When a Texas repair shop services foreign (Mexican) aircraft — repairing, remodeling, or installing parts and engines — is the labor or the parts subject to Texas sales tax?

Subject

Aircraft — Licensed And Certificated Foreign Carrier — Repair And Component Parts/Engines Installed In Texas

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1241C05

Plain-English Summary

This is a June 9, 1993 letter ruling responding to an aircraft maintenance company that services aircraft from Mexico and South America for private owner/operators, aero taxis, and government branch offices. The taxpayer had previously been through a sales tax audit and had received a 1984 letter about the taxability of the three common Mexican aircraft registration prefixes (XA — aero taxis; XB — privately owned; XC — government owned). The taxpayer asked the Comptroller to clarify the taxable status of Mexican aircraft when parts and/or services are supplied and/or installed on those aircraft while they are in Texas for maintenance.

The Comptroller's response draws a distinction between labor and parts/materials:

• Labor: Separately stated charges for labor to repair, remodel, restore, or maintain aircraft are not subject to sales tax at all — this rule applies equally to foreign and domestic aircraft.
• Parts and engines: The sale of aircraft repair and replacement parts, and aircraft component parts and engines, is exempt from sales tax only if the purchaser is a licensed and certificated carrier as described in Rule 3.297(a)(1).
• Mexican "XA" aircraft: Aircraft carrying Mexico's "XA" registration designation are recognized as licensed and certificated carriers, so their repairs qualify for the exemption — but only if a document issued by the Mexican government (attached to the work order for the aircraft with the "XA" designation) accompanies the transaction.
• Private and foreign governmental aircraft: For aircraft that are not licensed/certificated carriers (i.e., private aircraft and foreign governmental aircraft), if repair work is done under a separated contract, the aircraft owner must pay tax on parts installed by the repair shop. Those parts are treated as used in Texas and are not eligible for a sales tax refund, even though the aircraft later leaves the country.
• Export documentation for non-installed cargo: Operators of foreign aircraft of any type can document the export of taxable items carried as cargo (but not installed on the aircraft) by obtaining formal entry documents from the destination country showing the property was imported there. For Mexico, that document is the "pedimento de importaciones" with a computerized, certified number from Mexican customs. The purchaser must first pay tax on the purchase, then request a refund once the appropriate export documentation is provided. Customs brokers' certifications are not acceptable for exports on aircraft other than licensed and certificated carriers.

The letter also flags (via a rule ALERT added on top of the original letter) that the cited Rule 3.359 has since been repealed, and that current issues relating to aircraft should instead be checked against Rule 3.280.

What This Means For You

If you repair or maintain aircraft in Texas

Your separately stated labor charges for repairing, remodeling, restoring, or maintaining an aircraft are exempt from Texas sales tax regardless of whether the aircraft is foreign or domestic. Make sure labor is billed as a separate line item from parts and materials to preserve this treatment.

If you sell or install parts, component parts, or engines on aircraft

Whether those parts are taxable depends on the status of the purchaser. If the purchaser is a licensed and certificated carrier under Rule 3.297(a)(1), the parts are exempt. If not (for example, a privately owned aircraft or a foreign governmental aircraft under a separated repair contract), the parts are taxable to the owner, are considered used in Texas, and are not eligible for a refund even if the aircraft subsequently leaves Texas.

If you service Mexican-registered aircraft

The letter treats Mexican aircraft with an "XA" registration designation as licensed and certificated carriers, which qualifies their repairs for the parts exemption — but only when a Mexican government document is attached to the applicable work order. Aircraft with "XB" (privately owned) or "XC" (government owned) designations do not automatically get this treatment based on this letter alone.

If you need to document an export of taxable items

For taxable items carried as cargo (not installed) on a foreign aircraft, you can document the export using formal entry documents from the destination country. For shipments into Mexico, that means the pedimento de importaciones with its certified customs number. The purchaser pays the tax up front and then requests a refund once they supply the export documentation — a customs broker's certification alone is not sufficient unless the aircraft is a licensed and certificated carrier.

