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Business Taxes Law Guide—Revision 2024

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Sales and Use Tax Annotations


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105.0000 Aircraft—Regulation 1593

105.0000 Aircraft—Regulation 1593

See also Demonstration, Display and Use of Property Held for Resale–General; Use of Property in State and Use Tax Generally; Vehicles, Vessels, and Aircraft.

105.0005 Aircraft and Gliders. A taxpayer, who operates a glide port, purchased two tow planes (single engine aircraft) and seven gliders. The aircraft and gliders will be used solely in the operation of the glide port. Members of the general public pay a fee for a glide ride.

The tow planes are not being used as common carriers of property or persons. The tow planes are being used to tow property owned by the taxpayer and are subject to tax. The gliders are not powered contrivances and, therefore, are not aircraft as defined in section 6274. Since the gliders are not aircraft, the exemption under section 6366 for aircraft sold to common carriers does not apply to the sales of the gliders. As such, the purchases of the gliders are also subject to tax. If purchased ex-tax by certifying in writing to the sellers that the aircraft and gliders would be used for exempt purposes, per section 6421 the purchaser must pay sales tax measured by his/her cost of the property, as if they were the retailer making a retail sale of the aircraft and gliders. 4/8/92.

105.0009 Aircraft—Purchaser Liable for Sales Tax. A dealer regarded its sale of an aircraft to a nonresident of California to be exempt from sales tax based on a certificate in the form prescribed by subdivision (e) of Regulation 1593 issued by the nonresident purchaser. This exemption applies to a purchase of an aircraft by a nonresident of California who will not use the aircraft in this state other than to remove the aircraft from California. Since the purchaser certified to the dealer that the aircraft would be used in a manner entitling the dealer to regard the sale as exempt, the purchaser is liable for sales tax if he uses the aircraft in some other manner or for some other purpose. (Regulation 1667 (b)(3).)

The aircraft was removed from this state, but was returned within 12 months for repairs and servicing. Subdivision (d)(1) of Regulation 1593 provides that the exemption is not affected if the aircraft is returned to California within 12 months from its removal, if the purpose is solely for repair or service covered by warranty. Accordingly, if the aircraft returned to California solely for repair or service covered by warranty, the exemption will not be affected by the presence of the aircraft in California for that purpose. However, if the aircraft returned to California for any other purpose, the exemption is forfeited and the nonresident purchaser owes sales tax on the sales price of the aircraft paid to the dealer. 8/30/01; 3/12/02. (Am. 2002–3).

105.0010 Aircraft—Purchaser Liable for Sales Tax. A purchaser of an aircraft gave an exemption certificate to a California aircraft dealer. In the certificate he claimed that he was a nonresident of California and that he would make no use of the aircraft here, other than its removal from the state. The purchaser owned real property in California, and Oregon and spent time in Oregon, California and Arizona. The purchaser filed California resident income tax returns, claimed a homeowners exemption on a residence located in California, and owned a vehicle licensed and registered in this state. The aircraft was flown to Oregon on the date of purchase and did not reenter California until it was put up for sale two years later.

Since the aircraft was delivered in California it is a sales tax transaction. The seller was relieved of the liability for the tax due to the purchaser's issuance of an exemption certificate. The purchaser is not entitled to the exemption provided by Regulation 1593 (a)(3), since he was a California resident at the time of purchase.

As the result of issuing an erroneous certificate, the buyer is liable for the sales tax on the purchase price of the aircraft, pursuant to Regulation 1667 (b)(3). 5/23/93.

105.0011 Aircraft Sales by Nondealers. The Federal Deposit Insurance Corporation (FDIC) is selling three aircraft which have been foreclosed and repossessed by FDIC acting as a receiver on behalf of Corporation A. Two of the aircraft are being sold to a Hong Kong corporation and the other will be sold to a Canadian airline. The drafted sales agreements for these aircraft provide that transfer of possession and title will occur at a California airport where they are currently stored. Employees or representatives of the respective purchasers will be responsible for piloting the aircraft to their intended destination.

Since the FDIC is not a dealer of aircraft, the applicable tax would be use tax, which is imposed on the purchaser. Because the aircraft are subject to the use tax, acceptance of delivery in California may not subject the purchase of the aircraft to use tax if the aircraft is transported outside the state for use solely outside California. 1/31/96.

105.0012 Aircraft Test Flights. Test flights of an aircraft purchased for the purpose of modification for high altitude parachute jumping do not qualify as "non use" of the aircraft pursuant to Regulation 1593(c) as that classification applies only to test flights of aircraft sold to common carriers, foreign governments, and nonresidents. The purchasers of this aircraft do not fall into any of these categories. Making the test flights is a taxable use. 5/30/86.

105.0013 Air Taxi—Carriage of Aircraft Owner. The purchaser of an aircraft leases it to a certified air taxi operator. Most of the subsequent air taxi billings by the operator of the aircraft are to the owner. If the owner does not receive a preferential rate or some basis not available to the public at large, the carriage of the owner is regarded as common carriage. 7/25/94.

