11-10-5r. They state the position of the Tax Commissioner on the tax consequences of a stated transaction or event under existing statutes, rules or policies. Technical Assistance Advisories must be released to the public after identifying characteristics or facts are omitted or modified to not disclose the name or identity of the taxpayer. A Technical Assistance Advisory has no precedential value except to the taxpayer requesting the advisory unless it is specifically stated otherwise in the Advisory. Any modification of an Advisory may only be prospective. Technical Assistance Advisory 91-003 is declared to be of precedential value to other taxpayers. On behalf of your client ABC, Inc. ("Taxpayer"), you requested issuance of a technical assistance advisory concerning Taxpayer's duties to collect and/or pay West Virginia Consumers Sales and Service Tax in connection to its business of repair, remodeling and maintenance of aircraft in light of the exemption under W. Va. Code §

11-15-9(mm). You have also requested a determination as to whether said services of repair, remodeling and maintenance are directly used and consumed in the manufacturing process of aerial photographs, such as to be exempt under W. Va. Code §

11-15-9(g) where the exemption in W. Va. Code §

11-15-9(mm) does not apply. FACTS Taxpayer is engaged in the business of providing repair, remodeling and maintenance services to aircraft. Taxpayer not only provides periodic general maintenance such as engine oil changes, and various services to the body of the aircraft, but also provides both annual and one hundred hour inspections. Such inspections are required to determine whether an aircraft is airworthy for the next period of operation. The total charges for these services consists of three separately stated items: parts, materials and labor. In addition, Taxpayer removes aircraft engines for the purpose of engine overhaul, oversees the overhaul of the engines by third parties and installs engines after the overhaul service is performed. In such an instance, the third party, performing the overhaul service, charges Taxpayer for the service, and Taxpayer, in turn, charges the aircraft operator for the overhaul service, along with a charge for the removal and installation of the engine. Finally, Taxpayer performs extensive repair and remodeling services to aircraft. This service includes repairs required due to accidents, and to normal wear and tear. The remodeling service consists of outfitting certain aircraft to perform specific operations, such as aerial photography, discussed below. Rarely does the remodeling service consist of installing items such as cabinets, benches or seats in the interior of the aircraft. Again, the total charge for these remodeling services consists of three separately stated items: parts, materials and labor. The aircraft upon which these services are conducted are generally of two types: (1) aircraft operated by licensed private carriers of persons or property which operate on a contract charter basis; and (2) aircraft operated by a business, Corporation X, engaged in the production of aerial photographs. The aircraft on which Taxpayer performs services, which are owned or operated by persons engaged in the carriage of persons or property on a private contract charter basis, are properly licensed and certificated by the Federal Aviation Administration ("FAA"). The operators of such aircraft possess an operating certificate issued by the FAA and the appropriate certificate of public convenience and necessity issued by the West Virginia Public Service Commission. The same aircraft also possess an airworthiness certificate and a United States Registration Certificate. The business in which the operators of these aircraft are engaged consist of the transportation of people or property for hire pursuant to an agreement between the persons to be carried, or the owner of the property to be carried, and the operator. Most often, the service provided by the operator consists of the transportation of persons for business purposes. Such operators are not, however, engaged in offering air transportation between specified points pursuant to a fixed schedule. The aircraft used for such charter services are, in some instances, owned by the person or persons operating them. However, in other instances, the aircraft are actually owned by a third party and leased to the person or persons engaged in providing air transportation of persons or property. The aircraft are either small jets or small propeller airplanes with seating capacities of up to approximately sixteen (16) passengers, or commensurate cargo capacity. In addition to performing the described repair, remodeling and maintenance services, Taxpayer purchases tangible personal property which it, in the course of rendering the services, permanently affixes or attaches to the aircraft, or to the aircraft engine, as a component part of the same. Such property is sold as tangible personal property to its customers and described on the invoice for the services as parts. Also, Taxpayer purchases machinery, tools and equipment which it directly uses in the performance of the above-described services. Such machinery, tools and equipment are used to perform services to aircraft operated by private contract carriers and to aircraft operated by Corporation X. Corporation X is engaged in the business of producing aerial photographs and other photographic products. All such photographs and products are of segments of developed and undeveloped land areas as designated by its customers, for a variety of purposes, including wetlands inventory, hazardous waste studies, tax maps, etc. In order to produce the aerial photographs requested, it is necessary to "fly-over" the identified area and take multiple photographs. Once the photographs are taken, the film is returned to a laboratory operated by Corporation X for processing and editing. Corporation X owns several aircraft and utilizes all of its aircraft to "fly-over" the specified areas of land for the purpose of producing the requested aerial photographs. The aircraft owned and operated by Corporation X are properly licensed and registered for such purposes under FAA regulations. Specifically, its aircraft possess an airworthiness certificate and a United States Registration Certificate. The aircraft owned and operated by Corporation X are regularly serviced by Taxpayer as described above. In addition to such regular maintenance, on occasion, Taxpayer repairs and remodels such aircraft. Such remodeling consists of modifying the aircraft for purposes of the installation of the equipment necessary to perform aerial photography, and the installation of such equipment. For example, Taxpayer will prepare an opening in the underside of the aircraft, pursuant to FAA regulations governing modification to the outer aircraft, affix appropriate braces and mounting devices, and install therein a special camera purchased and provided by Corporation X. Also, Taxpayer will modify certain windows of the aircraft so that they may be removed during flight for the purpose of manually taking photographs with a hand-held camera. You request that the Department of Tax and Revenue make a series of determinations. Requested Determination No. 1That Taxpayer's customers engaged in the business of private charter operations are qualified operators of aircraft for purposes of the exemption from the sales tax provided by W. Va. Code §

