Did temporarily bringing an aircraft to Texas for repair while completing outside-signed sales, leases, and a novation create franchise-tax nexus for the parties?

Plain-English summary

Temporarily keeping an aircraft at a Texas repair facility during a series of transactions did not subject any of the four companies to franchise tax.

The aircraft came from a foreign country for repair. While it remained at the Texas facility, one foreign corporation's lease ended; a Delaware corporation bought and leased the aircraft to another foreign corporation; and the Delaware corporation later sold it to a fourth foreign corporation subject to the lease and a novation.

The parties signed the bills of sale, lease, and novation outside Texas. After renovation and inspection, the lessee was to remove the aircraft to a foreign country for business use. Each company otherwise had no Texas business or activities.

On those facts, the Comptroller found no Texas franchise-tax liability for Companies A, B, C, or D.

What this means for you

Aircraft owners, buyers, and lessees

The ruling treated temporary presence for repair and renovation, within the detailed outside-Texas transaction facts, as insufficient to create nexus.

Tax professionals

Do not generalize the result beyond the complete fact pattern. The response expressly said changed or additional relevant facts could change the answer.

Common questions

Q: Was the aircraft physically in Texas during the transactions?
A: Yes, temporarily at the repair facility.

Q: Where were the transaction documents signed?
A: Outside Texas.

Q: Did any of the four companies become subject to franchise tax?
A: No.

Citations and references

• The ruling identifies no statute or rule by section number

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9802324L

Original ruling text

February 25, 1998

Dear Mr. *:

Thank you for your recent letter about the franchise tax treatment of certain
entities.

Your letter states that Company A, a corporation formed under the laws of a
foreign country with no business activities in Texas is the owner of an
aircraft ("Equipment") that is subject to an existing lease and presently
located in a foreign country. The lessee will transport the Equipment to a
repair facility in Texas, where the lease will terminate. While the Equipment
is located at the repair facility in Texas, Company B, a Delaware corporation
with no activities or business in Texas, will purchase the Equipment from
Company A and immediately lease the Equipment to Company C, a corporation
formed under the laws of a foreign country with no activities or business in
Texas. Thereafter, Company B will sell the Equipment to Company D, a
corporation formed under the laws of a foreign country with no business or
activities in Texas. The sale of the Equipment to Company D will be subject to
the lease to Company C and the parties will enter into a novation agreement
reflecting that the lease is in favor of Company D as lessor. The Equipment
will remain in Texas temporarily while certain renovation work is performed at
the repair facility for Company C. Upon completion of the renovation work,
Company C will inspect the work, remove the Equipment from Texas and transport
it to a foreign country for use in its business. The bills of sale, lease and
novation agreement necessary to evidence the transactions described above will
be signed by the parties outside Texas.

The activities described will not cause Company A, Company B, Company C or
Company D to be subject to Texas franchise tax.

This response is based on the facts presented in your letter. If the facts
change or if there are additional relevant facts, the response may change.

If you have any questions about this or any other franchise tax matters, please
write me or call me toll free at 1-800-531-5441, extension 33958.

Sincerely,

Teresa Comer
Tax Policy Division

cc: Wade Anderson,
Director of Tax Policy