease for the prepaid tax on fuel pumped into the rented aircraft.

Q: How is the credit claimed?
A: On the "FF" schedule, Form ST-100.10, filed with the sales tax return.

Q: What about fuel the lessor uses itself?
A: Fuel the lessor consumes is subject to use tax, and no credit or refund is allowed on that portion of the prepaid sales tax.

Q: Can another rental company rely on this opinion?
A: No. An advisory opinion binds the Department only as to the petitioner and the facts described; another taxpayer with different facts cannot rely on it.

Citations and references

Statutes and authorities:

• Tax Law § 1105(a) (tax on retail sales of tangible personal property)
• Tax Law § 1101(b)(4)(i)–(ii) (definition of retail sale; required prepayment of sales tax on motor fuel)
• Tax Law § 1120 (refunds and credits for motor fuel and diesel motor fuel prepaid tax)
• Tax Law § 1102 (prepayment of tax on motor fuel)
• Form ST-100.10 ("FF" schedule for prepaid sales tax credit)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a92_75s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-92 (75) S
Sales Tax
November 2,1992

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S920714A

On July 14, 1992, a Petition for Advisory Opinion was received from Kathleen Goode,
C.P.A., P.C., 25 Grandview Street, Huntington, New York 11743.
The issues raised by Petitioner, Kathleen Goode, C.P.A., P.C., are:
1.

Whether sales tax must be paid to vendors at the pump when purchasing fuel for
rental aircraft.

2.

Whether a credit for sales tax paid may be claimed for fuel which is re-sold to
customers as part of a taxable rental sale.

3.

What forms are to be used in connection with purchasing fuel for resale as part of
a taxable rental sale, and for reporting and paying sales tax.

A business (hereinafter "Lessor") owns and operates a fleet of aircraft for the purpose of
renting the aircraft to customers who are pilots. The customers are charged an hourly rate for the
rental of the aircraft. The hourly rate is a "wet" rate which includes fuel and customers take the
aircraft with full tanks. Sales tax is charged on the entire rental fee.
Section 1105(a) of the Tax Law imposes tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided ..."
Section 1101(b)(4) of the Tax Law provides, in part, as follows:
(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, or (B) for use by that person in performing the services subject to
tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later
actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax ...
(ii) Notwithstanding the provisions to subparagraph (i) of this paragraph, no
motor fuel or diesel motor fuel shall be sold or used in this state without payment,
and inclusion in the sales price of such motor fuel, of the tax on motor fuel required
to be prepaid pursuant to the provisions of section eleven hundred two of this article
except where a provision of this article relating to motor fuel or diesel motor fuel
TP-9 (9/88)

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TSB-A-92 (75) S
Sales Tax
November 2,1992

specifically provides otherwise and except in the case of a sale or use subject to tax
under section eleven hundred five or eleven hundred ten, respectively, of this article.
Provided, however, except for such requirement of prepayment of tax required by
section eleven hundred two of this article, the provisions of this subparagraph shall
not otherwise modify the meaning of the term "retail sale" as used in this article ...
Section 1120 of the Tax Law provides, in part, as follows:
Sec. 1120. Refunds and credits with respect to motor fuel and diesel motor
fuel.--(a) Retail vendor. (1) A vendor of motor fuel or diesel motor fuel who or which
is required to collect the taxes imposed by subdivision (a) of section eleven hundred
five of this article and any like tax imposed pursuant to the authority of article
twenty-nine of this chapter shall be allowed a refund or credit against the amount of
tax collected and required to be remitted to the commissioner pursuant to the
provisions of section eleven hundred thirty-seven of this article upon the retail sale
of motor fuel or diesel motor fuel in the amount of the tax on such fuel prepaid by
or passed through to and included in the price paid by such vendor pursuant to the
provisions of section eleven hundred two of this article.
(2) A refund or credit shall also be allowed such vendor for the tax prepaid
by or passed through to and included in the price paid by such vendor upon any
motor fuel or diesel motor fuel pursuant to the provisions of section eleven hundred
two of this article if such fuel is sold at retail by such vendor under circumstances
where the taxes imposed by section eleven hundred five of this article and pursuant
to the authority of article twenty-nine of this chapter are not required by the
provisions of this article to be collected and remitted upon receipts from a retail sale
thereof.
Accordingly, where fuel is purchased by a wet lessor who rents aircraft and agrees to provide
fuel for the aircraft, the purchase of the fuel by the Lessor is a purchase for resale. However, in
accordance with Sections l101(b)(4) and 1105(a) of the Tax Law, the Lessor must pay sales tax on
the cost of the fuel to the vendor from whom it purchases the fuel.
The Lessor, pursuant to Section 1120 of the Tax Law, may then claim a credit against the
sales tax collected by the Lessor on the "wet" lease for the sales tax paid on the fuel purchased by
the Lessor and pumped into the aircraft in connection with the "wet" lease. The Lessor on his sales
tax return may take a credit for the prepaid sales tax on the "FF" schedule (Form ST-100.10).

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TSB-A-92 (75) S
Sales Tax
November 2,1992

It is noted that if any portion of the fuel is consumed by Lessor, that such portion is subject
to use tax and no credit or refund is allowed on that portion of the prepaid sales tax.

DATED: November 2, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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