Dec. 4, 2014
For many NBAA Members located in Texas, the proposed tax rules issued by the state’s comptroller would significantly change the standards for creating aircraft ownership and operating structures. Under the proposal, a new rule would be created to determine when operators could qualify for the “sale for resale” exemption through aircraft leasing.
Unfortunately, the draft rules go beyond the plain meaning of the tax code in Texas, and seek to impose significant new burdens on aircraft owners and operators.
For example, under the proposal it appears only one form of leasing would be recognized – basic finance leasing from a bank or other entity that establishes fixed monthly rental payments. This means that many other forms of legitimate aircraft leasing in Texas would not be recognized as qualifying for the sale for resale exemption.
“There are many legitimate FAA regulatory and risk management reasons why aircraft owners enter into leases, and this proposed rule overlooks those factors,” said Scott O’Brien, NBAA senior manager for tax policy. One common example is a “dry” lease of an aircraft (i.e., the lease of the aircraft without any crew members being provided) from the registered owner to a separate person such as a commercial operator.
“In the normal course of business, this dry lease is a perfectly legitimate structure, but under the proposed rule it would not be recognized for Texas sales and use tax purposes,” O’Brien added.
In its comments, NBAA requested that the comptroller not implement the proposed rule, but rather work with NBAA and other industry groups to better understand how aircraft leasing structures function. NBAA was joined by the National Air Transportation Association, Equipment Leasing & Finance Association and a number of Texas-based Members in filing comments.
General aviation is a major driver of the Texas economy, supporting more than 56,000 jobs and generating $14.6 billion in economic activity annually, according to the Texas Department of Transportation. Due to the size of the state, the 392 public-use airports allow business to get done in small cities and towns that are not served by the 25 airports with commercial airline service.
The deadline for public comments closed on Nov. 28, and the comptroller’s office is now reviewing the submissions before deciding how to proceed. NBAA will keep Members informed of any developments on this important issue.