Document Number
95-120
Tax Type
Aircraft Sales and Use Tax
Description
Leaseback of aircraft; Payment of an obligation
Topic
Taxability of Persons and Transactions
Date Issued
05-16-1995
May 16, 1995



Re: Request for Ruling: Sales and Use Tax



Dear*********

This will reply to your letter of January 5, 1995 in which you request a ruling as to the aircraft sales, and use tax application to an aircraft recently acquired by**************(the "Taxpayer") as partial payment of a note the Taxpayer held for***************** (the "Debtor").
FACTS

The Taxpayer held a note for the Debtor which was properly recorded with the State Corporation Commission. As a means of paying off the note held by the Taxpayer, the Debtor transferred assets, i.e. an aircraft, to the Taxpayer. The terms of the transfer also required the Debtor to lease back the aircraft from the Taxpayer on an annual basis. The transfer of the aircraft and the resulting leaseback by the Debtor satisfied the outstanding note in full.

The Taxpayer requests a ruling as to the application of the aircraft sales and use tax to the above transaction.
RULING

The Virginia Aircraft Sales and Use Tax Regulations (VR) 630-11-1501.6.a (copy enclosed) defines a sale generally to mean, "any transfer of ownership or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of an aircraft, including transactions whereby possession is transferred but title is retained by the seller as security." However, this regulation goes on to say under subsection d, that the term "sale" does not include, the transfer of ownership or possession which transfer is made to secure payment of an obligation."

Based on the information provided in your letter, and the regulation set forth above, the transfer of the aircraft to the Taxpayer and the ensuing lease back by the Debtor, clearly was made to "secure payment of an obligation" and does not qualify as a sale for aircraft sales and use tax purposes.

If you should have any further questions, please feel free to contact the department.

                        • Sincerely,


                          Danny M. Payne
                          Tax Commissioner

OTP/9644K

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46