SN 93(23)

Aircraft Manufacturing, Repair and Overhaul

PURPOSE: This Special Notice describes the application of the new exemptions from sales and use taxes provided in Conn. Gen. Stat. Sections 12-412(76), (77) and (78).

BACKGROUND: In 1992, the General Assembly enacted 1992 Conn. Pub. Acts 17, Sec. 29, now Conn. Gen. Stat. Sections 12-412(76) and (77), to provide an exemption for sales of aircraft repair and replacement parts and aircraft repair services, when used for or rendered in connection with aircraft owned or leased by a certificated air carrier or in the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis. In the same act, an exemption was also added in what is now Conn. Gen. Stat. Sec. 12-412(78) for sales of machinery, equipment, materials, tools and fuel used in an aircraft manufacturing facility in the manufacture or significant overhauling or rebuilding on a factory basis of aircraft or aircraft parts or components.

STATUTORY AUTHORITY: Conn. Gen. Stat. Sections 12-412(76), (77) and (78), as added by 1992 Conn. Pub. Acts 17, Sec. 29.

RELATIONSHIP OF NEW EXEMPTIONS WITH EXEMPTIONS UNDER CONN. GEN. STAT. SECTIONS 12-412(18) AND (34): Conn. Gen. Stat. Sec. 12-412(18) exempts sales of materials, tools and fuel that become an ingredient or component part of tangible personal property to be sold or which are used directly in an industrial plant in the actual fabrication of finished products to be sold. This exemption is described in detail in Conn. Agencies Regs. Sec. 12-412(18)-1. Conn. Gen. Stat. Sec. 12-412(34) exempts purchases of machinery used directly in a manufacturing production process. This exemption is described in detail in Conn. Agencies Regs. Sec.12-412(34)-1. Both Conn. Gen. Stat. Sections 12-412(18) and (34) (and the regulations thereunder) are unchanged and remain in effect. Thus, the exemptions under Conn. Gen. Stat. Sections 12-412(76) and (78) cover those items of tangible personal property used in the manufacture, repair, significant overhauling or rebuilding of aircraft or aircraft parts or components that do not qualify for exemption under Conn. Gen. Stat. Sections 12-412(18) or (34).

DEFINITIONS: The following definitions apply only to the exemptions provided under Conn. Gen. Stat. Sections 12-412(76), (77) and (78). The definitions provided in Conn. Gen. Stat. Sections 12-412(18) and (34) and the regulations thereunder continue in effect for purposes of the exemptions authorized under those statutes.

"Aircraft" is defined in Conn. Gen. Stat. Sec. 12-407(23) by reference to Conn. Gen. Stat. Sec. 15-34. The term is defined in Conn. Gen. Stat. Sec. 15-34(5) as any contrivance used or designed for navigation of or flight in air, including (a) airplanes, meaning power-driven fixed-wing aircraft, heavier than air, supported by the dynamic reaction of the air against their wings; (b) gliders, meaning heavier than air aircraft, the free flight of which does not depend principally upon a power-generating unit, and (c) rotorcraft, meaning power-driven aircraft, heavier than air, supported during flight by one or more rotors.

"Certificated air carrier" is defined in Conn. Gen. Stat. Sec. 12-407(22) as a person issued a certificate or certificates by the Federal Aviation Administration pursuant to Title 14, Chapter I, Subchapter G, Part 121, 135, 139 or 141 of the Code of Federal Regulations or the Civil Aeronautics Board pursuant to Title 14, Chapter II, Subchapter A, Parts 201 to 208, inclusive, and 298 of the Code of Federal Regulations, as such regulations are currently in effect.

"Significant overhauling or rebuilding" means an activity that results in a significantly greater service life than the property undergoing the overhauling or rebuilding would have had in the absence of such overhauling or rebuilding, or significantly greater functionality within the original service life of the property. In other words, "significant overhauling or rebuilding" means materially enhancing the value, use, life expectancy, strength or capacity of the property. "Significant overhauling or rebuilding" requires more than merely restoring the original functionality for the balance of the original service life, such as by correcting an existing defect or putting the property back in efficient operating condition.

"Aircraft manufacturing facility" is defined in Conn. Gen. Stat. Sec. 12-412(78) as that portion of a plant, building or other real property improvement used for the manufacturing of aircraft or aircraft parts or components or for the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis.

