June 17, 2015
Texas Gov. Greg Abbott signed into law Senate bill 1396 (SB 1396), which provides significant sales and use-tax reforms for general aviation (GA) aircraft based in or visiting Texas. For a number of months, a coalition of aircraft owners and associations (led by NBAA) have been working in Texas to emphasize the need for legislation that provides clear guidance and objective standards in the Texas tax code for application of sales and use tax to aircraft owners and operators. This bill is a result of those efforts and is strongly supported by the GA community.
Specifically, the legislation recognizes the leasing of aircraft as legitimate transactions eligible for the sale for resale exemption, allows aircraft to be brought into the state for completions without being subject to tax, properly address out of state use and related party transactions and exempts fractional programs from sales/use tax. Under SB 1396, much needed clarity has been provided on the sales/use tax treatment of GA aircraft in Texas.
The key sections of SB 1396 are as follows:
- Section 163.001: Defines “certificated or licensed carriers” and provides that the exemption for aircraft sold to such carriers applies regardless of whether the aircraft is acquired by purchase, lease or rental.
- Section 163.002: Provides that “sale for resale” includes sales to a purchaser for the purpose of leasing, renting or reselling the aircraft to another person. This includes leasing or renting where there is a transfer of operational control as defined by Federal Aviation Regulations in exchange for consideration.
- Section 163.003: Provides that use tax does not apply to aircraft brought into the state for the sole purpose of being completed, repaired, remodeled or restored.
- Section 163.004: Provides that there is no presumption of taxable use when an aircraft is brought into the state if the aircraft was not purchased directly from a seller.
- Section 163.005: Provides that no tax is due on certain aircraft following out-of-state use.
- Section 163.006: Provides that with respect to transactions involving aircraft, transactions between related persons are taxable or not taxable to the same extent as such transactions between unrelated persons. Use by a related entity of a purchaser is also not taxable if tax was paid by the purchaser or if the purchase was exempt due to certain exemptions.
- Section 163.007: Provides that aircraft operated under fractional ownership programs are exempt from sales/use tax.
With the governor’s signature, SB 1396 takes effect on Sept. 1, 2015. NBAA will provide additional resources on the implementation of the bill in the coming months.
Review Senate Bill 1396 (52 KB, PDF)
Support for SB 1396
In supporting the bill, NBAA and its coalition partners made the following points about the need for legislation to provide certainty for GA aircraft use and transactions going forward
- To maintain its position as a leading state for GA, Texas must offer a positive business climate for aircraft transactions, based aircraft, maintenance services, manufacturing, and the many companies that support this industry.
- Aircraft operators are required to comply with complex requirements imposed by the Federal Aviation Administration (FAA) that often dictate the use of specific ownership and operating structures.
- Leasing of aircraft (to related parties) is done for many legitimate business and regulatory compliance reasons and is often critical when a company plans to maximize use of a business aircraft by making it available to affiliated businesses.
- Under the proposed legislation, aircraft owners and operators will be provided with much needed certainty to create aircraft ownership and operating structures that are both compliant with FAA regulations and Texas state tax rules.
Business Aviation in Texas
Business and general aviation provide the following economic benefits to Texas:
- Across Texas, GA supports 88,000 jobs, which ranks second in the United States.
- GA activity in Texas contributes $10.3 billion to the gross domestic product, also the second highest amount in the U.S.
- There are 392 public-use airports in Texas, but only 25 are served by commercial airports, meaning that GA is a key means of transportation.
- The FAA estimates there are nearly 50,000 pilots in Texas and 18,500 active GA aircraft.
For additional information, contact NBAA’s Steve Hadley at (202) 737-4489 or firstname.lastname@example.org.