Could an aircraft dealer buy used aircraft for resale, display and test-fly them in Texas, refurbish them, and sell to a qualifying foreign buyer without Texas sales or use tax?

Plain-English summary

Company X's aircraft purchase was exempt as a sale for resale. Even if the later buyer or lessee was foreign, the purchase still qualified because the later transaction would close in the United States and title or possession would transfer there.

Storing, displaying, demonstrating, and test-flying the aircraft in Texas while awaiting sale or lease did not trigger use tax because those activities were incidental to holding the aircraft for sale or lease in the ordinary course of business.

Amounts paid to repair, remodel, and refurbish the aircraft were also exempt as purchases for resale.

A later sale or lease to a foreign concern with no Texas contact qualified for the nonresident exemption under § 151.328 when the buyer would remove the aircraft from Texas immediately after the transaction.

What this means for you

The historical result tied several steps to the same resale inventory purpose. Display and test flights were protected only as incidental uses, and the foreign transaction depended on the stated nonresident and immediate-removal facts.

Common questions

Was Company X's aircraft purchase taxable? No, it was a purchase for resale.

Did Texas display or test flights create use tax? No, on the stated incidental-use facts.

Were repair and refurbishing charges taxable? No, they qualified as sales for resale.

What facts supported the foreign-buyer exemption? No Texas contact and immediate removal from Texas after the transaction.

Citations and references

• Texas Tax Code § 151.328 — nonresident sale or lease exemption cited by the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8708L0852E08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 27, 1987

Dear ***:

Thank you for your letter of August 25, 1987 concerning the taxability of
various transactions related to the sale or lease of used aircraft.

Based on the facts you have presented, the conclusions that you have
drawn,
which are restated below, are correct.

1. Company X's purchase of the aircraft will be exempt from Texas sales
   and use tax as a sale for resale. In this regard, although Company X
   subsequently may sell or lease the aircraft to a foreign entity, the
   transaction will be closed in the United States and title and/or
   possession will be transferred in the United States. Therefore,
   Company X's purchase of the aircraft constitutes a purchase for the
   purpose of resale within the territorial limits of the United States.

2. Company X's storage, display and demonstration (including test
   flights)
   of the aircraft in Texas pending their sale or lease will not be subject
   to use tax, as such uses are incidental to the holding of the aircraft
   for sale or lease in the ordinary course of Company X's business.

3. The amounts paid by Company X for the repair, remodeling and
   refurbishing of the aircraft will be exempt from Texas sales and use
   tax as a sale for resale.

4. In the event Company X ultimately sells the aircraft to a foreign
   concern that has no contact with Texas and will remove the aircraft
   from Texas immediately upon conclusion of the sale transaction, such
   sale or lease will be exempt from Texas sales and use tax as a sale to
   a non-resident pursuant to section 151.328 of the Texas Tax Code.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any question or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You
may write me at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division