105.0018 Air Taxi Operation—Repair Parts. A taxpayer is an air taxi operator qualifying as a FAR Part 135 common carrier. In its ordinary course of business, the taxpayer leases an aircraft from the aircraft owner for use in its FAR 135 operations. As part of the management agreement, the taxpayer arranges maintenance and repairs required on the aircraft. The maintenance and repairs include labor and parts. In many cases, the actual maintenance and repair work is performed by companies located out of state. The taxpayer pays the company doing the repairs and then bills the aircraft owner for the maintenance and repair work performed. Upon completion of the repair/maintenance work, the aircraft is flown back into California to be used in the FAR 135 operation.

The exemption set forth in section 6366.1 applies only to complete aircraft, not aircraft parts. However, when the aircraft enters California after maintenance and repair work have taken place, the parts attached during the repair and maintenance work will have already been incorporated as an integral part of the aircraft. (Pan American World Airways, Inc. v. State Board of Equalization, and Flying Tiger Line Inc., v. State Board of Equalization.) That is, when aircraft parts are installed onto aircraft outside California and first enter this state as part of the aircraft, the parts themselves are regarded as "aircraft" for purposes of section 6366.1.

Accordingly, if the taxpayer's air taxi operation actually uses the aircraft as a common carrier for more than one-half of the operational use of the aircraft during the 12-month test period, the taxpayer's principal use of the aircraft will be deemed to be that of a common carrier, and such use of the aircraft will be exempt from the sales or use tax. The test period for any part in question is the twelve-month period following that part's entry into California. Thus, even if the aircraft qualifies for the common carrier exemption, that does not mean that the use of the parts automatically qualifies. If the aircraft on which the parts installed is not used principally a common carrier during the twelve months following the parts first entry into this state, use tax applies to the use of that part in California. 6/19/95.

105.0040 Charter Flights. Whether a charter is involved depends solely on the degree of control retained by the owner. If possession and control of the property in question are not transferred to the purported lessee, then the transaction is not a lease. Rather, the purported lessor is actually using the property. Thus, if the aircraft owner will not "lease" the aircraft without providing a pilot who will maintain control of the aircraft during flight, then that flight is a charter and not a lease. Such an owner may not elect to pay tax on fair rental value because there is no lease and no rentals are paid. Entremont v. Whitsell (1939) 13 Cal.2d 290. 6/29/92.

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.

105.0059 Common Carriage. A company purchased and accepted delivery of an aircraft out of state on or about July 3, 1989, and flew it into California that same day. On August 1, 1989, the company leased the aircraft to a certified air carrier. The lease agreement required the company to pay for the pilot and other crew members when the aircraft was used in common carriage. To avoid these charges, the company allowed its president to serve as pilot as often as possible. During this period, the president passed FAA inspections and was certified as a common carrier pilot. During these flights, the president is under the lessee's direction and control. The issue is whether, during the "operational use" test period for this aircraft with the company's president as pilot, the flights would qualify as common carriage.

The undisputed evidence shows that the purpose of the flights was to carry passengers unrelated to the company. The passengers contracted with the lessee for carriage. The lessee billed the customers and the customers paid the lessee at standard common carriage rates. Other than allowing its president to serve as pilot, the company did not participate in these transactions in any way. These flights cannot be considered private use by the company. 10/13/92.

105.0059.200 Common Carriage—Banner Towing and Aerial Photography.
Although such operations may be carried on under the authority of the laws of the United States, banner towing and aerial photography do not constitute common carrier operations.

Once it has been established that the operator offers his services to the public indiscriminately, and has in fact carried the public on several flights, specific contracts with persons to haul them for specific periods will be considered common carriage. Not included in this category is the purchase of a particular plane for the specific purpose of entering into a long term carriage contract with a particular person. 10/31/75.

105.0060 Common Carrier. A company operating under an "air taxi/commercial operator" certificate issued by the Federal Aviation Administration, providing air transportation to the public in an aircraft under control of the company's pilot at a rate based on mileage plus standby and other charges, on a nonscheduled basis, is a common carrier within the meaning of sections 6366 and 6366.1. 5/26/69.

105.0061 Common Carrier. The following discusses the application of tax to three scenarios involving the use of a helicopter for emergency medical transport with a hospital:

Scenario 1—A firm which owns a helicopter contracts directly with the patients for transportation services (ambulance service to hospitals) and bills and collects from them or their insurance carrier.

Assuming the transportation services are authorized under the FAA regulations governing the owner's FAA common carrier certificate, the common carrier exemption would apply if the other requirements of Regulation 1593 are satisfied.

Scenario 2—The hospital purchases a helicopter from a dealer and contracts with a firm to provide pilots, mechanics, parts, and other personnel and supplies necessary for the operation of the helicopter. The hospital will contract with the patients and will be responsible for billing and collecting fees from the patients or their insurance carriers. The firm will be paid a monthly fee and an additional fee for each operating hour.

