A state university chartered a flight for its members. Since state agencies are exempt from Texas sales tax, does that exemption also cover the federal excise tax the airline would otherwise charge on the flight?

Plain-English summary

A representative of a state institution of higher education asked about an excise tax applied to a chartered flight for the institution's members, apparently expecting that the institution's Texas sales tax exemption might also cover it.

The Comptroller clarified the two entirely separate tax systems at play:

Texas doesn't tax flights at all — there's no state fee or tax on air travel, so no Texas exemption analysis is even needed on the state side.

The federal government does tax domestic flights. Under 26 U.S.C. §§ 4261(a)(1) and 4262(a), the United States imposes a transportation excise tax of 7.75% of the amount paid on flights that begin and end in the U.S., charged to the person making the taxable payment. There's also a flat $2.00 tax on each domestic flight segment (one takeoff and one landing under Sec. 4261(a)(1)). The exemptions from this federal tax are listed in 26 U.S.C. §§ 4281 and 4282 — and Texas state agencies are not among them. The State of Texas (and, by extension, its agencies and institutions) is not exempt from paying this federal excise tax on domestic flights.

A Texas exemption doesn't reach a federal tax. A state institution of higher education IS a state agency exempt from Texas state and local sales tax under Tex. Tax Code § 151.309(4) (further explained in Rule 3.322 on exempt organizations) — but that provision only exempts the institution from Texas's OWN sales tax on items it purchases for its use. It has no bearing on a separate federal tax; Texas statutes and rules simply cannot supersede federal law. The Comptroller also noted it doesn't maintain a comprehensive list of federal taxes Texas state agencies must pay, but mentioned as a general point that federal excise tax also applies to certain telecommunications services and many manufactured items.

What this means for you

State agencies, universities, and other Texas governmental entities chartering flights

Don't assume your Texas sales tax exemption extends to the federal air transportation excise tax — it doesn't. Budget for the federal 7.75% transportation tax plus the flat per-segment fee on domestic flights, since your Texas-agency status provides no federal exemption.

Charter flight operators and travel service providers billing government/university clients

Continue collecting the federal transportation excise tax on charter flights for Texas state agencies and universities — their Texas sales tax exempt status doesn't extend to this federal tax.

Accountants and tax professionals advising government or nonprofit clients on other federal taxes

This letter is a good general reminder that state tax exemptions are jurisdiction-specific: a Texas Tax Code exemption addresses only Texas-administered taxes and cannot override or exempt an entity from a separately imposed federal tax, whatever the underlying activity.

Common questions

Q: Does Texas charge a tax on flights?
A: No — the State of Texas does not impose any fee or tax on flights.

Q: Does the federal government tax flights?
A: Yes — a 7.75% transportation excise tax on the amount paid for domestic flights, plus a $2.00 flat tax per domestic flight segment, under 26 U.S.C. §§ 4261(a)(1) and 4262(a).

Q: Are Texas state agencies or universities exempt from this federal flight tax?
A: No — the federal exemptions (26 U.S.C. §§ 4281, 4282) don't include Texas state agencies, and Texas's own state-agency sales tax exemption (Sec. 151.309(4)) has no power to override federal tax law.

Q: Does the Comptroller maintain a list of federal taxes state agencies must pay?
A: No — the letter notes the Comptroller doesn't have such a publication, though it flags that federal excise tax also applies to certain telecommunications services and many manufactured items generally.

Q: Can I rely on this letter for my own institution's flight tax situation?
A: No. This opinion is based on the facts presented, and if there are additional or different facts, the opinion may change; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.309(4) (Texas sales tax exemption for state agencies, including state institutions of higher education)
• 34 Tex. Admin. Code Rule 3.322 (exempt organizations)
• 26 U.S.C. § 4261(a)(1) (federal transportation excise tax on domestic flights, 7.75% of amount paid)
• 26 U.S.C. § 4262(a) (federal transportation tax — payor liability)
• 26 U.S.C. §§ 4281, 4282 (federal transportation tax exemptions — do not include Texas state agencies)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9901120L

Original ruling text

January 25, 1999

Subject: Franchise Tax Payable

Dear Ms. **:

Thank you for your recent e-mail concerning the application of an excise tax on
a charter flight for members of an institution of higher education.

The State of Texas does not impose any fee or tax on flights. The United
States does impose a transportation tax on flights that begin and end in the
United States. The tax is 7.75% of the amount paid. The tax is imposed on the
persons making the payment subject to tax. [26 USC 4261(a)(1) and 4262(a)]

There is also a $2.00 tax imposed on each domestic flight segment. A domestic
segment is defined as one take off and one landing that is taxable under 26 USC
4261(a)(1).

The exemptions from the transportation tax on flights are listed in 26 USC 4281
and 4282. The State of Texas is not exempt from paying the federal excise tax
on domestic flights.

A state institution of higher education is a state agency that is exempt from
Texas state and local sales taxes under Texas Tax Code 151.309(4). This
provision exempts Texas state agencies, including a state institution of higher
education, from paying sales tax on taxable items purchased for the
institution's use. Rule 3.322, concerning exempt organizations, explains sales
tax exemptions in more detail. The Texas statute and rule do not supersede the
federal law.

You may review or download the referenced federal codes at
and
then click on the following:

1. State Government
2. Texas Statutes
3. Tax Code
4. Chapter 151
5. Scroll down to the referenced statutory section

We do not have a publication listing the federal taxes Texas state agencies
must pay. Federal excise tax is imposed on certain telecommunications services
and many manufactured items.

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

You may call me toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts. My e-mail address is
.

Sincerely,

Eddie C. Washington
Tax Policy Division