How did Texas tax a 501(c)(4) flying club's hourly aircraft rentals, membership dues, aircraft supplies, and aircraft purchased for rental?

Plain-English summary

A nonprofit 501(c)(4) association owned light aircraft and rented them to members by the flying hour.

The hourly rental fees were taxable, while the club's monthly membership dues were not. The club could give suppliers a properly completed resale certificate, including its sales-tax permit number, for parts and supplies used on rental aircraft.

An aircraft purchased for rental or lease could also be bought with a resale certificate. If the association used the aircraft for anything else, it had to show that the use related to the group's exempt function or pay sales tax on the aircraft's fair-market rental value.

Common questions

Were hourly aircraft rentals taxable? Yes.

Were monthly membership dues taxable? No.

Could parts and rental aircraft be bought for resale? Yes, with a properly completed resale certificate.

What if the club used the aircraft for another purpose? It had to show exempt-function use or pay tax on fair-market rental value.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8605L0732C02

Original ruling text

May 19, 1986

Dear ***:

Thank you for your letter of May 6, 1986 concerning the CLUB ABC.

ASSOCIATION Z, a non-profit, 501(c)4 organization, owns several
light aircraft which it rents to club members on a flying-hour basis.

The answers to your questions are as follows:

Question 1: Are the hourly rental fees taxable?

Answer: Yes. ASSOCIATION Z should collect sales tax from members on
the hourly fees.

Question 2: Are the monthly membership dues taxable?

Answer: No. The monthly membership fees charged by a 501(c)4 organization
are not taxable

Question 3: Should we pay sales tax to the suppliers of parts and supplies
for the aircraft?

Answer: A properly completed resale certificate, indicating the sales tax
permit number assigned to the association, may be given to suppliers of
parts and supplies for rental aircraft.

Question 4: In the event of the purchase of another aircraft, do we pay
sales tax on the purchase price of the aircraft?

Answer: If the aircraft is purchased for rental or lease purposes, the
association may issue a properly completed resale certificate to
the supplier. If the association makes any use of the aircraft
other than rental or lease, it must clearly show that the use of
the aircraft was related to the exempt function of the group or
pay sales tax on the fair market rental value of the aircraft.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at
the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division