If a company buys an aircraft, will it owe Texas sales or use tax depending on where the aircraft is hangared and how much it's flown in Texas?

Plain-English summary

A company with operations in Texas and other states asked the Comptroller how Texas sales and use tax would apply to a planned aircraft purchase, depending on where the aircraft would be based and how it would be delivered. The Comptroller agreed with all three positions the company proposed:

1. Hangared outside Texas, used mostly outside Texas: If the aircraft is hangared outside Texas and operated more than 50% of the time outside Texas, it is not subject to Texas use tax (34 TAC Rule 3.297(c)(3)). By contrast, an aircraft hangared in Texas is generally subject to Texas use tax if it isn't otherwise exempt (Rule 3.297(c)(4)).
2. Relocating to Texas after a year of out-of-state use: If the company uses the aircraft for its intended purpose outside Texas for more than one year before bringing it into Texas, the purchase is not presumed to have been for use in Texas, so no use tax applies upon relocation (Rule 3.346(c)(5)).
3. Taking delivery in Texas outside any local jurisdiction: If the company takes delivery from an out-of-state seller at a Texas airport that is outside any city or other local taxing jurisdiction, and performs its pre-acceptance test flight there, the company should accrue and remit Texas state sales tax but no local (e.g., city) sales or use tax, because city use tax doesn't apply when items are first stored or used at a point outside a city (Rule 3.375(b)(4)).

The letter notes this is based on the facts submitted and that other, even similar, facts could produce a different result.

What this means for you

Businesses buying or relocating aircraft

Where you hangar an aircraft, and how much you fly it in Texas versus elsewhere, directly determines whether Texas use tax applies. Hangaring outside Texas and keeping out-of-state use above 50% avoids the tax; hangaring in Texas generally triggers it unless another exemption applies. If you plan to use an aircraft outside Texas first, keeping it outside Texas for more than a year before bringing it in can avoid use tax on that later relocation.

Companies choosing a delivery location

Where and how you take delivery matters for local tax exposure. Taking delivery (and performing any pre-acceptance test flight) at a location outside any city or other local taxing jurisdiction can mean you owe Texas state sales tax but avoid local sales or use tax on the purchase.

Accountants and tax professionals

This letter is a useful illustration of how three related Comptroller rules interact for aircraft: the hangar-location/50%-use test (Rule 3.297(c)(3)-(4)), the one-year prior-use presumption rule (Rule 3.346(c)(5)), and the local-tax sourcing rule tied to first storage or use point (Rule 3.375(b)(4)). Remember this ruling can only be relied upon by the taxpayer it was issued to.

Common questions

Q: Is an aircraft hangared outside Texas subject to Texas use tax?
A: Not if it's also used more than 50% of the time outside Texas — in that case it is not subject to Texas use tax under 34 TAC Rule 3.297(c)(3). Owners must keep sufficient records showing the percentage of time the aircraft was used in Texas.

Q: What if the aircraft is hangared in Texas instead?
A: An aircraft purchased outside Texas is subject to Texas use tax, if not otherwise exempt, if it is hangared in Texas (Rule 3.297(c)(4)).

Q: If I use the aircraft outside Texas for a while and then bring it to Texas, do I owe use tax then?
A: If the aircraft was used for its intended purpose outside Texas for more than one year before entering Texas, the purchase is not presumed to have been for use in Texas, so use tax would not apply (Rule 3.346(c)(5)).

Q: Does local (city) tax apply if I take delivery in Texas?
A: Not if delivery (and any test flight before final acceptance) happens at a location outside any city or other local taxing jurisdiction. City use tax does not apply when the item was first stored or used at a point outside a city (Rule 3.375(b)(4)). State sales tax would still apply in that scenario.

Q: Can another company rely on this ruling for its own aircraft purchase?
A: No. The Comptroller states the opinion is rendered based on the facts submitted, and other facts — even if similar — may yield different results. Only the taxpayer who received this letter can rely on it.