Thus, if a single facility is used for multiple purposes, such as for both manufacturing and administration, only machinery, equipment, materials, tools and fuel relating to the portion of the facility in which qualifying activities are performed will be exempt. If it is impossible to distinguish the portion of the facility in which qualifying activities are conducted from that portion of the facility in which nonqualifying activities are conducted, the portion of the floor space dedicated to the qualifying activities will be an "aircraft manufacturing facility," and items purchased for use in such portion may qualify for exemption.

"Factory basis" means that the significant overhauling or rebuilding of aircraft or aircraft parts or components takes place in an establishment which has such significant overhauling or rebuilding as its predominant purpose and which is generally recognized as such. In determining whether an establishment has such significant overhauling or rebuilding as its predominant purpose, the Department will examine the facts and circumstances of each case, using the following principles as guidelines:

• If the floor space of the establishment is predominantly devoted to the significant overhauling or rebuilding of aircraft or aircraft parts or components, it is more likely that the activities take place on a factory basis.
• If the employees working at the establishment are employees predominantly working in the significant overhauling or rebuilding of aircraft or aircraft parts or components, it is more likely that the activities take place on a factory basis.
• If the wages and salaries of employees working at the establishment are predominantly wages and salaries of employees working in the significant overhauling or rebuilding of aircraft or aircraft parts or components, it is more likely that the activities take place on a factory basis.
• If the costs of operating the establishment are predominantly attributable to the costs of the significant overhauling or rebuilding of aircraft or aircraft parts or components, it is more likely that the activities take place on a factory basis.

The term "factory basis" does not encompass cottage industries. The term "cottage industries" means establishments at which the significant overhauling or rebuilding of aircraft or aircraft parts or components takes place in a residential dwelling or in a building on the grounds of a residential dwelling. If an establishment is not located in an area zoned as commercial or industrial, or if residential use is among the uses being made of the establishment, the activities are less likely to be taking place on a factory basis.

"Aircraft repair and replacement parts" and "aircraft parts and components" are items that are installed in aircraft, whether or not specifically designed for use in aircraft.

"Machinery and equipment" are defined in Conn. Gen. Stat. Sec. 12-412(78) as tangible personal property (A) which is installed in an aircraft manufacturing facility and (B) the predominant use of which is (i) for the manufacturing of aircraft or aircraft parts or components or (ii) for the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis. The term "machinery" means the basic machine itself, including all of its component parts and contrivances such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery, including, without limitation, computers and data processing equipment.

"Equipment" means a device separate from machinery but essential to an aircraft manufacturing process or the significant overhauling or rebuilding of aircraft or aircraft parts and components. Equipment may be considered "essential" if such manufacturing, overhauling or rebuilding process cannot proceed without that equipment. The fact that equipment is required by law, such as safety equipment, or by practical necessity, such as ceiling lights, does not of itself render equipment "essential."

"Predominant" means chief. For example, if a machine is used for two different functions, one of which would qualify the machine for exemption under Conn. Gen. Stat. Sec. 12-412(78) and the other of which would not, the machine is used predominantly in the activity in which it is used more than 50 percent of the time. If, however, the machine is used for three or more different functions, the machine is used predominantly in the activity in which it is used the greatest percentage of the time.

EXEMPTION FOR AIRCRAFT REPAIR SERVICES: Any aircraft repair services rendered in connection with aircraft owned or leased by a certificated air carrier are exempt. Aircraft repair services rendered in connection with the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis are also exempt, whether or not the aircraft is owned or leased by a certificated air carrier.

Therefore, any repair services purchased with regard to aircraft owned or leased by a certificated air carrier are exempt, whether performed on a factory basis or on the premises of the certificated air carrier. However, if a noncertificated air carrier or a private owner of an aircraft purchases aircraft repair services, such purchase is taxable unless made with regard to (i) the significant overhauling or rebuilding of the aircraft or its parts or components, (ii) which is being performed on a factory basis.

EXEMPTION FOR AIRCRAFT REPAIR OR REPLACEMENT PARTS: All aircraft repair and replacement parts used exclusively in aircraft owned or leased by a certificated air carrier are exempt. Aircraft repair and replacement parts used exclusively in the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis are exempt, whether or not the aircraft is owned or leased by a certificated air carrier.

