When a Texas repair shop services aircraft engines for licensed and certificated carriers (including foreign carriers), are the labor and materials charges subject to Texas sales tax?

Plain-English Summary

This 1994 Texas Comptroller letter ruling addresses aircraft engine maintenance performed by a Texas repair shop ("ABC COMPANY") on behalf of an aircraft-management company ("XYZ CORPORATION") that had separate maintenance contracts with individual aircraft owners. ABC COMPANY and XYZ CORPORATION were separate legal entities, and ABC COMPANY separately stated its material and labor charges on its billings to XYZ CORPORATION.

The Comptroller's overarching rules: labor to repair or maintain any aircraft, including aircraft engines, is never subject to Texas sales tax. Materials incorporated into aircraft that qualify as licensed and certificated carriers under Rule 3.297(a)(1) are exempt from sales tax. Beyond those baseline rules, the letter walks through five specific fact patterns to determine whether tax applies to the separately stated material charges, and if so, who owes it:

1. Mexican XA (air taxi) registered aircraft — treated as a licensed and certificated carrier, so both materials and labor are exempt from sales tax.
2. Mexican XB or XC registered aircraft returning to Mexico after the repair — not automatically exempt as a carrier. ABC COMPANY needed a sales tax permit and either had to collect tax on its separately stated material charges from XYZ CORPORATION or accept a resale certificate from XYZ CORPORATION in lieu of tax.
3. An engine shipped into Texas in a container, repaired, and re-shipped out of Texas in a container (via common carrier, with a bill of lading proving out-of-state delivery) — both the labor and the separately stated material charges are exempt, and no resale certificate is needed, because the engine leaves Texas under a bill of lading.
4. U.S.-registered aircraft repaired and hangared in Texas, delivered to the customer in Houston — not automatically exempt. ABC COMPANY had to either collect sales tax on its material charges or obtain a resale certificate from XYZ CORPORATION.
5. U.S.-registered aircraft repaired in Texas but not normally hangared in Texas — same result as #4: ABC COMPANY had to collect sales tax on material charges or obtain a resale certificate, if the aircraft was delivered to the customer at a point in Texas.

The letter also confirms that when an engine is shipped into Texas in a container for the repair event, the transaction is still treated as aircraft engine maintenance (not a separate "component repair" category), but tax is not due on any part of the charge if the engine is shipped back out of state under a common-carrier bill of lading.

What This Means For You

Aircraft repair shops: You never owe sales tax on your labor charges for repairing or maintaining aircraft or aircraft engines — that holds true across every scenario in this letter. Whether you owe tax on your materials depends on (a) whether the aircraft itself qualifies as a licensed and certificated carrier under Rule 3.297(a)(1), and (b) if not, whether you collect tax directly or obtain a valid resale certificate from the party you're billing. Always separately state your material and labor charges on invoices — the exemption analysis in this letter depends on that separation.

Foreign carrier operators: Not all foreign-registered aircraft are treated the same. This letter treats Mexican XA (air taxi) registrations as licensed and certificated carriers (exempt), but Mexican XB/XC registrations are not automatically treated that way, so tax or a resale certificate is required on the materials portion.

Shippers of engines/parts across state lines: If an engine or component is shipped into Texas for repair and then shipped back out of Texas via a common carrier with a bill of lading, neither the labor nor the separately stated materials are taxable — no resale certificate is even needed in that scenario.

Accountants and tax professionals: This is a fact-specific 1994 letter ruling, not a general rule, and it can only be relied upon for detrimental-reliance purposes by the original recipient. Note also that Rule 3.359 (private aircraft), which this letter cites, has since been repealed and replaced by Rule 3.280 — confirm current guidance under Rule 3.280 and Rule 3.297 before advising a client based on this letter alone.

Q&A

Q: Is labor to repair or maintain an aircraft or aircraft engine subject to Texas sales tax?
A: No. Labor to repair or maintain aircraft, including aircraft engines, is not subject to sales tax under any of the scenarios addressed in this letter.

Q: Are materials used to repair a licensed and certificated carrier aircraft taxable?
A: No. Materials incorporated into aircraft that qualify as licensed and certificated carriers, as defined in Rule 3.297(a)(1), are exempt from sales tax. The letter treats a Mexican XA (air taxi) registered aircraft as such a carrier.

Q: What about a Mexican XB or XC registered aircraft serviced in Texas and then returned to Mexico?
A: That aircraft is not automatically treated as an exempt carrier. The repair shop must obtain a sales tax permit and either collect sales tax on its separately stated material charges from the billed party or accept a valid resale certificate in lieu of tax.

Q: If an engine is shipped into Texas, repaired, and shipped back out of state, is anything taxable?
A: No. If the engine is shipped by common carrier under a bill of lading proving delivery outside Texas, both the labor and the separately stated material charges are exempt, and no resale certificate is required.

