Texas Letter Ruling 9209L1196G11: Hot Air Balloon Services — Used For Promotional/Advertising Purposes — Nontaxable Services

Subject

Hot Air Balloon Services — Used For Promotional/Advertising Purposes — Nontaxable Services

Plain-English summary

A company that owns and operates hot air balloons asked the Comptroller whether charges billed to a client would be taxable when the company flies its balloon around the United States on behalf of that client for advertising purposes. Under the arrangement described, the company would bill the client for daily travel expenses plus a charge each time the balloon is operated, while the client would also pay the balloon's initial expense. The balloon company would own the balloon and supply the pilot and crew, both of which must be licensed and regulated by the Federal Aviation Administration.

The Comptroller ruled that this is a nontaxable advertising service. That means the amounts the client pays for equipment, travel, and operation of the balloon are not subject to Texas sales tax.

However, the ruling draws a distinction between the service charged to the client and the balloon company's own purchases. Sales tax is still due when the balloon company buys the balloon and other equipment used to provide the service, if delivery is taken in Texas. If the balloon or equipment is purchased out of state, use tax applies instead, based on its first storage, use, or other consumption in Texas.

The Comptroller noted this opinion is based on the specific facts presented, and that other facts, even if similar, could lead to a different result.

What this means for you

Advertising and promotional balloon operators

If you own a hot air balloon and operate it on behalf of another company for advertising purposes, the fees you charge that client — including travel expenses and per-flight operating charges — are treated as a nontaxable advertising service, not a taxable sale or rental. But you are not off the hook for tax entirely: you owe Texas sales tax on your own purchase of the balloon and equipment if you take delivery in Texas, or use tax if you buy it out of state and then store, use, or otherwise consume it in Texas.

Businesses hiring a balloon for advertising

If you are the client paying another company to fly a hot air balloon carrying your advertising, this ruling indicates the charges for the balloon's travel and operation should not carry Texas sales tax, because the balloon operator is providing a nontaxable service rather than selling or renting you tangible property.

Accountants and tax professionals

This ruling illustrates the Comptroller's approach to advertising services performed with owned equipment: the service itself (flying the balloon for another company's advertising) is nontaxable, but the equipment used to perform that service is not exempt from sales/use tax at the point the provider acquires it. Because the ruling is fact-specific, confirm that a client's arrangement matches these facts (provider owns and crews the balloon, client pays for travel and operation, purpose is advertising) before relying on this outcome.

Common questions

Q: Is the money my client pays me for flying my hot air balloon for their advertising subject to Texas sales tax?
A: No. The Comptroller ruled that providing a hot air balloon, pilot, and crew for another company's advertising purposes is a nontaxable service, so the charges for equipment, travel, and operation billed to the client are not subject to sales tax.

Q: Do I still owe sales tax on the balloon itself?
A: Yes. Sales tax is due on the initial purchase of the balloon and other equipment used to provide the service if you take delivery in Texas.

Q: What if I buy the balloon or equipment outside Texas?
A: Use tax is due instead, based on the first storage, use, or other consumption of the item in Texas.

Q: Does this ruling apply no matter how the arrangement is structured?
A: Not necessarily. The Comptroller stated this opinion is based on the facts presented, and other facts, even if similar, may produce a different result.

Citations and references

No statutes, rules, or other legal authorities are cited in the body of this 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/9209L1196G11

Original ruling text

September 30, 1992

Dear **:

Thank you for your recent letter regarding the taxability of hot air balloons
used for advertising purposes.

Your company operates hot air balloons and are anticipating operating a hot air
balloon on behalf of another company for advertising purposes. You will be
traveling throughout the United States in this endeavor and would bill the
client a charge for daily travel expenses, plus a charge each time the balloon
is operated. The client will also pay the initial expense of the balloon.
Yourcompany will own the balloon and provide the pilot and crew. Both the
pilot andballoon are required to be licensed and regulated by the Federal
Aviation Administration.

QUESTION: Would the amounts the client pays for equipment, travel, and
operation of the balloon be subject to sales tax?

RESPONSE: You are providing a nontaxable advertising service. Sales tax is
due on the initial purchase of the balloon, and on other equipment used to
provide your service, if delivery of the balloon and equipment is taken in
Texas. Use tax is due on items purchased out-of-state, at first storage, use,
or other consumption in Texas.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information, you may call me at
1-800-252-5555, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division