Therefore, any aircraft repair or replacement parts purchased exclusively for use in aircraft owned or leased by a certificated air carrier are exempt. However, if aircraft repair or replacement parts are purchased in connection with repairs being made to aircraft owned or leased by a noncertificated air carrier or a private owner of an aircraft, such purchases are taxable unless used exclusively in (i) the significant overhauling or rebuilding of the aircraft or its parts or components, (ii) which is being performed on a factory basis.

CERTIFICATE OF EXEMPTION FOR PURCHASES OF AIRCRAFT REPAIR SERVICES OR AIRCRAFT REPAIR OR REPLACEMENT PARTS: A certificate (CERT-110) must be presented to the seller by the purchaser of aircraft repair services or aircraft repair or replacement parts when exemption under Conn. Gen. Stat. Sections 12-412(76) and (77) is being claimed. Acceptance of such certificate in good faith by the seller from a purchaser that is a certificated air carrier, or from a purchaser providing significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis, shall relieve the seller of the burden of proving that the property or services purchased are entitled to such exemptions. If the purchaser makes any use of the property or services other than the use stated on the certificate, the property or services shall become subject to tax on the total price of such property or services at the time of such use.

MACHINERY, EQUIPMENT, MATERIALS, TOOLS AND FUEL USED IN AN AIRCRAFT MANUFACTURING FACILITY: Conn. Gen. Stat. Sec. 12-412(78) exempts sales of machinery, equipment, materials, tools and fuel to an aircraft manufacturer operating an aircraft manufacturing facility in Connecticut when such items of tangible personal property are used in such facility.

There is no requirement that machinery, equipment, materials, tools or fuel be directly used in a manufacturing production process such as is required for the exemptions under Conn. Gen. Stat. Sections 12-412(18) or (34). In addition, there is no requirement that materials, tools and fuel be predominantly used in manufacturing, overhauling or rebuilding aircraft or aircraft parts or components.

CERTIFICATE OF EXEMPTION FOR AIRCRAFT MANUFACTURERS: A certificate (CERT-111) must be presented to the seller by an aircraft manufacturer purchasing machinery, equipment, materials, tools, or fuel when exemption under Conn. Gen. Stat. Sec. 12-412(78) is being claimed. Acceptance of such certificate in good faith by the seller from an aircraft manufacturer shall relieve the seller of the burden of proving that the property purchased is entitled to such exemption. If the aircraft manufacturer makes any use of the property other than the use stated on the certificate, the property shall become subject to tax on the total price of such property at the time of such use.

ITEMS THAT DO NOT QUALIFY FOR EXEMPTION UNDER CONN. GEN. STAT. SEC. 12-412(78): The exemption under Conn. Gen. Stat. Sec. 12-412(78) for purchases of machinery, equipment, materials, tools and fuel does not apply to purchases of such items used predominantly in administration, general management, sales or any other activity which does not constitute (i) manufacturing of aircraft or aircraft parts or components or (ii) the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis.

PURCHASES BY INDEPENDENT CONTRACTORS PERFORMING ACTIVITIES FOR AIRCRAFT MANUFACTURERS: Purchases of items used in conducting manufacturing, or in the significant overhauling or rebuilding on a factory basis, of aircraft or aircraft parts or components may qualify for exemption under Conn. Gen. Stat. Sec. 12-412(78) even if those activities are performed by independent contractors instead of by an aircraft manufacturer, overhauler or rebuilder.

PROVIDERS OF TAXABLE MAINTENANCE AND REPAIR SERVICES: The service of maintaining or repairing machinery, equipment or tools is taxable under Conn. Gen. Stat. Sec. 12-407(2)(i)(GG) as repair or maintenance services to tangible personal property. While providers of such services must collect tax on their charges, they may purchase their machinery, equipment, materials, tools and fuels under the partial exemption provided by the Manufacturing Recovery Act of 1992 if they qualify under Conn. Gen. Stat. Sec. 12-412i (see Special Notice 93(1) for an explanation of the Manufacturing Recovery Act).

EFFECT OF THIS DOCUMENT: A Special Notice is a document that announces a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions. A Special Notice indicates the Department's informal interpretation of Connecticut tax law and may be referred to for general guidance by taxpayers or tax practitioners. 

SN 93(23)
Sales and use taxes
Issued: 9/8/93