Does Virginia's aircraft-tax exemption for airlines providing "scheduled air service" also cover charter or on-demand flights operated under FAA Part 135?

Plain-English summary

Virginia's aircraft sales and use tax (2% on aircraft sales, and on the gross receipts from leasing/chartering aircraft licensed for commercial use) exempts "any air carrier ... providing scheduled air service." An FAA-authorized air carrier here operated under Federal Aviation Regulation Part 135 -- a category of authority that covers both scheduled common carriers AND on-demand/chartered operators. This particular carrier's aircraft were providing only on-demand, chartered service, not service on published routes/schedules. After an audit disallowed the exemption, the carrier argued that ANY aircraft operating under Part 135 authority -- scheduled or on-demand -- should qualify, since the statute's definition of "scheduled air service" references Part 135 by name.

The Department disagreed. Reading the statute's plain language, the exemption is expressly limited to carriers "providing scheduled air service," defined (borrowing the federal definition at 14 C.F.R. § 298.2) as service "operated over routes pursuant to published flight schedules or pursuant to mail contracts with the U.S. Postal Service." Part 135 authority is a necessary but not sufficient condition -- it covers both scheduled and on-demand operators, and the exemption only reaches the scheduled subset. The carrier also pointed to the 1995 legislative history behind the current definition (which removed an older five-day-per-week service requirement), but the Department found that history described broadening which SCHEDULED carriers qualify, not extending the exemption to on-demand operators at all. Because Virginia law construes tax exemptions strictly against the taxpayer, the ambiguity was resolved against exemption, and the assessment was upheld.

What this means for you

Charter operators and on-demand air carriers

Simply holding FAA Part 135 authority is not enough to claim Virginia's aircraft sales and use tax exemption for scheduled air carriers. What matters is whether your specific operations run over published routes/schedules (or under postal contracts) -- chartered, on-demand flights don't qualify, even if your underlying FAA authority could also cover scheduled service.

Accountants and tax professionals advising aviation clients

When evaluating this exemption for a client, look past the FAA regulatory Part the client operates under and examine the actual service pattern -- published, scheduled routes versus on-demand charters. Only the former qualifies under Va. Code § 58.1-1505.

Businesses relying on legislative history to support a broad reading of an exemption

This ruling is a reminder that Virginia courts and the Department construe tax exemption statutes strictly against the taxpayer; legislative history describing a narrowing or technical fix to one part of a definition won't be read to silently expand the exemption's overall scope.

Common questions

Q: Does operating under FAA Part 135 automatically qualify an air carrier for Virginia's aircraft tax exemption?
A: No. Part 135 authority can cover both scheduled common carriers and on-demand/chartered operators, but the Virginia exemption only reaches carriers actually providing scheduled air service over published routes or schedules.

Q: What does "scheduled air service" mean under Virginia law?
A: Per Va. Code § 58.1-1501 and the federal definition it incorporates (14 C.F.R. § 298.2), it means transport service operated over routes pursuant to published flight schedules, or pursuant to U.S. Postal Service mail contracts.

Q: How are ambiguities in Virginia tax exemption statutes resolved?
A: Strictly against the taxpayer claiming the exemption -- exemption from taxation is treated as the exception, and any doubt is resolved in favor of taxation.

Q: Does this exemption apply to purely charter or on-demand flight operations?
A: No, based on this ruling -- an aircraft providing only on-demand/chartered service does not qualify, regardless of the operator's FAA regulatory authority.

Citations and references

• Va. Code § 58.1-1502 (aircraft sales and use tax)
• Va. Code § 58.1-1505 (exemption for scheduled air service)
• Va. Code § 58.1-1501 (definition of "scheduled air service")
• 14 C.F.R. § 298.2 (federal definition of scheduled air service)
• P.D. 95-200 (6/30/1995) (1995 Legislative Summary re: House Bill 1608 amending the exemption definition)
• Conyers v. Martial Arts World of Richmond, Inc., 273 Va. 96, 639 S.E.2d 174 (2007) (plain-meaning statutory interpretation)
• Blake v. Commonwealth, 288 Va. 375, 764 S.E.2d 105 (2014) (statute construed in context of the entire provision)
• Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 198 S.E.2d 619 (1973) (tax exemptions strictly construed against the taxpayer)
• Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1972) (doubt resolved against the party claiming exemption)

Subject

Exemptions: Scheduled Air Service - Chartered/On Demand Flights

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-53-0

Original ruling text

May 17, 2023

Re: § 58.1-1821 Application: Aircraft Sales and Use Tax

Dear Mr. *:

This will respond to your letter in which you seek correction of the aircraft sales and use tax assessment issued to * (the “Taxpayer”) for the taxable period ending February 2021. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is an air carrier authorized by the Federal Aviation Administration to operate as an air carrier in Virginia. As a result of an audit by the Department, the Taxpayer was assessed aircraft sales and use tax on aircraft based on the disallowance of the airline common carrier exemption. The auditor denied the exemption because the Taxpayer’s aircraft operations do not meet the scheduled air service criteria of the exemption. The Taxpayer appeals, contending that it qualifies for the scheduled air service exemption because it operates pursuant to authority under Federal Aviation Regulation, Part 135.

