Does an aircraft leased to a commuter air-charter operator qualify as an exempt "commercial aircraft" under New York sales tax law, even though the lessor also uses it for its own company business?

Plain-English summary

CNY Equipment Rental & Sales Corp. leases an aircraft to a lessee that operates as an air taxi/commuter air carrier (classified as such by the Civil Aeronautics Board), running charter flights. When the plane isn't needed for charter operations, the lessee makes it available to Petitioner for transporting Petitioner's own company personnel to out-of-town business meetings -- but charter use always has priority, reservations go through the lessee either way, and the lessee controls physical access and maintains the flight logs. Petitioner isn't billed for its own use of the plane. Usage records for 1988-1994 showed the aircraft flew 50% or more of its hours on charter flights in five of six years. Petitioner asked whether the leased aircraft qualifies as exempt "commercial aircraft."

Tax Law § 1115(a)(21) exempts "commercial aircraft primarily engaged in intrastate, interstate or foreign commerce," and the regulations define "airline" (a category that qualifies) to include an air taxi operator classified as a "commuter air carrier" by the Civil Aeronautics Board -- exactly the lessee's status here. The Department confirmed this exemption isn't limited to aircraft an airline itself owns or purchases (citing its own Aero Instruments & Avionics precedent), so the fact that CNY (not the charter operator) owns the plane didn't matter. Because the lessee qualifies as an airline, the LEASE of the aircraft to it qualifies as leasing commercial aircraft, exempting the lease payments from sales tax -- along with machinery/equipment installed on the aircraft and maintenance/repair services performed on it. But one piece stayed taxable regardless: Petitioner's own purchases of aircraft fuel. Even though some of that fuel is effectively resold to the lessee under the lease terms, New York's resale exclusion specifically does NOT apply to motor fuel or diesel motor fuel purchases -- so Petitioner must pay sales tax upfront on all fuel it buys, though it can then apply for a refund or credit on the portion provided to the lessee under Tax Law § 1120.

What this means for you

Aircraft owners leasing to commuter/charter operators

Your lease payments, and charges for maintenance, repairs, and installed equipment on the aircraft, can qualify for the commercial aircraft exemption if your lessee is an airline (including a CAB-classified commuter air carrier) under 20 NYCRR § 528.10(b)(1) -- you don't need to be an airline yourself, and you can retain some personal/company use of the plane as long as the charter operation genuinely has priority and controls access. Budget for sales tax on your fuel purchases regardless, but track how much fuel effectively passes through to the lessee so you can claim the § 1120 refund/credit.

Businesses that also use a leased-out aircraft for their own corporate travel

Occasional secondary use for company business (arranged through and subordinate to the charter operator, without being separately billed) doesn't appear to jeopardize the commercial aircraft exemption on the lease itself, based on this opinion's facts -- but keep the charter operator's priority and control clearly documented.

Common questions

Q: Does the aircraft owner need to be an airline itself to get this exemption?
A: No -- the exemption follows the LESSEE's status as a qualifying airline (here, a CAB-classified commuter air carrier), not the owner's, per the Department's own Aero Instruments & Avionics precedent.

Q: Is fuel ever exempt under this ruling?
A: No -- New York's resale exclusion specifically doesn't cover motor fuel or diesel motor fuel purchases, so the aircraft owner pays sales tax on all fuel purchased, even fuel ultimately used by the lessee under the lease. A refund or credit can be claimed afterward for that portion.

Q: Would the exemption survive if the owner used the aircraft more than the lessee's charter operation?
A: This opinion doesn't say -- it's grounded in facts where charter use had absolute priority, was 50%+ of usage in most years, and the owner's use was secondary and unbilled; a materially different usage pattern could change the analysis.

Q: Can another aircraft owner/lessor rely on this exact result?
A: No. This advisory opinion binds the Department only as to CNY Equipment Rental & Sales Corp. and the specific facts described; another lessor should confirm its lessee's airline classification and usage pattern before assuming the same exemption.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4)(ii) (motor fuel resale exclusion)
• Tax Law § 1105(c)(3)(v) (aircraft maintenance/repair service exemption)
• Tax Law § 1115(a)(21) (commercial aircraft exemption)
• Tax Law § 1120 (refund/credit provisions)
• 20 NYCRR § 528.10(b)(1) (definition of "airline")

Prior rulings and cases referenced:

• TSB-M-80(4)S
• Matter of Aero Instruments & Avionics, Inc., Decision, Tax Appeals Tribunal, October 5, 1995, TSB-D-95(43)S
• Matter of Kathleen Goode, C.P.A., P.C., Advisory Opinion, Commissioner of Taxation and Finance, November 2, 1992, TSB-A-92(75)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_47s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (47)S
Sales Tax
July 23, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S951025A