In this case, it is the hospital that owns and uses the helicopters and contracts with customers for transportation services. Assuming the transportation services of the hospital are authorized under the FAA regulations governing the FAA common carrier certification under which the helicopter is operated, the common carrier exemption would apply if the other requirements of Regulation 1593 are satisfied.

Scenario 3—A firm purchases or leases a helicopter and then "leases" it to a hospital. The firm also contracts with the hospital to provide pilots, mechanics, parts, and other personnel and supplies necessary for the operation of the helicopter. This may involve two contracts (one for the lease and one for the flight services) or a single contract. The hospital contracts with patients and is responsible for billing and collecting the applicable fees. The firm will be paid a monthly fee and an additional fee for each operating hour.

If the transaction between the firm and the hospital is a true lease, then the hospital is the person regarded as using the helicopter and the analysis applicable to the other scenarios are equally applicable here. That is, assuming the transportation services are authorized under the FAA regulations governing the FAA common carrier certificate under which the helicopter is operated, the common carrier exemption would apply if the other requirements of Regulation 1593 are satisfied.

However, if the firm is instead regarded as providing charter services to the hospital rather than leasing the helicopter, then the use of the helicopter would not qualify for the common carrier exemption. Whether a charter is involved depends on the degree of control retained by the firm. For example, if the firm will not lease the helicopter without also providing a pilot, then the firm is providing charter services and is not regarded as leasing the helicopter. The firm will not be offering services to the public or to some portion of the public, but, rather, offering its services to a single person, the hospital. 11/18/94.

105.0062 Common Carrier. The owner of an aircraft has an agreement with a common carrier and under the circumstances listed below the agreement was not a lease of the aircraft to a common carrier and therefore not exempt from tax under Regulation 1593(a)(1).

(1) The owner is required to pay all fixed, direct, and incidental costs incurred in operation and maintenance of the aircraft.

(2) All charter advertising was in the carrier's name, but the content of the advertisement was subject to the owner's approval, and paid for by the owner.

(3) The owner accounts to the carrier for all charter hours flown, and to submit to the carrier the completed flight logs within three days of each charter.

(4) The flight crew members, who are employed by the owner, have been directed by the owner to comply with the carrier's policies and procedures.

(5) The carrier needed advance approval from the owner to fly an actual charter for a third party customer.

The above circumstances and ensuing action effectively resulted in the aircraft and pilots being under the control of the owner and not the carrier. A common carrier qualifying under Regulation 1593, is the carrier who schedules and approves use of the aircraft, conducts the FAR Part 135 flights, controls the pilots and aircraft during those flights, prepares the Part 135 flight logs, and then accounts to the owner/lessor. In this situation, the owner's control of the aircraft negates any contention that the carrier had the exclusive possession and control of the aircraft necessary for the carrier to have conducted Part 135 carriage operation. 12/15/93.

105.0063 Common Carrier. An air carrier has a contract with the United States government for carrying persons and property. The contract is limited to a maximum of one year with a right of further extension. The contract is also limited to specific days of the week. In addition, there is no indication that any particular aircraft was purchased by the air carrier for the government contract.

Under these circumstances, the use of the aircraft should be regarded as common carriage as long as the air carrier holds itself out to the public as a carrier of persons and/or property indiscriminately. This can be established by the air carrier's advertising in phone books, brochures, or other items. After this common carrier status is established, if it can be proven that the carrier has transported the public in several flights and has also had specific contracts with specific persons to haul them for a specific period of time, the carriage under specific contracts should also be treated as common carriage. 9/3/75.

105.0064 Common Carrier. A helicopter is leased to a person who holds an air taxi operating certificate from the Federal Aviation Administration. The helicopter is dedicated for use by a single client, under contract, who is also stated on the insurance policy covering its operation. In order for the helicopter to qualify for exemption under Regulation 1593(a)(1), the aircraft must be used as a common carrier of persons or property. As stated in Civil Code section 2118 " … every one who offers to the public to carry persons, property, or messages, excepting only telegraphic messages, is a common carrier of whatever he thus offers to carry." The above helicopter is dedicated exclusively for use by a single client. Therefore, it is not available "to the public" for carriage of person or property and it is not used as a common carrier of persons or property as required by Regulation 1593(a)(1). 1/13/81.

105.0065 Common Carrier. An aircraft owner leases his aircraft to a charter company operating under the authority of the Federal Aviation Administration. The charter company charters the aircraft to the aircraft owner's medical corporation and permits the aircraft owner to pilot the aircraft as the charter company's employee on these flights.

When the aircraft owner's medical corporation "charters" the aircraft for the purpose of having only the aircraft owner transported, this would not be recognized as a true charter if the aircraft owner is the pilot. Such use does not constitute use as a common carrier for purposes of calculating the principal use of the aircraft during the test period specified under Regulation 1593(b). When the aircraft owner's medical corporation charters the aircraft for the purpose of transporting several persons and the aircraft owner acts as the pilot, the charter will be recognized as common carrier use if the aircraft owner is a true employee of the lessee and if such use is common carrier use within the intent of Revenue and Taxation Code section 6366.1.

