Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013

Sales and Use Tax Annotations

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105.0000 AIRCRAFT—Regulation 1593

Annotation 105.0046

105.0046 Charter to Owner-Lessor. A lessor-owner purchased an aircraft from an out-of-state seller and immediately entered into an "Aircraft Lease and Usage Agreement (100% Lessee Usage)." The agreement required the lessee (a common carrier operator) to pay the lessor-owner rent of $505 per flight hour, and for lessor/owner to pay the lessee rent of $461 per flight hour. In addition, the lessor/owner was required to pay an agreed amount for pilot services, miscellaneous fees and expenses, if any, for those occasions when the lessor-owner rented the aircraft from the lessee.

The Board has held that a charter of an aircraft to an owner or lessor-owner of an aircraft is not "common carriage" when the owner receives a preferential rate on some basis not available to the general public (section 2170 of the Civil Code). The rate of $461 plus an agreed amount for pilot service and miscellaneous fees and expenses would not result in a price significantly different than the charge made to the general public. Although a rate not significantly less than that charged to the general public may not be considered as carriage use, such a conclusion would not end the analysis. The fact that the lessor-owner paid a separate amount for the pilot raises the issue of whether such carriage was pursuant to Part 135 of Title 14 of the Code of Federal Regulations and, thus, "common carriage" or pursuant to Part 91 of the Code and not "common carriage." In a true "common carriage" agreement it is not customary for pilot services to be separately charged.

Also, Part 135 has more stringent rules (e.g., a written load manifest must be prepared prior to the flight and must be retained; certain operating equipment must be part of the aircraft, certain pre-flight briefings must be made to the passengers, and certain weather conditions cannot exist before the flight). Also federal excise tax is charged for such flights.

In this case, billings were not shown as revenue, but rather as a charge to "owner" and the term "rents" rather than "charter" was used. This implies that the lessee did not regard the flights as Part 135. Such a finding is also consistent with the agreement which required the lessor-owner to pay for pilot services. This is a strong indication that the lessor-owner had control over the aircraft. Accordingly, although the amount charged may not be a "preferential rate," the aircraft when used by the owner was not used "common carriage" as discussed in Part 135. 9/26/95.