When was rebuilding a damaged aircraft radome or flight surface taxable manufacturing rather than repair?

Plain-English summary

Rebuilding a radome around only its retained mounting ring, or reconstructing a flight surface with roughly 80% to 85% new parts, was manufacturing. The total charge for materials and labor was taxable.

Restoring the customer's existing radome or flight surface to its original condition without that near-complete rebuild was repair. Under a separated contract, materials were taxable and separately stated repair labor was not. Under a lump-sum repair contract, the provider paid tax when buying the materials.

No Texas sales tax was due when the rebuilt or repaired component was shipped by common carrier from the provider's location to an out-of-state customer, or when the customer gave a valid resale or exemption certificate.

Common questions

When was the work manufacturing? When the provider essentially reconstructed the component rather than restoring the original item.

How was separated repair labor treated? It was not taxable; materials were taxable.

What about shipment to an out-of-state customer? The letter said no Texas sales tax was due when shipped by common carrier from the provider's location.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8812L0918B10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller December 27, 1988

Dear **:

Thank you for your letter concerning the applicability of Texas
sales tax to the following situations:

ACTIVITY ONE: The taxpayer engages in the manufacture of aircraft
radomes. A radome is the nose cone of an aircraft which protects
in-flight radar and other electronic devices which must, for
operational purposes, be located at the nose of the aircraft. The
principal material incorporated into a radome is fiberglass. A
radome is attached to the fuselage of an aircraft by its mounting
ring which is located at the base of the part. The mounting ring
is also generally made of fiberglass but may be made out of metal
as well.

Radomes are usually damaged in flight by such things as hail,
flying birds, etc. Often the taxpayer can rebuild these parts and
correct the damage for less money than it would cost the customer
to purchase a new radome from the aircraft manufacturer.

Typically, aircraft owners send a damaged radome to the taxpayer.
If the damage to the radome is not extensive, the taxpayer will
effect a repair of the radome by applying fiberglass patches over
any holes, or rebuilding any fractured edges.

The majority of the taxpayer's work, however, consists of the
complete reconstruction of damaged radomes as well as construction
of new radomes. The taxpayer typically separates the fiberglass
from the mounting ring, and discards the old fiberglass. The
taxpayer then constructs a new part, forming new fiberglass into
the shape required for the particular aircraft. Quite often no
portion of the original radome is retained other than the mounting
ring which makes up approximately 10% of the materials contained
in a radome.

ACTIVITY TWO: The taxpayer also engages in the complete overhaul
of aircraft flight surfaces which include ailerons, elevators,
rudders, spoilers, etc. Like radomes, flight surfaces on an
airplane are frequently damaged in flight. Aircraft owners ship
the damaged sections to the taxpayer, where, if possible, they are
repaired. Many times, the damage is too extensive to warrant
patching, however. In these situations, the taxpayer will salvage
what parts it can from the original surface action then recon-
struct the entire section, incorporating the salvaged parts when-
ever possible. Typically, the taxpayer replaces approximately 80-
85% of the original parts of any flight surface section with new
parts. The taxpayer uniquely controls, reports, and accounts for
each job.

RESPONSE: When the taxpayer rebuilds a radome around the mounting
ring as described in Activity One or reconstructs an entire flight
service section as described in Activity Two for a customer, the
labor is manufacturing labor. The total charge to the customer
(materials and labor) is taxable.

When the taxpayer restores a customer's radome or flight surface
section back to its original condition (i.e., the item is not
rebuilt as in the above response) under a separated contract, tax
must be collected on the charge for the materials. The separately
stated charge for the repair labor is not taxable. Under a lump-
sum contract, the taxpayer owes tax on the materials at the time
of purchase.

However, no Texas sales tax would be due if the rebuilt or the
repaired part is shipped from the taxpayer's location by common
carrier to a customer at an out-of-state location or if the cus-
tomer provides a properly completed and valid resale or exemption
certificate to the taxpayer.

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

If you have any questions or need more information, please call
our toll-free number 1-800-252-5555 or the regular number 512/463-
4600. My extension is 3-4666. You may write to Tax Correspon-
dence, Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence