Can a customer who rents an aircraft in Texas and flies it out of state sign a Texas Aircraft Exemption Certificate, Out-Of-State Registration and Use, to avoid paying sales tax on the rental?

Plain-English summary

An aircraft rental business asked whether a customer who rents an aircraft in Texas and then flies it out of state can sign a Texas Aircraft Exemption Certificate, Out-Of-State Registration and Use, instead of paying sales tax on the rental. The Comptroller's answer was no.

Tax Code § 151.328(a)(4) exempts aircraft sold to a person for use and registration in another state or nation, before any Texas use other than flight training and transporting the aircraft out of Texas. But the Comptroller explained this exemption was designed to put Texas aircraft vendors on equal footing with out-of-state sellers -- not to benefit individuals who are merely leasing (renting) an aircraft. The practical problem is registration: the Comptroller checked with the FAA Aircraft Certification Office, which confirmed that a leased aircraft remains registered in the name of the lessor (owner), and aircraft aren't routinely re-registered with the FAA just because they're relocated to another area. That means a lessee simply doesn't have the legal ability to register the aircraft at an out-of-state location, and therefore cannot truthfully sign the exemption certificate's claim that the aircraft would be so registered.

What this means for you

Aircraft rental/leasing companies

Don't accept a Texas Aircraft Exemption Certificate, Out-Of-State Registration and Use from a customer who is only renting (not buying) the aircraft -- per this letter, a lessee has no legal authority to register the aircraft out-of-state, so the certificate can't be validly executed for a rental transaction.

Individuals or businesses renting aircraft in Texas for out-of-state flights

Flying a rented aircraft out of Texas after renting it here does not exempt the rental itself from Texas sales tax -- the § 151.328(a)(4) exemption is limited to aircraft sales, not leases/rentals.

Accountants and tax professionals

The key distinguishing fact here is registration authority: an aircraft owner (seller) can register a purchased aircraft out-of-state, but a lessee generally cannot re-register a leased aircraft at all -- which is why the exemption, tied to out-of-state registration, doesn't functionally apply to rental transactions.

Common questions

Q: Can a customer avoid Texas sales tax on an aircraft rental by signing the out-of-state registration exemption certificate?
A: No, per this letter -- a lessee doesn't have the authority to register the aircraft out-of-state, so the certificate cannot be validly signed for a rental.

Q: Does § 151.328(a)(4)'s exemption apply to aircraft leases as well as sales?
A: No, per this letter -- it was designed for aircraft sales to level the playing field between Texas and out-of-state vendors, not for individuals leasing aircraft.

Q: Why can't a lessee register a leased aircraft out-of-state?
A: Per the FAA (as relayed in this letter), a leased aircraft stays registered in the lessor's name, and aircraft aren't routinely re-registered when relocated.

Citations and references

Statutes:

• Tex. Tax Code § 151.328(a)(4) (exemption for aircraft sold for out-of-state use and registration)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9707580L

Original ruling text

July 22, 1997

Via Facsimile

Dear ***:

Thank you for your recent fax transmission regarding the tax treatment of
aircraft rented to individuals that will remove the aircraft from Texas for use
outside Texas. You specifically ask if the customer may issue a Texas Aircraft
Exemption Certificate, Out-Of-State Registration and Use in lieu of paying
sales tax.

The answer is no.

Tax Code Section 151.328(a)(4) exempts from sales tax aircraft sold to a person
for use and registration in another state or nation before any use in this
state other than flight training in the aircraft and the transportation of the
aircraft out of this state. This legislation was designed to level the playing
field for Texas aircraft vendors with those in other states and not for
individuals leasing aircraft.

The FAA Aircraft Certification Office in Oklahoma tells me that such aircraft
remain registered in the name of the lessor. Aircraft are not routinely
re-registered with the FAA when they are relocated to another area. In other
words, the lessee does not have the ability to register the aircraft at an
out-of-state location and could not sign the exemption certificate claiming
that it would be so registered.

This opinion is rendered based on the facts presented. If there are additional
or different facts, the opinion may change.

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 Policy, Comptroller of Public
Accounts. My Internet address is .

Sincerely,

Al Van Allen
Tax Policy Division