Aircraft can be exempt from sales and use tax by being used as a common carrier. Most plane people (our clients) know enough about this to be dangerous as there are many pitfalls. The exemption falls under Regulation 1593. The typical transaction involves buying an aircraft and leasing it back to a fixed base operator (FBO), which is a licensed FAA (part 135) common carrier. The FBO provides the pilot and charters the aircraft for hire indiscriminately to the public. To qualify for the exemption, the aircraft must be used more than half the time as a common carrier during the first 12-month period. In determining this usage the state looks at actual flight time the plane is used for transporting persons or property for hire. The owner’s use of this aircraft does not count as common carrier usage.
Certain types of flights, including crop dusting, flights for aerial photography, flights caring person for parachute jumps, search and rescue flights, and certain helicopter operations to perform construction or repair work do not qualify as common carrier usage. Sightseeing flights and helicopter flights used for transporting equipment (as opposed to just repositioning equipment) from one location to the next will qualify. The common denominator for a flight to qualify as a common carrier flight is its purpose must be mainly to transport persons or property for hire.
The biggest mistake buyers of aircraft can make is to not keep proper documentation (flight logs) and/or assuming their usage qualifies as a common carrier operation since they may pay the charter rates charged by the FBO. Documentation should include the following items:
1. A copy of the Purchase Agreement, Bill of Sale, and the Closing Statement for the purchase of the aircraft, and documentation showing where the aircraft was delivered.
2. Copies of the aircraft flight logs, flight summaries, or other documentation itemizing all flight time from the date of purchase through 12 months after the first operational use of the aircraft.
3. Copies of the aircraft’s maintenance log for the period in #2 above.
4. Copies of all invoices or revenue billings for the period in #2 above. All flights that are designated common carrier flights must be supported by an invoice or revenue billing.
5. If the aircraft was leased to an operator, provide a copy of the lease agreement and copies of all lease payment invoices.
6. A copy of the user’s air carrier operating certificate.
7. A copy of the user’s Part 135 manual that shows the date the aircraft was added to the carrier’s Part 135 fleet contains the names of the certified pilots and lists the rules of operation for the aircraft.
8. A copy of the initial insurance policy on the aircraft.
In addition to the usage test, there is a requirement that the minimum annual gross receipts to the lessor/owner is the lesser of 20% of the cost of the aircraft or $50,000.
With proper documentation and with a lot of planning, buyers of aircraft items can legally avoid Sales and Use Tax.