Q&A

Q: Is labor to repair or maintain an aircraft taxable in Texas?
A: No. Separately stated charges for labor to repair, remodel, restore, or maintain aircraft are not subject to sales tax, whether the aircraft is foreign or domestic.

Q: Are aircraft parts and engines always exempt from sales tax?
A: No. Aircraft repair and replacement parts, and aircraft component parts and engines, are exempt only if the purchaser is a licensed and certificated carrier as described in Rule 3.297(a)(1).

Q: Are Mexican aircraft with the "XA" registration treated as licensed and certificated carriers?
A: Yes. The letter states that Mexican aircraft with the "XA" designation will be recognized as licensed and certificated carriers, provided a document issued by the Mexican government is attached to the work order for the "XA"-designated aircraft.

Q: What happens if a private or foreign governmental aircraft has parts installed under a separated repair contract?
A: The aircraft owner must pay tax on the purchase of items installed by the repair firm. Those items are considered used in Texas and are not eligible for a sales tax refund.

Q: How can an operator document the export of taxable items that are carried as cargo but not installed on the aircraft?
A: By obtaining formal entry documents from the destination country showing the property was imported there. For Mexico, that is the pedimento de importaciones with a computerized, certified customs number. The purchaser pays tax first and then requests a refund upon providing the documentation.

Q: Is Rule 3.359, referenced in this letter, still in effect?
A: No. A note at the top of the published letter states that Rule 3.359 has been repealed, and that current aircraft-related issues should be checked against Rule 3.280 instead.

Original ruling text

ALERT: The cited rule, Rule 3.359 has been repealed. See Rule 3.280 for issues relating to Aircraft.

June 9, 1993

Dear ***

Thank you for your recent letter which is restated in part with response
below.

We provide aircraft maintenance services for several aircraft out of
Mexico and South America for private owner/operators, aero taxis, and
governmental branch offices. We have already been through one sales tax
audit and were provided with the letter of October 22, 1984, regarding
the taxability for the three common aircraft end numbers for Mexico
(XA - Aero Taxis; XB - privately owned; XC - government owned).

Please send me a letter regarding the taxable status of the Mexican
aircraft when services and/or parts are supplied and/or installed on
their aircraft while in Texas for maintenance purposes.

Response: Separately stated charges for labor to repair, remodel,
restore, or maintain aircraft are not subject to sales tax. This applies
to both foreign and domestic aircraft. The sale of aircraft repair and
replacement parts, as well as aircraft component parts and engines are
exempt if the purchaser is a licensed and certified carrier as described
in subsection (a)(1 ) of the enclosed Rule 3.297.

Mexican aircraft with the "XA" designation will be recognized as licensed
and certified carriers. A document issued by the Mexican government
indicating "** " attached to a work order with an "XA" designation
will exempt repairs from sales tax.

Individuals that repair and remodel private and foreign governmental
aircraft should refer to the enclosed Rule 3.359. If the work is done under
a separated contract, the aircraft owner must pay tax on their purchases of
items installed in their aircraft by your firm. Such items will be considered
to be used in Texas and not subject to sales tax refund .

Operators of foreign aircraft of any type may document the export of taxable
items carried as cargo, but not installed, by obtaining formal entry documents
from the country of destination showing that the property was imported into a
country other than the United States. For the country of Mexico, the formal
entry document would be the pedimento de importaciones document with a
computerized, certified number issued by Mexican customs officials. Persons
using this method must first pay the tax on their purchases and request a
tax refund from you when they provide you with the appropriate forms. Please
refer to Rule 3.323, enclosed, for complete information. Customs brokers
certifications are not acceptable for items exported on aircraft other than
licensed and certified carriers.

This opinion is rendered based on the facts you submitted. Other facts, though
similar, may yield different results.

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441 (ext.34680). My direct line
number is (512) 463-4680. The number for FAX transmissions is (512) 475-0900.
You may write to me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 93070050.5 and/or 9307050L