Lease and Management Agreements That Satisfy the FAA and the IRS
At AvTax Advisors, PLLC, we draft and review aircraft leases and management agreements for private aircraft owners and operators in Tampa, throughout Florida, and nationwide. A lease is two documents at once. It is the document that allocates operational control for FAA purposes, and it is the tax record that drives federal excise tax, depreciation, and Florida sales and use tax exposure. Our Florida aviation tax practice builds both layers into the same paperwork, before anyone signs and long before an auditor asks.
Why Aircraft Owners Choose AvTax Advisors for Leasing and Management Agreements
Most transaction shops draft the lease. Most accountants see it afterward, once the structure is fixed. Letisha D. Sailor, Esq., Founder and Managing Member of AvTax Advisors, PLLC, works both sides of the document at the same time:
- LL.M. in Taxation: From the University of Florida Levin College of Law, where she was a Graduate Tax Scholar.
- More than 20 years in aviation, tax, and accounting: Florida-licensed and practicing before the United States Tax Court in tax disputes.
- Rooted in the industry: Member of NBAA, NAFA, TBAA, CFBAA, IAWA, and FABA.
- These agreements are core work, not an adjacent service: Dry lease, timeshare, charter management, and aircraft management agreements are among the documents the firm handles routinely.
- One advisor, both layers: Tax and legal guidance under a single roof, with no handoff between transaction counsel and tax counsel.
- Flexible engagement terms: Including fixed-fee options, tailored to the transaction.
That combination matters because one sentence in a lease can settle both who the FAA holds responsible for a flight and who the IRS treats as the taxpayer.
Dry Leases, Wet Leases, and Who Holds Operational Control
The federal aviation regulations governing air carriers define a wet lease as “any leasing arrangement whereby a person agrees to provide an entire aircraft and at least one crewmember.” There is no matching general definition of a dry lease. That term is industry shorthand for a lease furnishing the aircraft without crew. When the truth-in-leasing rule applies, it reaches either arrangement, because for purposes of that rule a lease is any agreement to furnish an aircraft for compensation or hire, with or without flight crewmembers.
What separates them in practice is operational control, defined in the federal aviation regulations as the exercise of authority over initiating, conducting, or terminating a flight. Under a dry lease, the lessee hires the crew and holds that authority. When the lessor supplies aircraft and crew together, the arrangement begins to resemble carriage for hire, and a different set of operating rules may attach.
That rule does not reach every lease. It applies to a U.S.-registered large civil aircraft, meaning one above 12,500 pounds maximum certificated takeoff weight, and there the lease must carry a truth-in-leasing clause in large print immediately before the signature block. Three conditions then govern operating the aircraft under that lease, and the lessee or conditional buyer carries the filing duties, or the registered owner where the lessee is not a United States citizen:
- Mail a copy of the signed lease to the FAA Aircraft Registration Branch in Oklahoma City within 24 hours of execution.
- Carry a copy in the aircraft, available for review on request by the Administrator.
- Notify the responsible Flight Standards office by telephone or in person, at least 48 hours before takeoff on the first flight of that aircraft under that lease unless the office authorizes otherwise, giving the departure airport, the departure time, and the registration number.
Smaller aircraft sit outside that rule, which is why a lease review starts with maximum certificated takeoff weight and country of registry.
What a Management Agreement Does to Your Federal Excise Tax
The federal excise tax on air transportation runs at 7.5% of the amount paid for taxable transportation, plus a per-passenger tax on each domestic segment. Owners who hand the airplane to a management company often assume every invoice carries it. Since 2017, it generally has not.
Amounts an aircraft owner pays a management company for maintenance and support of the aircraft, or for flights on that aircraft, fall outside the tax. Covered services include scheduling, flight planning, weather forecasting, insurance, maintenance, storage, fueling, the hiring, training, and provision of pilots and crew, and establishing and complying with safety standards.
Treasury regulations on aircraft management services add that the exception holds even when the owner is not aboard, and that it turns neither on the choice between Part 91 and Part 135 nor on whether the manager bills a flat fee or itemizes. Four limits decide whether it survives an audit:
- Who pays. Payment by a related party is not payment by the owner merely because the two are related.
