Tax Type
Retail Sales and Use Tax
Description
Commercial airline; Engine repair and overhaul services
Topic
Taxability of Persons and Transactions
Date Issued
11-09-1992
November 9, 1992
Re: Request for Ruling: Retail Sales & Use Tax
Dear***************
This will reply to your letter of October 16, 1991 in which you seek a ruling on the applicability of the sales and use tax to commercial airlines.
FACTS
The Taxpayer is engaged in engine repair and overhaul services for commercial airlines. When an engine needs to be overhauled or requires major repair, it is removed from the aircraft at its regular maintenance location and shipped to the Taxpayer's repair facilities located outside of Virginia. When repairs are completed, the engine is shipped F.O.B. shipping point to the Taxpayer's customer in Virginia.
You seek a ruling on the applicability of the sales and use tax to commercial airlines and various transactions.
RULING
Commercial airlines generally - Va. Code §58.1-608(A)(3)(f) provides an exemption from the retail sales and use tax for:
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- [t]angible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service.
- [t]angible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service.
The repair, rebuilding, and maintenance of aircraft in order to keep an airline's transportation system in operation is clearly an essential element of an airline's overall common carrier service. Thus, machinery, equipment, tools, supplies, etc., that are used directly in keeping revenue generating aircraft of a commercial airline in operation are nontaxable provided the airlines furnish the Taxpayer with a certificate of exemption.
I have enclosed copies of Virginia Regulation (VR) 630-10-7 relating to commercial airlines and excerpts from two reports on Virginia's retail sales and use tax exemptions relating to the commercial airlines and aircraft exemptions for your review.
However, if the work does not qualify under the airline exemption, e.g., work performed with respect to nonrevenue aircraft of an airline, aircraft operated by a contract carrier, or privately owned aircraft, the Taxpayer generally must collect the sales tax on the transaction. The tax will apply to the entire charge to the customer, including the charges for all tangible equipment, tools, repair parts, supplies, etc., however, repair labor charges may be separately stated on the invoice and excluded from the tax base.
In the case of a nonexempt transaction, I will now specifically address the proper tax treatment of each of the services listed in your letter individually below. You point out that the Taxpayer's normal invoice includes a number of these services as separately stated charges.
Special Process - a lump sum charge to a customer for labor, materials, and overhead used in the performance of special process functions such as x-rays for internal engine cracks or plasma spray. The Special Process charges are deemed to be exempt repair labor.
Customer Furnished Parts and Supplies Fees - a handling fee, in addition to labor charges, charged to a customer when the customer provides parts for the Taxpayer to use in a repair service. This fee can be likened to a charge for tangible personal property and thus is taxable.
Trade-in Service Charges - a fee paid by customers who use parts from the Taxpayer's inventory of reconditioned parts. This is calculated as a percentage of the part's list price and is done to expedite customer work. Va. Code §58.1-602 defines "sales price" as the "total amount for which tangible personal property or services are sold including any services that are part of the sale." Thus, if the Trade-in Service Charges are included in the sale of the parts, they would be taxable.
Trade-in Allowance - a credit allowed by the Taxpayer for used parts taken in trade when a customer purchases new parts. VR 630-10-104 provides that where used articles are taken in trade, or in a series of trades as a credit or partial payment on the sale of new or used articles, the tax must be paid on the net difference between the sales price of the new or used article and the credit for the used articles
Parts - aircraft parts sold to customers are taxable unless they are for resale.
Fuel and Oil Used in Testing Engines - a charge (cost plus a mark-up) passed through to the customer for fuel and oil used in testing customer engines. All fuel is consumed outside Virginia or removed from the engine prior to shipment to the customer. The fuel is essentially consumed by the Taxpayer in testing a repaired engine and if the charge for such is passed on to the customer in connection with the sale of tangible personal property, it would be subject to the tax.
Test Cell Fee - a fee charged to a customer for the use of the Taxpayer's test cell, a special facility used to test engines against the original manufacturer's standards for power, vibration, and heat. If the fee is charged in connection with or included in the sale of tangible personal property it would be subject to the tax.
If you have any further questions about this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5695H
Rulings of the Tax Commissioner