Sales and Use Taxes in Texas

[GAHorn]

An earlier posting regarded sales/use taxes placed on aircraft by California. I found the Texas policy statement on such taxes as it pertains to aircraft used for flight instruction:

TEXAS TAX EXEMPTION INFORMATION


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The following was extracted from the March edition of Sales Tax Update Newsletter published by John Sharp, Texas Comptroller of Public Accounts. For additional information call toll free 1-800-252-5555, E-mail tax.help@cpa.state.tx.us, or visit Window on State Government.

Under Tax Code § 151.328, there is an exemption from tax for aircraft used to provide Federal Aviation Administration (FAA) recognized flight instruction designed to lead to a pilot certificate or an FAA rating.

The following guidelines explain the sales and use tax exemptions available when renting, leasing, or purchasing aircraft used in flight training. A flight school, flight instructor, or a student may claim an exemption on the purchase, lease, or rental of aircraft used in flight training under the provisions prescribed in FAA regulations Part 61 or Part 141. (However, other uses of the aircraft may be taxable.)

FLIGHT TRAINING

Flight Training means all experience and training specifically identified for certification or rating at all levels from student pilot through air transport rating and includes FAA-required check flights, maintenance flights, and test flights

RECORDS

If you have a sales or use tax permit or if you claim an exemption from sales or use tax, records must be kept for at least four years.

FLIGHT SCHOOL OR INSTRUCTOR

A flight school or instructor may issue an exemption certificate to purchase, lease or rent an aircraft for use in flight training.

A flight school or instructor may claim a tax exemption when buying component parts of an aircraft used in flight training and on items that are necessary for the normal operation of the aircraft that are pumped, poured, or otherwise placed in the aircraft. Examples of supplies include engine oil, hydraulic fluids, and windshield cleaners.

Machinery, tools, supplies and equipment used or consumed exclusively in the repair, remodeling, or maintenance of aircraft used in flight instruction and certificated carriers are exempted.

If a flight school or instructor uses an aircraft for any purpose other than flight instruction, maintenance of the aircraft, or transportation of persons or property as a certificated carrier, the flight school or instructor must remit use tax based on the fair market rental value for the period of non-exempt use of the aircraft.

Books, supplies, and equipment are taxable (other than supplies and equipment used in the repair, remodeling, or maintenance of the aircraft). Flight simulators approved by the FAA for use as a Phase II or higher flight simulator under Appendix H, 14 C.F.R. Part 121 are not taxable. Other flight simulators and computer training devices are taxable. Persons who sell these items must collect sales or use tax.

STUDENTS

A student enrolled in an FAA-approved program may claim a tax exemption when renting aircraft for flight training, including solo flights that are approved (as evidenced by written endorsement in the student's logbook) by an appropriately rated flight instructor. An instructor's endorsement may cover a series of flights.

The student must include the following information when completing an exemption certificate claiming sales tax exemption:

- the student must identify the flight school (name and address), or

- if the student is not enrolled in a flight school, the student must list his or her primary flight instructor with the instructor's address.

The student must maintain evidence that he or she is in pursuit of flight rating. Evidence may include a logbook endorsement for simulator training, receipts and scores for tests administered by a flight school or instructor, or an instructor's endorsement as documented in the student's and instructor's flight logbook. Without evidence that the student is in pursuit of flight rating, tax will be due on aircraft rentals.

AIRCRAFT RENTALS AND FLIGHT TIME

A buyer who purchases an aircraft to rent to others or who intends to place the aircraft with an agent to be rented to others (including flight training rentals) must have a sales tax permit. The buyer may claim a resale exemption on the purchase of the aircraft by giving the seller a resale certificate.

An agent may remit tax for an aircraft owner. However, the owner is still liable for the tax if the agent fails to remit the correct amount to the state. The owner must keep records to reflect the amount of tax collected and remitted and exemption or resale certificates to document exempt rentals or leases.

If an aircraft owner makes any personal use of an aircraft purchased tax free, the owner owes use tax on the fair market rental value of the personal use (maintenance is not personal use, see below). Owners of flight-training aircraft may, at any time, pay sales tax on the acquisition price of the aircraft. Once the tax has been paid on the acquisition cost of the aircraft, the owner will not be responsible for paying tax on the fair market rental value when using the aircraft for personal use. However, the owner may not use taxes previously paid on the fair market rental value of the aircraft to reduce tax on the acquisition price.

An owner may claim an exemption when buying component parts of an aircraft used in flight training and on supplies that are necessary for the normal operation of the aircraft and that are pumped, poured, or otherwise placed in the aircraft. Examples of supplies include engine oil, hydraulic fluids, and windshield cleaners.

If an aircraft is used for any purpose other that flight instruction, maintenance of the aircraft, or transportation of persons or property as a certificated carrier, tax is due based on the fair market rental value for the period of non-exempt use of the aircraft.