Citations and references

• 34 TAC Rule 3.297(c)(3) (aircraft hangared outside Texas and used more than 50% outside Texas — not subject to use tax)
• 34 TAC Rule 3.297(c)(4) (aircraft hangared in Texas — subject to use tax if not otherwise exempt)
• 34 TAC Rule 3.346(c)(5) (items used outside Texas more than one year before entry — not presumed purchased for use in Texas)
• 34 TAC Rule 3.375(b)(4) (city use tax does not apply where items were first stored or used outside the city)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9606L1418A07

Original ruling text

June 4, 1996

Dear ****:

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

On behalf of our client, Company A, we hereby request a ruling with regard
to the proper Texas sales and use tax treatment of a planned aircraft
purchase. The important facts regarding this transaction are outlined below.

FACTS

Company A, with operations located in both Texas and various other states
is planning to purchase an aircraft for use in its business throughout the
United States. Company A has a number of alternatives with regard to the
location where the aircraft is based. At the time Company A takes delivery
of the aircraft, Company A's pilots plan to perform a routine test flight
prior to final acceptance of the aircraft. Depending upon Texas sales and
use tax requirements, Company A may wish to operate, and possibly hangar,
the aircraft in the State of Texas.

DISCUSSION

In Texas, Comptroller's Rule 34 TAC 3.297(c)(3) provides the following tax
treatment for business and other aircraft:

An aircraft is not subject to use tax if it is hangared outside this state
and is used more that 50% outside this state. In order to qualify for
exemption from the use tax, owners or operators of aircraft entering this
state must maintain sufficient records to show the percentage of time the
aircraft was used in this state.

Further, for business aircraft hangared in Texas, 3.297(c)(4) provides that:

An aircraft purchased outside this state is subject to Texas use tax, if
not otherwise exempt, if it is hangared in this state.

Therefore, it appears that if Company A were to hangar the aircraft outside
of Texas and operate the aircraft more than 50% outside of Texas, no Texas
use tax would be due. Additionally, under the provisions of Comptroller's
Rule 34 TAC 3.346(c)(5) it appears that if the aircraft were used for its
intended purpose outside of Texas for more than one year, the use tax would
not apply if the aircraft was subsequently used or hangared in Texas.
Comptroller's Rule 34 TAC 3.346(c)(5) provides in pertinent part:

"If taxable items were purchased out of state and used outside Texas for
more than one year before the date of entry into Texas, the purchase will
not be presumed to have been for use in Texas."

Finally, if Company A elects to take delivery of the aircraft in Texas
(from a seller's place of business outside Texas), it will do so at an
airport outside any local taxing jurisdiction. At the time Company A takes
delivery, Company A's pilots will perform a routine test flight prior to
final acceptance of the aircraft. In this instance, it appears that Company
A should accrue and remit Texas sales tax but not any local taxes based upon
the provisions of Comptroller's Rule 34 TAC 3.375(b)(4) governing the
imposition of city use tax. This provision states, in pertinent part:

"City use tax does not apply when the taxable items are transferred from
some other city in Texas or from a point outside a city where they were
first stored, or if not stored, where the items were first used, or
otherwise consumed."

REQUEST FOR RULING

With regard to the foregoing discussion, we request your ruling on the
following:

1. The aircraft purchased by Company A would not be subject to Texas use
   tax if the aircraft were hangared outside of Texas and was operated more
   than 50% outside of Texas.

Response: I agree.

2. If Company A relocated the aircraft to Texas after one year or more
   of using the aircraft for its intended purpose outside of Texas, Texas
   use tax would not be due on the aircraft upon relocation to Texas.

Response: I agree.

3. If Company A chose to take delivery of the aircraft in Texas and
   hangar the aircraft in Texas, no local sales or use tax would be due
   if Company A took delivery of the aircraft at a location outside of
   any local jurisdiction and performed its test flight at that location.

Response: I agree.

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 9606354L