DETERMINATION

Virginia Code § 58.1-1502 levies a tax on the retail sale of every aircraft sold in the Virginia and upon the use in the Commonwealth of any aircraft required to be licensed by the Department of Aviation pursuant to § 5.1-5. Generally, the amount of the tax to is 2% of (i) the sales price of each aircraft sold in the Commonwealth; (ii) the sales price of each aircraft not sold in the Virginia but required to be licensed by the Department of Aviation; or (iii) the monthly gross receipts from the lease, charter or other use of any aircraft licensed for commercial use in Virginia and held for sale by a dealer who has elected to be taxed in accordance with Virginia Code § 58.1-1507.

Virginia Code § 58.1-1505 provides an exemption to the aircraft sales and use tax for, "any air carrier operating in intrastate, interstate or foreign commerce providing scheduled air service as defined in § 58.1-1501." “Scheduled air service” is defined in Virginia Code § 58.1-1501 as, “any scheduled service provided by an air carrier or foreign air carrier operating pursuant to authority issued by the U.S. Department of Transportation and under Federal Aviation Regulations, Parts 121, 129, or 135.” Title 14 of the Code of Federal Regulations (CFR) § 298.2 states “[s]cheduled air service means transport service operated over routes pursuant to published flight schedules or pursuant to mail contracts with the U.S. Postal Service.”

The aircraft at issue is operating under Federal Aviation Regulation Part 135. Under Part 135, an aircraft can operate as a common carrier providing scheduled air service, or as an on-demand operator offering chartered flights. The aircraft has been providing on-demand air services. The Taxpayer asserts that the exemption under Virginia Code § 58.1-1505 applies to all aircraft operating under Part 135 (e.g., both common carriers and on-demand) and is not limited to aircraft operating as a common carrier providing scheduled air service.

The Department disagrees. In cases of statutory interpretation, the language of the statute is the first point of inquiry. See Conyers v. Martial Arts World of Richmond, Inc., 273 Va. 96, 104, 639 S.E.2d 174, 178 (2007). “When the language of a statute is unambiguous, [the Court is] bound by the plain meaning of that language.” Id. If a statute has more than one interpretation, the Court will “apply the interpretation that will carry out the legislative intent of the statute.” Id. Statutory language is construed “in the context of the entire statute.” Blake v. Commonwealth, 288 Va. 375, 383, 764 S.E.2d 105, 108 (2014). The provision of the statutory exemption provided by Virginia Code § 58.1-1505 is limited by the language of the statute to “any air carrier…providing scheduled air service…” To allow the application of the exemption to air carriers who provide on demand air service would render a portion of the statute unnecessary.

The Taxpayer mentions the legislative history of House Bill 1608 of the 1995 Session of the General Assembly, which changed the requirements of the exemption, to support its argument. However, the legislative history does not support the Taxpayer’s interpretation of the law. Pursuant to the Department’s 1995 Legislative Summary, published as Public Document 95-200 (6/30/1995):

House Bill 1608…amends the aircraft sales and use tax definition of scheduled air service to conform to U.S. Department of Transportation and Federal Aviation Administration guidelines. Under Title IV of the Federal Aviation Act, Subtitle VII of Title 49, United States Code, ‘scheduled service’ is defined as transport service operated over routes pursuant to published flight schedules or pursuant to mail contracts with the U.S. Postal Service. Currently, an air carrier must provide service to Virginia airports at least five days per week in order to qualify for exemption from the tax on purchases of aircraft. This bill removes the five day criterion and allows the exemption to apply to sales of aircraft to airlines which provide scheduled air service of any type based on the federal definition.

The same definition of scheduled service continues to apply under the current Federal Aviation Regulations. See 14 CFR 298.2.

Under the doctrine of strict construction, “[s]tatutes granting tax exemptions are construed strictly against the taxpayer.” See Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 157, 198 S.E.2d 619, 620 (1973). “Exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption.” See Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 278, 199 S.E.2d 511, 513 (1972). In this case, the exemption in Virginia Code § 58.1-1505 is limited to aircraft carriers offering scheduled air service, and is therefore not extended to air carriers offering on-demand service.

The assessment is upheld in accordance with this determination. The outstanding balance should be paid within 60 days of this determination to avoid additional interest charges.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3802.A

Related Documents

95-200