Tax Type
Aircraft Sales and Use Tax
Description
Aircraft; Sale/lease
Topic
Taxability of Persons and Transactions
Date Issued
09-04-1997
September 4, 1997
Re: § 58.1-1821 Application: Aircraft Sales and Use Tax
Dear****************
This will reply to your letter in which you seek correction of the aircraft sales and use tax audit of ***********(the "Taxpayer") for the period of September 1992 through October 1992.
FACTS
The Taxpayer is a small company whose only business is the lease of an aircraft to the Federal Aviation Association (hereinafter "the Lessor"). The original lease was entered into with only one month remaining in the Lessor's fiscal year. As a result, the original lease was for a term of one month with the Lessor having the option to modify, extend, or change the contract for a period of up to three years. Because the original provisions of the lease contract did not qualify as a sale as provided under Virginia Regulation (VR) 630-11-1501.6, the auditor assessed the aircraft tax to the Taxpayer. The Taxpayer is contesting the assessment of the tax based on the fact the original contract was extended so that the combined lease payments exceeded the original value of the aircraft. The Taxpayer is of the opinion that this would qualify the lease as a sale, thus rendering it an exempt sale to the federal government as provided under VR 630-11-1505.
DETERMINATION
VR 630-10-1501 provides for the definition of the term "sale" as it applies to aircraft 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...." This regulation further defines the term "lease or rental" to include "only a lease or rental for a period of time substantially equal to the remaining life of the aircraft as determined at the beginning of the lease term or a lease or rental in which the payments during the term of lease will substantially equal the value of the aircraft." Based on the fact that the extended terms of the lease payments accounted for over 100% of the original purchase price of the aircraft, I find that the lease qualifies as a sale under VR 630-11-1501. As a result, the transaction is exempt from the aircraft tax as a sale to the federal government. The audit assessment will be abated.
If you should have any questions, please contact ******** , Office of Tax Policy, at******** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12408K
Rulings of the Tax Commissioner