11-15-9(mm). West Virginia Code §

11-15-9(mm) provides the following exemption from West Virginia consumers sales and service tax:Sales of aircraft repair, remodeling and maintenance services when such services are to an aircraft operated by a certificated or licensed carrier of persons or property, or by a governmental entity, or to an engine or other component part of an aircraft operated by a certificated or licensed carrier of persons or property, or by a governmental entity, and sales of tangible personal property that is permanently affixed or permanently attached as a component part of an aircraft owned or operated by a certificated or licensed carrier of persons or property, or by a governmental entity, as part of the repair, remodeling or maintenance service and sales of machinery, tools, or equipment, directly used or consumed exclusively in the repair, remodeling, or maintenance of aircraft, aircraft engines, or aircraft component parts, for a certificated or licensed carrier of persons or property, or for a governmental entity. Thus, the issue presented is whether aircraft operated by a private charter aircraft operator fall within the meaning of the statutory language "aircraft operated by a certificated or licensed carrier of persons or property." The term "operated by a certificated or licensed carrier of persons or property" means and requires that the operator of the aircraft be certified by the FAA as either: (1) an air carrier possessing an Air Carrier Operating Certificate pursuant to Special Federal Aviation Regulation ("SFAR") 38-2 §

2(a): [or, in the context of such a certificate, a certificate with equal weight pursuant to SFAR 38-2 §

6(a), i.e. domestic air carrier operating certificate, flag air carrier operating certificate, supplemental air carrier operating certificate, commuter air carrier, or ATCO operating certificate] or (2) as a commercial operator possessing an operating certificate pursuant to SFAR 38­2 §

2(b). The term "air carrier" is defined by the United States Code ("U.S.C.") as "any citizen of the United States who undertakes directly or indirectly or by a lease or other arrangement to engage in air transportation." 49 U.S.C. §

1301(3). The term "commercial operator" is defined as any person, other than an air carrier, who conducts operations in air commerce carrying persons or property for compensation or hire. SFAR 38-2 §

6(c)(2). The use of the phrase "operated by a certificated or licensed carrier of persons or property" in Section 11-15-9(mm) may be read to make reference to the West Virginia statutory provision which governs the licensing and certification of aircraft operated in West Virginia, to-wit: W.Va.

Code §

29­2A­14, which provides: No person shall operate or authorize to be operated any aircraft within this state unless such aircraft has an appropriate effective certificate, permit or license issued by the United States, if such certificate permit or license is required by the United States. The use of such phrase also presumably references W.Va.