On October 25, 1995, a Petition for Advisory Opinion was received from CNY Equipment
Rental & Sales Corp., 415 E. Taft Road, North Syracuse, NY 13212.
The issue raised by Petitioner, CNY Equipment Rental & Sales Corp., is whether an aircraft
which it leases to another person (hereinafter the "lessee") qualifies as a commercial aircraft under
Section 1115(a)(21) of the Tax Law.
Petitioner presents the following facts. Petitioner, as lessor, leases an aircraft to the lessee.
The lessee operates as an air taxi operator and uses the aircraft in its charter operation. The lessee
is classified by the Civil Aeronautics Board as a "commuter air carrier." When the aircraft is not
being used for its charter operation, the lessee makes the aircraft available to. Petitioner for
transportation of Petitioner's company personnel for business purposes. Petitioner has multiple
locations and attends out of town meetings regularly as part of participation on industry advisory
committees.
Whether the aircraft is being used by the lessee in its charter operation or by Petitioner for
company business, reservations for aircraft usage must be made in advance through the lessee. The
lessee controls physical access to the aircraft and is responsible for maintenance of flight logs and
other related books and records. Charter use, by the lessee, at all times has priority over Petitioner's
use.
Petitioner is not billed for its usage of the aircraft. Petitioner's owner and active president
operates the aircraft for Petitioner's own use.
As part of its Petition for Advisory Opinion, Petitioner furnished a copy of the lease
agreement entered into with the lessee and a schedule of the aircraft usage and revenue since the
beginning of the lease term. The lease began on December 8, 1987. The lease provides that on
December 15 of each year, it shall be renewed for one year unless terminated by either party.
Monthly lease payments are made, based on the hours of use for the preceding month and established
hourly rates for use of the aircraft. The lease agreement requires Petitioner to provide and pay for all
fuel consumed as a result of aircraft use by the lessee. The schedule of aircraft usage indicates that
for the calendar years 1989-1994, the aircraft was used 50 percent or more of the time for charter
flights by the lessee in five of the six years. Although complete figures were not available for
calendar year 1988, the months for which figures were available show that the aircraft was used more
than 50 percent of the time in charter flights.

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TSB-A-96 (47)S
Sales Tax
July 23, 1996

Section 1105 of the Tax Law states, in part:
Imposition of sales tax.--...there is hereby imposed and there shall be paid a tax ...
upon:
(c) The receipts from every retail sale, except for resale, of the following services:
*
*
*
(3) 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 the services are performed directly or by means of coin-operated
equipment or by any other means, and 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) 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:
*
*
*
(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.
The term "commercial aircraft" is not defined by the Tax Law or Sales and Use Tax
Regulations. However, Section 528.10(b)(1) of the Sales and Use Tax Regulation does provide the
following definition:
(b)

Airline defined. (1) An airline is:

(i) an air carrier of persons, property and mail operating under a certificate of
public convenience and necessity issued by the Civil Aeronautics Board, or a foreign
air carrier holding an equivalent certificate issued by the carrier's respective sovereign
government.

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TSB-A-96 (47)S
Sales Tax
July 23, 1996

(ii) an air carrier holding a certificate for all-cargo air service issued by the
Civil Aeronautics Board; or
(iii) an air taxi operator, who is classified by the Civil Aeronautics Board as
a commuter air carrier, or who (a) performs at least five round trips per week between
two or more points, and publishes flight schedules which specify the times and days
of the week and places between which such flights are performed, or (b) transports
mail by air pursuant to contract with the United States Postal Service. This
exemption shall extend to the purchase of fuel for use in such commuter flights.
Aircraft used by an "airline" as defined above, constitutes commercial aircraft qualifying for
sales tax exemption. See TSB-M-80(4)S. In this case, the lessee is an air taxi operator that is
classified by the Civil Aeronautics Board as a "commuter air carrier." The lessee is an airline under
Section 528.10(b)(1)(iii) of the Sales and Use Tax Regulations. Therefore, the lease of the aircraft
by the lessee qualifies as the lease of commercial aircraft under Section 1115(a)(21) of the Tax Law.
(It should be noted that the exemption for commercial aircraft is not limited to aircraft owned or
purchased by commercial airlines. See Matter of Aero Instruments & Avionics. Inc., Dec Tax App
Trib, October 5, 1995, TSB-D-95(43)S.) Lease payments for the aircraft qualify for the exemption
from sales tax provided under Section 1115(a)(21) of the Tax Law.
Receipts from the sale of 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, as well as
maintenance and repair services performed on this aircraft, machinery and equipment and property,
qualify for the exemption from sales tax provided under Sections 1115(a)(21) and 1105(c)(3)(v) of
the Tax Law.
Petitioner must pay tax on its purchases of fuel for the aircraft. Although some of the fuel is
deemed to be resold to the lessee pursuant to the lease agreement, the exclusion from sales tax for
purchases for resale does not apply to purchases of motor fuel or diesel motor fuel. See Matter of
Kathleen Goode. C.P.A., P.C., Adv Op Comm of T & F, November 2, 1992, TSB-A-92(75)S and
Section 1101(b)(4)(ii) of the Tax Law. Petitioner may claim a refund or credit of tax paid on the fuel
provided to the lessee pursuant to the lease. See Section 1120 of the Tax Law.

DATED: July 23, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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