Given their straitened finances, many States are taking a hard look at measures to raise additional tax revenue. Business aircraft operations are likely to receive more than their fair share of attention from state legislators and administrators. Among the most recent of these initiatives to come to light are two measures from New York that tighten existing sales and use tax exemptions affecting aircraft purchased or based in that State.
One of these measures limits the scope of the “commercial aircraft” exemption (N.Y. Tax Law §1101(b)(17)) from New York’s sales and use tax. Under §1101(b)(17), an aircraft needs only to be used primarily (i.e., more than 50%) to transport persons or property for hire in order to qualify for the exemption. A little counter-intuitively, the availability of the commercial aircraft exemption is not conditioned on the operation of an aircraft under FAR Part 135 or 121 (that is, air charter or airline operations). Because of this, this exemption was especially useful to those business aircraft operators that used their aircraft primarily for their own use and for the use of their affiliates, but not primarily for third party charter – a pretty typical fact pattern for larger businesses with aircraft operations.
New York Assembly Bill 157-B amends the commercial aircraft exemption to provide that an aircraft used primarily to transport a purchaser’s personnel or those of an affiliated entity does not qualify for the exemption. The amendment adds the following language to §1101(b)(17):
Transporting persons for hire does not include transporting agents, employees, officers, members, partners, managers or directors of affiliated persons. Persons are affiliated persons with respect to each other where one of the persons has an ownership interest of more than five percent, whether direct or indirect, in the other, or where an ownership interest of more than five percent, whether direct or indirect, is held in each of the persons by another person or by a group of other persons that are affiliated persons with respect to each other.
The amendment appears to be directed at those larger business aircraft operators that use their aircraft primarily for their own use and for the use of their affiliates. This amendment is likely to discourage operators from basing their aircraft in New York. On a positive note, it should help to relieve congestion at Westchester County Airport. The amendment will be effective June 1, 2009.
