The Wisconsin Supreme Court recently held that the state’s sales tax exemption for the sale of aircraft parts and maintenance does not apply to per-flight-hour aircraft lease charges for repairs and maintenance.

Under Wis. Stat. § 77.51(15b)(a), sales tax applies to the total amount of consideration that the taxpayer receives for leasing its aircraft, without any deduction for the taxpayer’s cost of materials used, labor or service cost, or any other expense of the taxpayer. Although the taxpayer’s purchase of aircraft repairs and engine maintenance from vendors is tax-exempt, tax applies when the taxpayer passes those costs along to its customers as part of the total amount of consideration in a lease.

The taxpayer sought to apply statutory exemptions related to aircraft: Wis. Stat. § 77.54(5)(a)3., which exempts the sale of “parts used to modify or repair aircraft,” and Wis. Stat. § 77.52(2)(a)10., which exempts the sale of “repair, service, … and maintenance of any aircraft or aircraft parts.” The court held that the taxpayer’s activities fell outside of the text of the exemptions because it was leasing aircraft to the lessees rather than re-selling aircraft repairs or engine maintenance services.  Further, the court found that the taxpayer was not incurring the repair and maintenance costs as the lessee’s agent.  The repairs and maintenance were cost of the taxpayer’s business that did not reduce the taxable sales price of the aircraft lease. 

Citation Partners, LLC v. Wisconsin Department of Revenue, 985 N.W.2d 761 (Wis. 2023)