- The 31-day trap. A lessee counts as an owner here, except under a disqualified lease, meaning a lease from the management services provider, or a person related to that provider, for a term of 31 days or less.
- Private aviation only. The exception excludes scheduled service sold seat by seat to the public.
- Records. The owner and manager must both keep records tying the amounts to that aircraft or to flights on it.
Where one invoice mixes exempt management services with a taxable charter leg, the exception applies pro rata to the exempt portion only. A separately stated charge shown in an exact amount sets the tax base. Where the taxable portion is not separable, the base is the fair market value of the flight or service, capped at the total amount paid.
Florida Sales and Use Tax on the Lease Itself
Owners who move an aircraft into a leasing entity sometimes treat the lease as a paper formality. In Florida, it is a taxable event. State law levies tax at 6% of the gross proceeds derived from the lease or rental of tangible personal property, measured by the lease or rental price the lessee pays or agrees to pay the owner. The special provisions written into that paragraph cover motor vehicles and peer-to-peer car-sharing programs. Aircraft are not among them.
Two consequences follow for a leaseback. Rent charged to a related operating company is lease proceeds, and unless a specific statutory exemption applies, it sits inside the levy. Separately, where an aircraft was purchased exempt for use exclusively for lease and is later converted to the owner’s use, tax may be paid on fair market value at the time of conversion, or on acquisition cost where fair market value cannot be determined. A floor applies either way. Sales tax on the lease stream plus use tax at conversion may not fall below the tax that would have been due on the original acquisition cost.
One point is widely assumed the other way. Florida caps the sales and use tax on a boat. It sets no comparable ceiling for an aircraft. Running the exemption analysis before the first rent payment is what gives a leaseback its best defense, which is why sales tax exemption planning and aviation entity formation belong in the same conversation as the lease.
Talk to a Florida Aviation Tax Attorney Before the Lease Is Signed
A lease or management agreement takes minutes to sign and years to unwind. Contact AvTax Advisors today to schedule a consultation. We advise private aircraft owners, flight departments, and management companies from Tampa, throughout Florida, and nationwide.
This content is for informational purposes only and does not constitute legal or tax advice. Consult a qualified aviation tax and legal advisor regarding your specific situation.
Frequently Asked Questions
Can I charge a related company for flights under a dry lease?
Under a true dry lease the lessee takes the aircraft without crew, supplies the flight crew, and holds operational control. What it pays is rent for the aircraft rather than a charge for transportation, so the flight-expense limits that govern time sharing do not apply to it. A per-flight charge with crew supplied by the lessor is a different arrangement. For large airplanes and turbojet-powered multiengine airplanes of U.S. registry flown in operations not involving common carriage, federal rules recognize time sharing, interchange, and joint ownership agreements. A time sharing agreement leases the airplane with flight crew, and charges are limited to a listed set of flight expenses, among them fuel, crew travel, and landing fees, plus an additional charge equal to 100% of the fuel, oil, lubricants, and other additives. Which structure fits depends on the aircraft and on who supplies the crew.
Do I owe federal excise tax on my management company’s monthly fee?
Usually not, if you are the aircraft owner and the fee covers management services for that aircraft. Congress added the exception in 2017, and Treasury regulations effective for amounts paid on and after January 19, 2021, confirm it applies whether the manager bills a flat fee or itemizes. The exception breaks down where someone other than the owner pays, where the lease is a disqualified lease, or where records do not tie the payments to that aircraft.
Does the truth-in-leasing rule apply to every aircraft lease?
No. It reaches leases and conditional sales contracts involving U.S.-registered large civil aircraft entered into after January 2, 1973, with exceptions for foreign air carriers, certain certificate holders, and some conditional sales of previously unregistered aircraft. Sitting outside that rule does not make a lease safe. Operational control and Florida sales and use tax reach a light aircraft the same way they reach a heavy one. Federal excise tax generally does too, with one statutory exception: a propeller or rotorcraft aircraft of 6,000 pounds or less maximum certificated takeoff weight that is not operated on an established line falls outside it.