The intent of the Legislature in adopting section 6366.1, did not include extending an exemption to the use of an aircraft by the owner in a lease and sublease back arrangement. The Board will not regard the transaction as common carriage for the medical corporation for purposes of the exemption explained in Regulation 1593 if the sole purpose of the aircraft owner's employment with the lessee is to act as pilot of his aircraft when the aircraft owner's medical corporation charters the aircraft.

Among the indications of a bona fide charter relationship are the following:

(1) If the aircraft owner is not available to act as a pilot on flights other than those chartered by the aircraft owner's medical corporation, the relationship with the lessee (charter company) will not be regarded as a true employment relationship.

(2) The aircraft owner must be treated as an employee of the lessee in the lessee's records as well as in his own records.

(3) The aircraft owner must be paid the same amount as any other pilot of equivalent experience.

(4) All applicable employment taxes and fees must be paid.

(5) The aircraft owner must satisfy all regulatory requirements of an air taxi or commercial operator carrier under applicable regulations.

(6) The rates to the medical corporation can be no lower than rates available to other charters. 11/2/89.

105.0065.500 Cargo Containers, Pallets and Nets. Section 6366 provides an exemption from tax for the sale of and the storage, use or other consumption of tangible personal property that is purchased on or after October 1, 1996 and becomes a component part of any aircraft as described by section 6366(a)(1) as a result of the maintenance, repair, overhaul, or improvement of that aircraft in compliance with FAA requirements.

Cargo containers designed to be secured and which are, in fact, secured to qualifying aircraft during flight qualify as component parts, sales of which are exempt. Cargo pallets and nets, if sold to contain the cargo during flight and which are, in fact, secured to qualifying aircraft during flight, will also qualify as component parts, sales of which are exempt. 12/2/97. (M99–1).

105.0066 Common Carrier—Operational Use. Where an aircraft is purchased for lease to a lessee who will use the aircraft as a common carrier in charter operations and will also use the aircraft for noncommon carrier flights, the lessee's "operational use" of the aircraft during the test period (Regulation 1593) determines whether the sale of the aircraft to the lessor is exempt from tax. If the lessee merely rents out the aircraft without a pilot or uses the aircraft for flight instruction, such use would be operational use that is not common carrier use. 3/27/84.

105.0066.500 Common Carrier Presumption. Subdivision (b) of section 6366 establishes a presumption that an aircraft was not purchased for use in common carriage if the aircraft owner does not receive in annual gross receipts from the lease of the aircraft at least twenty percent of the purchase cost of the aircraft to him or her, or $50,000, whichever is less. The period for determining the application of this presumption commences upon first operational use of the aircraft and ends after twelve months unless the aircraft is sold prior to that time, in which case the presumption test terminates on the date of the transfer. The $50,000 presumption is based on a one-year test period. If the test period is thus less than 12 months, the $50,000 presumption is adjusted on a prorated basis. For example, if the purchaser sells the aircraft six months after the aircraft's first operational use by the purchaser, the presumption of section 6366(b) will arise if the purchaser has not received at least ten percent of the purchase price of the aircraft or $25,000 in gross receipts, whichever is less. 9/23/99. (2000–2).

105.0067 Common Carrier Status—Sale to Related Corporation. A corporation's use of two aircraft qualified for the common carrier exemption explained in Regulation 1593(a)(1). It then sold the two aircraft to a related corporation (100% of the stock of each corporation is owned by the same person). The sale was not a transfer of substantially all of the seller's assets. Thus, the sale does not qualify for the exemption provided by section 6281. Therefore, the transaction is a taxable sale unless the purchaser's use qualifies for the common carrier exemption.

Whether the seller's use of an aircraft had previously qualified for the common carrier exemption is not relevant to the determination of whether the purchaser's use qualifies for the exemption, regardless of the common ownership of the seller and the purchaser. Rather, upon the purchase of the aircraft, the purchaser of the aircraft owes use tax on its use unless that purchaser's use qualifies for the exemption. Accordingly, a new 12 consecutive months' test is required to determine if the purchasing corporation uses the aircraft in order to qualify its purchases for the common carrier exemption. 8/16/95.

105.0069 Common Carrier Use. A taxpayer purchased an aircraft for use in common carrier operations. The first operational use of the aircraft occurred on July 30, 1987. However, the FAA did not give the taxpayer authorization to use the aircraft as a common carrier until May 16, 1988. Therefore, any operational use prior to May 16, 1988, would not qualify as common carrier use.

Under regulations pertaining to common carrier operations, Part 135, subchapter (G) of Title 14 of the Code of Federal Regulations (CFR), each carrier can only operate a particular type of aircraft if it obtains authority for the specific category and class of aircraft. Accordingly, only the common carrier operations between May 16, 1988 to July 30, 1988, qualify in determining if more than one half of the 12 month test period was for use in common carrier operations. 1/7/94.