Code §§

24-2-1 and 24-2-11(a) which require any person engaging in the carriage of passengers and goods in the state by air to obtain a certificate of public convenience and necessity. The language of Section 11-15-9(mm) apparently requires that both a certificate of public convenience and necessity issued pursuant to these sections of Code Chapter 24, and an appropriate certificate issued by the FAA, be possessed by the operator of the aircraft in order for the operator to be a qualified operator for sales tax purposes. Thus, a person operating an aircraft possessing merely an airworthiness certificate, issued pursuant to Title 14 of the Code of Federal Regulations ("CFR") §

91-27(a)(1), or a United States Registration Certificate, issued pursuant to Title 14 CFR §

91-21-(a)(2), is not a qualified operator. These certificates, which are the only ones held by Corporation X, are not sufficient alone to permit the carriage of persons or property for compensation. Thus, since its aircraft are only licensed to engage in the business of aerial photography and not the carriage of persons or property, Corporation X is not a qualified operator for Section 11-15-9(mm) sales tax exemption purposes. However, there are customers of the Taxpayer which are engaged in private charter operations, are properly certified by the FAA as carriers of persons or property, and are properly licensed by the West Virginia Public Service Commission as such. Therefore, such customers, certificated or licensed carriers of persons or property, qualify as the aircraft operators (hereinafter "qualified operators") to which the exemption provided in Section 11-15-9(mm) is addressed. Requested Determination No. 2That sales by the taxpayer of aircraft repair, remodeling and maintenance services including charges for parts, materials and labor, and sales of tangible personal property that is permanently affixed or attached as a component part of the aircraft, in connection with performing the aforementioned services to its customers, which conduct private charter operations, are exempt from sales tax pursuant to W. Va. Code §

11-15-9(mm). Returning to the specific language of Section 11-15-9(mm) it appears that both the sale of "aircraft repair, remodeling and maintenance services" and sales of "tangible personal property that is permanently affixed or permanently attached as a component part...as part of the repair, remodeling or maintenance service" are exempt. Taxpayer is selling "parts and materials" together with "labor" as part of a unitary business activity of repair, remodeling and maintenance services. The fact that its charges are broken down into separately stated prices for parts, materials and labor will not be deemed to result in two separate transactions of furnishing repair services under "labor" and making sales of tangible personal property under "parts" and "materials." Provided such "parts" and "materials" are tangible personal property permanently affixed or permanently attached as a component of the aircraft as part of its repair, remodeling and maintenance services, all resulting charges by Taxpayer to qualified operators whether denoted as "parts", "materials" or "labor" are provided exempt from sales tax. Requested Determination No. 3That purchases by Taxpayer of tangible personal property which is to be permanently affixed or attached as a component part of an aircraft operated by its customers, which conduct private charter operations, as part of repair, remodeling and maintenance services to such aircraft are exempt from sales tax pursuant to W. Va. Code §

11­15­9(mm). Section 11-15-9(mm) provides an absolute exemption from sales tax on sales of any tangible personal property that is permanently affixed or permanently attached as a component part of an aircraft as part of the repair, remodeling and maintenance service. Therefore, the initial purchase of such tangible personal property by the Taxpayer is exempt as is any resale of such tangible personal property by the Taxpayer to a qualified operator as part of repair, remodeling and maintenance services. It must be remembered that any such tangible personal property must become permanently affixed or attached as a component part of an aircraft. Therefore, the purchase of items such as motor oils and lubricants which do not become a component part of the aircraft are not exempt when purchased by the Taxpayer. The Department of Tax and Revenue specifically rejects any contention that such items are ancillary to the exempt service and exempt relative to purchase of such items by the Taxpayer. However, the Taxpayer would be permitted to sell such items as motor oils and lubricants to its customers without calculating a sales tax on those items, where the cost is not broken out on the customer's invoice and is recovered by the Taxpayer under its labor charges unless on the Taxpayer's books and records it is reflected as a sale of tangible personal property. When such items are separately stated on the qualified operator's invoice or on Taxpayer's books and records, sales tax will apply to such charges and the Taxpayer will be entitled to issue a resale exemption certificate on its initial purchase. Requested Determination No. 4That purchases by Taxpayer of machinery, tools or equipment which are directly used or consumed in the performance of repair, remodeling or maintenance on aircraft or aircraft engines (or component parts) operated by its customers engaged in charter operations, are to the extent so used or consumed, exempt from sales tax pursuant to W. Va. Code §

