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rier. The issue was whether the modifi- cation of the aircraft’s engines was the sale, use or consumption of an aircraft. Prior court decisions, the court observed, determined that the term “aircraft” in- cluded “integral parts.”

The Court in National Aircraft Leasing held the repair parts to be parts and not engines. The disputed taxable transaction

was not the sale of engines. It was the sale of repair parts and the related modifi- cation services. Even though the engines may at all times have remained integral parts of the aircraft, the Court explained that the same was not true with respect to the parts installed on those engines dur- ing the modification process. The parts

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analysis in 1998 in Thermal Graphics, Inc. v. Department of Revenue, where it held that a camera installed on a Bell Helicopter used to fight forest fires became part of the aircraft and was not taxable personal prop- erty. The camera was designed and oper- ated as part of a gimbal assembly mounted on the helicopter’s airframe. Installation included electric power wiring so that the helicopter powered the assembly. The De- partment of Revenue contended that the camera was taxable because it was not a necessary part of the helicopter. But the Court found that the camera was perma- nently installed on the helicopter, even though it was removable. The Court rea- soned that the camera was no different than any part of the aircraft that could be readily removed for service or adaption. The Court further noted that the camera was a “limited-function device” that could only be “used as part of or in conjunction with an aircraft.” The camera had lost its identity as a separate piece of property and became part of the aircraft.

All engine parts are not necessarily en-

gines. Engine parts were not engines ex- empt from sales tax, one California appellate court ruled in a 1979 decision, National Aircraft Leasing, Ltd. v. State Board of Equalization, where the state as- sessed sales tax on the parts and labor to modify engines on a Lockheed Hercules leased for use as a common carrier. The engines were removed from the aircraft, delivered to the repair facility, and rein- stalled after modification. California as- sessed sales tax on the engine parts and labor charged for the modification. A statute exempted from sales tax the gross receipts from the sale of and the storage, use or other consumption in the state of aircraft leased for use as a common car- • March 2010

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