105.0070 Common Carrier Use. Taxpayer purchased a helicopter at a location outside California from a helicopter dealer. Taxpayer was a licensed pilot for fixed wing aircraft, and a student pilot for helicopters. Taxpayer and a flight instructor flew the aircraft to California. Taxpayer did not possess a commercial pilot license for helicopters at any time within the next twelve months (test period). The aircraft was leased to a firm, a licensed Part 135 carrier, which used the helicopter to take aerial surveying photos. The firm also subleased it to a television station involved in aerial camera filming of the Olympic Games. There were other uses of the helicopter that were not specifically identified.

Under common carrier provision, Part 135 of Title 14 of the Code of Federal Regulations, a Part 135 operator must comply with all rules of Part 135 (14 CFR 135.3(a)). Rules include that only authorized pilots are allowed to fly the aircraft and a log must be maintained of all use of the aircraft.

Based on the information available, less than 50 percent of the helicopter's "operational" usage constitutes common carriage hours. The aerial surveying flights are specifically excluded from Part 135 operations (14 FAR Part 135.1(b)(4)(iii)). The use of the helicopter for television production, (broadcasting the Olympics) was a subrental since the ultimate control of the helicopter and pilot during flights was under the sublessee. Also, any use made of the helicopter while taxpayer was the pilot does not qualify since he did not have a commercial license to pilot the aircraft. Therefore, tax applies to the purchase price of the helicopter since it was not used more than 50 percent of the time in common carrier operation during the first 12 month test period. 1/13/94.

105.0071 Common Carrier Use. A common carrier purchases an aircraft, makes first operational use of the aircraft thereby starting the one-year test period, and the aircraft is added to the air carrier certificate of the charter operator who properly flys the aircraft under FAA Part 135 regulations. The aircraft is chartered and flown empty to pick up the passengers who board the aircraft. They are flown to their destination and then returned to the airport where they were picked up. The plane is then flown without passengers to the airport where it is based. The charter customer is charged for all the hours put on the aircraft including the two legs where the aircraft was flown without passengers. The common carrier asserts that the legs of the flight to pick up the passengers and to return the aircraft to its base airport qualify as common carrier/Part 135 use because the charter customer was charged for the flight time.

For purposes of the common carrier exemption from sales or use tax under section 6366 and 6366.1, Regulation 1593(a)(2) defines a "common carrier" as:

" … [A]ny person who engages in the business of transporting persons or property for hire or compensation and who offers his or her services indiscriminately to the public or to some portion of the public."

and under subdivision (c)(1)(C), a flight qualifies as common carrier use:

" … only if the flight is authorized by the governmental authority under which the aircraft is operated and involves the transportation of persons or property. Where the aircraft does not itself transport the person or property to a location on the ground (or water), the flight does not qualify as a common carrier flight for purposes of the exemption."

Flights to position or reposition aircraft by flying the aircraft from one point to another (ferry flights) do not qualify as common carrier use. (Regulation 1593(c)(1)(C)1.) In the above scenario, the legs of the charter flight where the aircraft is flown empty to pick up the passengers and then is ultimately flown without passengers to its base airport are considered to be ferry flights and do not qualify as common carrier use for purposes of the common carrier exemption. 7/21/04. (2005–2).

105.0076 Corporate Aircraft Used in Interstate Operations. An aircraft purchased out of state and brought into California within 90 days after purchase could qualify for the exemption provided in Regulation 1620(b)(2)(B) provided it is used continuously in the corporation's interstate operation (e.g., transportation of company's employees from one state to another). Intrastate flights in another state will not affect the exemption from the California tax. 9/15/83. (Am. 2006–1; Am. 2008–1).

(Note.—For the period October 2, 2004 through June 30, 2007, under certain conditions any vehicle, vessel, or aircraft purchased outside California and brought into the state within 12 months from the date of its purchase is presumed to be acquired for storage, use, or other consumption in California and subject to use tax.) (Regulation 1620(b)(5).)

105.0080 Corporations. A corporation is a resident of the state in which it is organized. A California corporation remains a resident of this state even where it operates solely outside California. A corporation is not a resident of California within the meaning of that term as used in section 6366 and 6366.1 if the corporation is not 'doing business' in California and was not incorporated under California law. Accordingly, a corporation must not be doing business in California or incorporated under California law if it is to qualify as a nonresident under such exemptions. 2/21/56; 4/12/84.

105.0085 Crop-Dusting. Crop-dusting does not qualify as a common carrier flight. Although the aircraft carries the dusting material from the loading point to the location of the fields, such a flight is not regarded as a flight for the purpose of transporting property for compensation. Rather the flight is regarded as an agricultural service of crop-dusting. 5/14/91.

105.0087 Delivery to Nonresident. A California resident solicited donations from the public to pay for a helicopter which was to be used in a national park in Africa. The California resident agreed to purchase a helicopter from a California manufacturer F.O.B. Paloma, California. After delivery in California, the aircraft was shipped to Africa.

Section 6366 does not discuss whether the property is "sold to" the person receiving title from the seller or the person providing consideration for the contract. Consequently, the aircraft is "sold to" the person who will exercise a right or power over the aircraft.

