Leases and Rentals

Leases and rentals of aircraft that do not provide a pilot are taxable.

If you are a business registered in Minnesota and lease or rent an aircraft without providing a pilot, you may purchase the aircraft exempt from tax by providing Form ST3, Certificate of Exemption. If you later use the aircraft for taxable activities, you must self-assess use tax.

Leases or rentals of aircraft that provide a pilot to operate the aircraft are not taxable.

Note: If you are a licensed lessor and lease or rent of an aircraft that provides a pilot, you must pay sales tax when you purchase the aircraft. No resale exemption applies.

If you buy an aircraft solely to lease it back to a fixed-base operator (FBO), both you and the FBO must register for sales tax with the Minnesota Department of Revenue.

Collecting Sales or Use Tax on Lease-Backs

The owner and the FBO must keep detailed documentation on the lease-back transactions. The FBO must:

• Collect and report sales tax on amounts received from leasing the aircraft to others.
• Report and pay use tax on amounts paid to the owner for the FBO’s own taxable use of the aircraft (such as for flight instruction or personal use).

If the FBO leases an aircraft to the owner, tax may be handled in either of the following ways:

• The FBO collects sales tax from the owner and reports the tax on their sales and use tax return. Base the lease price on amounts charged to other lessees or the fair market rental value.
• The owner reports use tax directly to the state on the owner’s own return. It is important that the FBO has documentation that the owner is paying tax.

Note: Because the owner and the FBO have an ongoing relationship, they should have a legal contract detailing each party’s responsibilities, liabilities, and understandings. This ensures that each party is aware of their sales and use tax responsibilities.

Charter services (providing an operator with an aircraft) are not taxable. The charter operator owes tax on the purchase or lease of the aircraft used to provide charter service.

Aircraft leased to out-of-state residents are exempt if the aircraft is based and used outside of Minnesota.

For aircraft leases or rentals, the source of the transaction for sales tax purposes depends on whether the customer pays all at once or over time:

• Single payment – sourced to the location where the customer receives the aircraft being leased.
• Multiple payments – sourced to the primary location of the aircraft. The primary location is the address the customer provides for the aircraft and does not change by occasional use at different locations.