Does an FAA airworthiness certificate or a pilot's license prove an aircraft qualifies for Texas's certificated-carrier sales tax exemption, and is repairing autopilot systems installed in aircraft taxable?

Plain-English summary

A company that manufactures aircraft autopilot systems (sold to aircraft manufacturers, who install them in planes) asked two things: first, whether Tax Code § 151.328(a)(1)'s exemption for aircraft "sold to a person using the aircraft as a certificated or licensed carrier of persons or property" effectively covers every aircraft, since every aircraft has to be FAA-licensed and is designed to carry people or cargo; and second, whether its own recalibration/repair work on returned autopilot units qualifies for exemption as component parts of such aircraft.

On the first question, the answer is no — the exemption is much narrower than the taxpayer feared. A "certificated and licensed carrier" means a person specifically authorized by the appropriate federal or state agency to operate an aircraft (or vessel, train, motor vehicle, or pipeline) as a common or contract carrier transporting persons/property for hire in the regular course of business. An aircraft's own inspection/airworthiness certificate, or an individual pilot's license, are different documents entirely — they relate to the aircraft itself or a person's ability to fly, not to a business's authorization to operate as a common or contract carrier. Neither proves the carrier-for-hire status the exemption actually requires.

On the second question, the repair work is nontaxable regardless of carrier status. Since the autopilot systems become component parts of the aircraft once installed (with the manufacturer presumably issuing a resale or exemption certificate for the original sale), recalibrating or repairing a returned unit counts as repairing an aircraft. Under § 151.0101(a)(5)(A), aircraft repair labor is not taxable whether or not the aircraft itself is a common carrier — so this repair business doesn't need to establish carrier status at all to get the nontaxable-labor result, though Rule 3.292(i) on private-aircraft repairmen/remodelers is worth reviewing for related obligations.

What this means for you

Aircraft parts manufacturers and repair shops

Don't assume every aircraft qualifies for the § 151.328 "certificated or licensed carrier" exemption just because it's FAA-licensed to fly — that exemption requires the owner/operator to actually be authorized as a common or contract carrier for hire, which most private aircraft are not. Separately, if you repair aircraft component parts (like autopilot systems), that repair labor is nontaxable under § 151.0101(a)(5)(A) regardless of the aircraft's carrier status — a more broadly useful, simpler exemption than the carrier test.

Accountants and tax professionals

Keep the two exemptions analytically separate: the § 151.328(a)(1) carrier exemption (narrow, requires proof of carrier-for-hire authorization) versus the § 151.0101(a)(5)(A) repair-labor exclusion (broad, applies to aircraft repair regardless of use). A client asking about one shouldn't be steered into assuming the other automatically follows.

Common questions

Q: Does an FAA airworthiness certificate prove an aircraft qualifies for the certificated-carrier sales tax exemption?
A: No. That certificate relates to the aircraft's own inspection status, not to a person's authorization to operate as a common or contract carrier for hire.

Q: Does having a pilot's license make an aircraft exempt as a certificated carrier?
A: No. A pilot's license reflects an individual's ability to fly, not a business's authorization to operate as a common or contract carrier.

Q: Is repairing an aircraft component part like an autopilot system taxable?
A: No — aircraft repair labor is nontaxable under § 151.0101(a)(5)(A) regardless of whether the aircraft qualifies as a common carrier.

Q: Can another aircraft parts company rely on this letter?
A: Only the taxpayer who requested it can use it for detrimental reliance, and the Comptroller notes the answer is based on the facts presented.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.328(a)(1) — exempt aircraft sold to a certificated or licensed carrier
• Tex. Tax Code § 151.328(b), (d) — related aircraft exemption provisions
• Tex. Tax Code § 151.0101(a)(5)(A) — repair labor exclusion from taxable services (applies to aircraft repair)
• 34 Tex. Admin. Code Rule 3.292(i) — responsibilities of repairmen/remodelers of private aircraft

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9911854L

Original ruling text

November 2, 1999

** <**>

Subject: Aircraft (151.328) Meaning

Thank you for your recent e-mail.

You ask if Texas Tax Code 151.328(a)(1) defining an exempt aircraft as one
"sold to a person using the aircraft as a certificated or licensed carrier of
persons or property" encompasses every aircraft since every aircraft in use has
to be licensed with the FAA and is designed to carry persons or property.

One of our clients manufactures the autopilot systems that are sold to numerous
different aircraft manufacturers who install these systems in their planes.
These autopilot systems are occasionally returned to our client for
recalibration and repair. Does this mean that sec 151.328(b) and 151.328(d)
qualifies their recalibration and repair equipment as well as all supplies from
sales tax?

Response. A licensed and certificated carrier is defined as a person
authorized by the appropriate United States agency or by the appropriate state
agency within the United States to operate an aircraft, vessel, train, motor
vehicle, or pipeline as a common or contract carrier transporting persons or
property for hire in the regular course of business. Certificates of inspection
or airworthiness certificates are not the appropriate documents for authorizing
a person to operate as a common or contract carrier. These documents relate to
the carrier device itself rather than a person's right to operate a carrier
business. A pilot's license alone will not qualify an aircraft for exemption.

However, as I understand it, your client sells systems to aircraft
manufacturers. These systems become component parts of the aircraft sold and I
presume that the manufacturer is issuing either a resale or exemption
certificate. When these component parts of aircraft are sent in for repair,
your client is repairing an aircraft. The repair labor used in repairing an
aircraft is not taxable whether the aircraft is a common carrier or not. See
Texas Tax Code 151.0101 (a)(5)(A).

You may also wish to review Rule 3.292 (i) concerning the responsibilities of
repairman or remodelers of private aircraft.

Several publications and other items of interest (including the Texas Tax Code)
are also available on our web page .

Sales tax rules are available on the Internet
.

This opinion is based on the facts presented. Different facts though similar,
may result in different answers.

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, extension 5-0613. You may also write to Tax Policy
Division, Comptroller of Public Accounts, Post Office Box 13528, Austin, Texas
78711.

Kevin Koller
[email protected]