If the obvious intention of the purchaser and seller was that the aircraft be delivered by a seller to a representative of the African country and if this intent was effectively carried out, title passed from the seller directly to the African country, notwithstanding that a California resident was required to pay seller for the aircraft. Under these circumstances, the sale would be exempt under section 6366.

On the other hand, if the California resident received the title or possession in lieu of title, the transaction would not be exempt under section 6366, notwithstanding the fact that the California resident subsequently gave the aircraft to the African country very shortly thereafter. 10/28/75.

105.0088 Exclusive Use in Interstate Commerce. A corporation purchases an aircraft that was first functionally used in interstate commerce outside California, entered California in the course of such use, and was then used continuously in interstate commerce while in California. However, several trips were made from San Jose to Long Beach Airport for purposes of service and maintenance. On these trips, only the crew members were on board.

If the sole purpose of the intrastate flights was to transport the aircraft to Long Beach for service and maintenance, the flights would not prevent the exemption from use tax based on exclusive use in interstate commerce. 3/17/92.

105.0089.500 Fire Extinguisher—Loading and Unloading Equipment. A fire extinguisher located on a ramp adjacent to an aircraft does not qualify for the exemption provided for in section 6366(a)(2) [now 6366(a)(3)]. Neither does equipment used to load and unload passengers and cargo. 4/7/97. (Am. 2000–1).

105.0090 Firefighting Flights and External Load Operations. Firefighting flights and external load operations will qualify as common carrier use provided: (1) The flight transports persons or property for compensation; (2) the flights are offered indiscriminately to the public or to some portion of the public; and (3) the flights are authorized by the person's FAA certificate.

When a person provides carriage for firefighters from Point A to Point B, that flight qualifies as a common carrier flight if it meets the above requirements.

Also, if a person provides carriage of firefighting supplies picked up at Point A and delivered to Point B, that flight qualifies as common carrier flight if it meets the above requirements.

If the same person carries water in its aircraft from Point A and drops the water on a fire at Point B, this flight would not qualify as a common carrier flight. Such a flight would not be regarded as a flight for the purpose of transporting persons or property for compensation but rather as a flight to provide the service of firefighting. 4/26/91; 5/14/91.

105.0100 Gliders. Although gliders are designed for navigation in the air, they are not aircraft within the meaning of aection 6274 because they are not powered contrivances. 4/16/68.

105.0120 Helicopter. A complete helicopter is an aircraft within section 6366 exemption, but parts thereof are not within the exemption. 10/24/52.

105.0122 Helicopters Used in Fire Fighting. Rotocraft or helicopters used in fire fighting and external-load operations may qualify for the common carrier exemptions provided in sections 6366 and 6366.1. This is true regardless of whether that use is authorized under Part 133, Part 135 or any other part of the Federal Aviation Regulations. However, any operation as a common carrier which is not within the use for which certification is obtained does not qualify for the exemption, e.g. a use which is in violation of the certificate.

To qualify, the aircraft must be used in common carrier operations and those operations must be consistent with its licensing authority. For example, a helicopter transporting persons or property for compensation on flights authorized by Part 133 of the Federal Aviation Regulations would qualify, assuming the services are offered indiscriminately to the public or some portion of the public for compensation. 4/26/91.

105.0125 Helicopter Used for Medical Transportation. A taxpayer's contract with a hospital requires that the taxpayer provide air transportation services to patients of that hospital only and the hospital pays the taxpayer for those services. The hospital also has and exercises control over when and where the taxpayer will transport their patients.

When an aircraft is dedicated exclusively for use for a single client, it is not available "to the public" for carriage of persons or property and is not used as a common carrier of persons or property for purposes of Regulation 1593(a)(1). The fact that the taxpayer is authorized to operate as a common carrier under Federal Aviation Administration regulations does not mean the taxpayer's operations, in this case, are that of a common carrier. Thus, the taxpayer is not offering its services to the public or a portion of the public as required for the exemption from tax provided for aircraft leased and used in common carriage. 11/22/96.

105.0130 Hot Air Balloons. Hot air balloons are not an "aircraft" within the meaning of section 6274. The powered heating unit installed on the hot air balloon allows the operator to control the altitude of the balloon. Horizontal movement, however, is subject to the movement of the wind or air flow. While the operator may select a course of direction by raising or lowering the balloon into the desired air flow, the actual movement and control is caused by the air flow and not a powered navigational unit. This is typified by the fact that under certain weather conditions the operator may not be able to dictate the direction of travel. 1/27/86.

105.0131 Hot Air Balloons. The Board has ruled that a hot air balloon is not an aircraft for purposes of Regulation 1610. The application of tax to the transfer of a balloon is the same as it is to tangible personal property in general. 3/28/91.

105.0140 Hovercraft. A hovercraft, a craft which is propelled three to four feet above the surface of land or water on a cushion of air created by a turbine powered fan, is not designed for transportation of persons or property in "navigable airspace" and, therefore, does not qualify as an aircraft. 2/7/68.