11-15-9(mm). West Virginia Code §

11-15-9(mm) provides in pertinent part, that the following are exempt from sales tax;...sales of machinery, tools, or equipment directly used or consumed exclusively in the repair, remodeling, or maintenance of aircraft, aircraft engines, or aircraft component parts, of a certificated or licensed carrier of persons or property. Taxpayer correctly notes that the use of the word "exclusively" in this context seems to conflict with the general provisions of W. Va. Code §

11-15-9e which require a proration of sales tax liability between exempt and non-exempt use when items will be employed for both exempt and non-exempt purposes. Taxpayer argues that W. Va. Code §

11-15-9(mm) may be harmonized with W. Va. Code §

11-15-9e by interpreting the word "exclusively" in W. Va. Code §

11-15-9(mm) to refer only to the use in repair, remodeling and maintenance without reference to use of the aircraft by qualified operators. Taxpayer further cites as proof of Legislative intent that it is unlikely that anyone currently engaged in providing repair, maintenance and remodeling services to aircraft, provides such services exclusively to aircraft operated by qualified operators. Although taxpayer's position is well reasoned, we hold that the plain meaning of the language quoted above does require that machinery, tools or equipment must be used exclusively in the repair, remodeling or maintenance of aircraft, but does not specify that such services must be rendered exclusively to qualified operators. Accordingly, since Taxpayer performs services for both qualified and non-qualified operators such as Corporation X, its purchases of machinery, tools and equipment are subject to apportionment between non-exempt and exempt use on any reasonable basis under W. Va. Code §

11-15-9e provided such machinery, tools and equipment are used exclusively by the Taxpayer in the business of repair, remodeling and maintenance services to aircraft. Requested Determination No. 5That purchases by Corporation X of repair, remodeling or maintenance services to its aircraft, of tangible personal property affixed or attached to its aircraft, and of all supplies and materials used or consumed in connection with such services (except gasoline and special fuels) are exempt from the sales tax pursuant to W. Va. Code §

11­15­9(g) as such services or property are directly used or consumed in the manufacture of aerial photographs. The traditional analysis of the business of photography under the business and occupation tax was that the actual taking of photographs was a service activity while the development of the film was a manufacturing activity. Manufacturing is defined in W. Va. Code §

11-15-2(p) as follows:"Manufacturing" means a systematic operation or integrated series of systematic operations engaged in as a business or segment of a business which transforms or converts tangible personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed. The exemption from sales tax under W. Va. Code §

11-15-9(g) extends only to those items directly used or consumed in the manufacturing process. West Virginia Consumers Sales and Service Tax and Use Tax Regulation, 110 C.S.R. 15, §

68.3 states as follows:Persons engaged in the business of taking photographs and who also develop the film are engaged in a manufacturing activity to the extent they develop film. For purposes of this regulation, the developing of film includes the making of prints. [Emphasis added.] The regulation specifically indicates that manufacture does not begin until that point when developing the film occurs. Since the exposure of the film in the camera occurs prior to the beginning of the manufacturing process, the use of the aircraft is preliminary to the start of the manufacturing process. Corporation X's purchase of aircraft modification services from the Taxpayer are therefore subject to sales tax as being incidental, convenient or remote to the manufacturing activity. See 110 C.S.R. 15, §

68.4. The conclusions reached in this Technical Assistance Advisory are based on application of current consumers sales and use tax statutes and regulations to the material facts presented by the Taxpayer for purposes of this Advisory. Should there be a material change in any of the facts or should material facts have been omitted, the conclusions reached may no longer apply. Additionally, the conclusions reached herein are based on application of the current law and regulations. Should current law or regulations change or there be a material misapplication of current law or regulations the conclusions reached herein may no longer apply. ______________________________ Date: March 21, 1991Alan L. MierkeActing State Tax Commissioner