If an aircraft dealer leases the aircraft without an operator (pilot) and/or crew, then the dealer is leasing tangible personal property. The dealer must collect sales tax from the customer on the lease payments, provided that the customer is not otherwise exempt under Tennessee sales and use tax laws. Under these circumstances, the dealer may purchase the aircraft tax-exempt using its resale certificate.
If an aircraft dealer purchases an aircraft and then leases it with an operator (pilot) and/or crew, then the dealer is rendering a non-taxable service, and he should not collect sales tax from his customers. However, the dealer would owe sales and use tax on his purchase price of the aircraft and any repair or replacement parts and repair services, provided that the dealer is not otherwise statutorily exempt from paying sales and use tax on his purchase.
If the aircraft dealer uses the plane for both taxable and non-taxable activities, then the primary use of the plane determines the taxability at the time of purchase. If an aircraft is purchased for personal use, and it is infrequently leased with no pilot to others, the purchase of the aircraft is subject to sales or use tax, and in addition, the lease of the aircraft with no pilot provided is also subject to sales tax.
Reference: Tenn. Code Ann. § 67-6-302.