105.0155 Lease to Common Carrier After Private Lease. As set forth in Regulation 1593(b)(1), whether a purchaser or lessee of an aircraft is using that aircraft as a common carrier of person or property, only the use of the aircraft during the first 12 consecutive months commencing with the first operational use of the aircraft will be considered. Thus, a lessor of an aircraft leasing the aircraft to private individuals and reporting tax based upon fair rental value for the first two years from the date of purchase must continue to report tax based upon fair rental value on a subsequent lease to a common carrier. In order for the common carrier exemption to apply, the aircraft must be used in common carriage for more than half of the twelve month test period. The test period commences with the first "operational use" of the aircraft. 11/21/89.

105.0160 Lease of Part of Aircraft. To facilitate the financing of a purchase of an aircraft by an airline, the engine and propeller equipment of the aircraft are titled in a third party who will concurrently lease the engine and propeller equipment to the airline. The airline takes title to the balance of the aircraft and takes delivery of the complete aircraft. The lease contains an option permitting the airline to acquire title to the equipment from the lessor in due course. The exemption in section 6366 is unaffected by this arrangement. The airline has the beneficial ownership of the entire aircraft as well as actual title to all but the engine and propeller equipment, and will ultimately secure title to this property. 5/14/58.

105.0170 Leased Aircraft—Repair Parts. The lessee of an aircraft has the statutory obligation to make the necessary repairs to the aircraft in its possession, and to maintain them in operable condition. Therefore, parts installed by the lessee to repair or maintain the aircraft are not sales to the lessor of the aircraft, notwithstanding the lease provision passing title to such parts to the lessor. The purchase of such parts by the lessee are not exempt as sales for resale to the lessor, nor sold back to the lessee by the lessor in the form of a lease exempt under section 6366.1. The lessee is the consumer of the parts. 9/28/72; 5/29/96.

105.0180 Leasing. The assignment of an aircraft to a holding company and the leasing of it back to customers while the aircraft is in California, is a use "otherwise than in removal" and hence would exclude the transaction from the exemption afforded in section 6366. 8/3/54.

105.0185 Loan of Engines. Due to a delay in delivery of engines ordered with an airplane, the airplane manufacturer loaned other engines to the airplane purchaser. The loan constituted a use by the manufacturer, taxable at fair rental value. There is no lease because there is no consideration. The exemptions of sections 6366 and 6366.1 apply only to aircraft and not to engines and thus, the loan of the engines is not exempt under these statutes. 12/20/85.

105.0190 Modifications to Aircraft. A company which sold modular kitchens for installation on aircraft may not claim the exemption if it is unable to demonstrate that the kitchens were installed as part of or a step in the manufacture or completion of a new aircraft. The sale of a modular kitchen as part of a repair or replacement in an aircraft which had previously been sold and placed in common carrier service does not qualify for the exemption described in Regulation 1593(d). 1/17/95.

105.0192 Noncommon Carriage Operation. Air taxi operators are authorized to operate by the Federal Aviation Administration under Part 135 of Title 14 of the Code of Federal Regulations. Under "Part 135" the carrier must have the sole possession, control and use of the licensed aircraft during flight. Other uses of aircraft, such as rentals, flight instruction, and the providing of a pilot for a fee are regulated by Part 91.

Many aircraft owners make uses of the aircraft under both Part 135 and Part 91. The fact that the operator has been licensed under Part 135 does not cause Part 91 flights to be treated as exempt. For example, when an aircraft is rented to a customer with a pilot but for a separate fee, and the customer has ultimate control over the aircraft and pilot for passenger and/or cargo flights which are flown only pursuant to Part 91 rules, the flights are not for common carriage purposes. 11/3/93.

105.0195 Powerline and Pipeline Patrol. The key issue in determining whether the usage of an aircraft qualifies for the common carrier exemption is whether the aircraft was used for transporting persons or property. An aircraft used only for power line and pipeline patrol would not qualify for the exemption. However, the use would not be disqualified just because the transport of persons or property happens to be while also patrolling a pipeline or powerline. Thus, if the aircraft was hired to fly an employee of the owner of the pipeline or powerline along a powerline the use of the aircraft would qualify for the exemption so long as all other criteria were met. If the aircraft merely flew the line without transporting either persons of property, the aircraft would not qualify for the exemption. 1/28/93.

105.0197 Principal Use Test. Flights from an out-of-state purchase point to points in California are regarded as being included in total flight hours in determining whether the principal use of an aircraft is exempt. Flights from a base to a repair location are also included. Neither type of flight is regarded as exempt. The principal use test begins with the first operational use of aircraft after purchase. The time at which charter flight approval is issued by the Federal Aviation Authority has no bearing on the principal use test other than flights prior to the issuing of approval cannot be regarded as exempt. 3/15/94.

105.0200 Purchase of Aircraft. A taxpayer purchases an aircraft from an unrelated party with the intent to utilize the aircraft in the chartering business. After inspection and refurbishing of the aircraft the taxpayer intends to transfer the aircraft to a newly formed corporation in exchange for all of that corporation's shares. The taxpayer holds a valid seller's permit and purchases the aircraft from a person who was not required to hold a seller's permit by virtue of its sales of aircraft.

