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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
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105.0000 Aircraft—Regulation 1593
Annotation 105.0018
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.