Q: Does it matter whether the repaired U.S.-registered aircraft is hangared in Texas?
A: Not for the outcome — in both the "hangared in Texas" and "not normally hangared in Texas" scenarios, if the aircraft is delivered to the customer at a point in Texas, the repair shop must either collect sales tax on its material charges or obtain a resale certificate from the customer.

Q: Is the Rule 3.359 guidance cited in this letter still valid?
A: No. A later annotation on the STAR system notes that Rule 3.359 (private aircraft) has been repealed and replaced by Rule 3.280. Taxpayers should confirm current treatment under Rule 3.280 and Rule 3.297 rather than relying solely on the 1994 citations in this letter.

Citations

• Tex. Tax Code § 151.328 (aircraft exemptions)
• 34 Tex. Admin. Code Rule 3.297 (carriers, including licensed and certificated aircraft)
• 34 Tex. Admin. Code Rule 3.359 (private aircraft — repealed; see Rule 3.280)

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/9407L1336C08

Original ruling text

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

July 7, 1994

Dear *****:

Thank you for your recent letter regarding the tax treatment of aircraft engine
service performed by ABC COMPANY (ABC COMPANY), on behalf of XYZ CORPORATION
(XYZ CORPORATION), to fulfill their maintenance contracts between XYZ
CORPORATION and individual aircraft owners.

I'd like to make several general comments:

*The responses to your questions are based on Tax Code Section 151.328, Rule
3.297 which deals with carriers, and Rule 3.359 which deals with private
aircraft. These are enclosed for your reference.

*In our phone conversation of July 5, 1994, you stated that ABC COMPANY was a
separate legal entity from XYZ CORPORATION.

*You said that ABC COMPANY separated the charges for material and labor in its
billings to XYZ CORPORATION.

*Labor to repair or maintain aircraft, including aircraft engines, is not
subject to sales tax.

*Materials incorporated in licensed and certified carriers as defined in Rule 3
.297(a)(1) are exempt from sales tax.

You ask whether or not sales tax is billed, to whom the sales tax is billed,
and the value basis on which the tax is calculated under the following
circumstances:

A Mexican XA (air taxi) registration aircraft has engine maintenance performed
in Texas under the maintenance plan. How is sales tax handled?

Response: Mexican Aircraft with XA designations are considered to be licensed
and certified carriers. Materials and labor to maintain such carriers are
exempt from sales tax.

A Mexican XB or XC registration aircraft has engine maintenance performed in
Texas under the maintenance plan. The aircraft returns to Mexico after
completion of the maintenance event. How is the sales tax handled?

Response: ABC COMPANY must take out a sales tax permit and may accept a resale
certificate in lieu of tax from XYZ CORPORATION on its separately stated
charges for incorporated materials. ABC COMPANY must collect sales tax from XYZ
CORPORATION if XYZ CORPORATION does not provide it with a resale certificate.

An engine is shipped in a container into Texas from another state or country.
The maintenance event is completed and is covered under the maintenance plan.
The engine is re-shipped in a container outside the State of Texas. How is the
sales tax handled if ABC COMPANY has a valid resale certificate or if ABC
COMPANY does not have a resale certificate?

Response: In our phone conversation of July 5, 1994, you said that such
shipments are made by common carrier and that your firm keeps a bill of lading
to prove the out of state delivery. Labor to repair or maintain aircraft
engines is not subject to sales tax. Separately stated charges for material are
also not taxable because the engines are being shipped under a bill of lading
to a point outside Texas. A resale certificate is not necessary in this case.

An aircraft with U. S. registration has engine maintenance performed in Texas
and is hangared in Texas. The engine event is covered under the maintenance
plan. Delivery of the aircraft is in Houston, Texas. How is sales tax to be
handled if ABC COMPANY does not have a valid resale certificate?

Response: ABC COMPANY must either collect sales tax on its material charges or
obtain a resale certificate from XYZ CORPORATION.

An aircraft with U. S. registration has engine maintenance performed in Texas,
and the aircraft is not normally hangared in the State of Texas. The engine
event is covered under the maintenance plan. How is sales tax to be handled if
ABC COMPANY does not have a valid resale certificate.

Response: ABC COMPANY must either collect sales tax on its material charges or
obtain a resale certificate from XYZ CORPORATION if the plane is delivered to
the customer at a point in Texas.

If the engine is shipped into Texas in a container, is the engine event treated
as a component repair or engine maintenance where labor is excluded as a
portion of the taxable base?

Response: The engine event will be treated as aircraft engine maintenance.
However, tax is not due on any portion of the charge if ABC COMPANY ships the
engine out of state under a bill of lading from a common carrier.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9407780L