The taxpayer did not purchase the aircraft for resale but rather for the purpose of transferring it to a commencing corporation in exchange for stock. This is a use subject to tax. The subsequent transfer of the aircraft to the new corporation solely in exchange for first issue stock of that commencing corporation, with no other consideration, is not a sale subject to sales or use tax. 7/27/92.

105.0204 Refrigerators Installed in New Aircraft. The following three scenarios describe transactions under which refrigerators are incorporated into new aircraft:

(1) The refrigerator is sold and delivered to an aircraft manufacturer. The manufacturer incorporates the refrigerator into a galley. The galley is checked to determine that all specifications of the design have been met. After the check, the galley is installed into the aircraft and after the aircraft is completed, it is delivered to a common carrier.

(2) The refrigerator is sold to a common carrier who instructs the seller to deliver the refrigerator to a third party galley manufacturer instead of delivering the refrigerator to the common carrier or an aircraft manufacturer. The galley manufacturer designs the galley and installs the refrigerator into the galley, and determines that all the specifications of the design have been met. Upon completion, the galley is shipped to the aircraft manufacturer. The aircraft manufacturer installs the galley into the airframe and the finished aircraft is delivered to the common carrier.

(3) The refrigerator is sold and shipped directly to a common carrier who instructs a third party to install the refrigerator into a galley that will be incorporated into the finished aircraft.

Under section 6366, as long as the installation of the refrigerators is a step in the manufacture or completion of a new aircraft, the sales of the refrigerators are exempt from tax. Thus, under all three scenarios, the sale of the refrigerators is eligible for the exemption as long as the purchase of the aircraft otherwise qualifies as a common carrier under section 6366, as explained by Regulation 1593. 2/10/97.

105.0205 Replacement Parts for Aircraft. Periodic maintenance on aircraft leased to a common carrier is performed out of state. The aircraft returns to California in the course of resuming its role as a common carrier.

Use tax does not apply to the purchase of any parts installed as part of the periodic maintenance out of state. If the replacement parts are installed as a result of periodic maintenance performed in California, sales tax would apply to the sale of the replacement parts. 3/9/88.

(Note.—Amendments to section 6366, effective October 1, 1996, re aircraft parts.)

105.0220 Sale and Installation of a Wiring System to a Foreign Carrier. An equipment manufacturer sells and installs a wiring system in a new aircraft purchased by a foreign carrier. This sale and installation is exempt from sale or use tax under section 6366. This is based on the theory that sale and installation of the wiring system constitutes a step in the manufacture of a completed aircraft. 12/27/68.

105.0260 Simultaneous Transactions. An aircraft manufacturer sells a plane to Company A, with delivery in California. Company A simultaneously leases the aircraft to Company B, a Nevada Corporation. Company B simultaneously leases it to C, who is a common carrier. Since there is no intervening use of the aircraft, the transactions would come within the exemption provided by section 6366.1. The parties should obtain and retain for their records exemption certificates, from the other parties involved, to support that the sale and lease of the aircraft is not subject to tax. 4/5/88.

105.0290 Sublease to Common Carrier. An aircraft manufacturer has entered into a sales agreement for an aircraft with the stock holding company of common carriers X and Y. The stock holding company has assigned its rights under the agreement to a leasing company, a subsidiary of the aircraft manufacturer, which will purchase the aircraft from the manufacturer and lease it to the stock holding company. The stock holding company will sublease the aircraft to common carrier X which will in turn sublease the aircraft to common carrier Y. Common carrier Y will place the aircraft in commercial operation both within and without California.

This transaction qualifies for the aircraft exemption provided in section 6366.1. 6/28/85.

105.0293 Sublease in Common Carrier Service. Nothing in the language of section 6366.1 prevents the exemption from applying in a situation where an aircraft is purchased by a leasing company who leases it to another entity who in turn leases it to a carrier. The section exempts the sale of aircraft "which are leased, or are sold to persons for the purpose of leasing, to lessees using such aircraft as common carriers." A sublessee may operate as the carrier. 4/21/80.

105.0296 Telephones Installed on Aircraft. Telephones permanently installed in the passenger seat backs or consoles for use by passengers to make calls are not parts associated with the functional aspects of the aircraft nor are they parts of a safety feature of the aircraft. Rather, they fall into the category of non-essential or comfort-related item under Regulation 1593 and tax applies to the charges made for these items. 9/10/99. (2000–2).

105.0550 Use of Aircraft. An aircraft is withdrawn from resale inventory nine times for use prior to its sale. Three times it is leased, three times it is used for personal purposes, and three times it is used for air taxi operations involving common carriage of persons or property. Tax is due on the fair rental value for the personal purposes and the leasing but is not due on the fair rental value for the use of the aircraft in common carrier operations since such use is exempt under section 6366. Also, tax applies to the fair rental value of the other uses only during the time the aircraft is within California. 11/4/80.