How did Texas tax flight suits used in photographs and a flight simulator rented with or without an operator?

Plain-English summary

Customers wore flight suits while the photographer took pictures of them in a jet cockpit. That was not a true rental because customers did not receive actual use of the suits; the photographer used them to produce the photographs. The photographer therefore paid tax when buying the suits. A later sale of a suit was a separate taxable transaction, and tax was collected on its selling price.

Certain flight simulators used exclusively for flight training in a licensed course could be exempt under Rule 3.297. Outside that exemption, the result depended on who operated the simulator:

• With an operator, the owner paid tax on component parts and did not collect tax on the rental charge.
• Without an operator, when only the customer used the simulator, the owner could buy components tax-free but had to collect tax on the rental charge.

What this means for you

The historical letter looked at actual possession and operation rather than labels. Calling the suit use a rental did not make it one, and providing an operator changed both the component-purchase and customer-charge treatment for the simulator.

Common questions

Could the photographer buy the flight suits tax-free for rental? No.

What if a customer later bought a suit? The photographer collected tax on that separate sale.

Was a licensed-course flight-training simulator exempt? Certain exclusively used simulators could qualify under Rule 3.297.

How did an operator affect a nonqualifying simulator rental? With an operator, components were taxed but the rental charge was not; without an operator, the opposite treatment applied.

Citations and references

• Texas Comptroller Rule 3.297(c)(1)(c) and (c)(7), licensed flight-training simulator exemption referenced by the letter
• Texas Comptroller Rule 3.294(d)(1) and (d)(2), operator-versus-customer rental treatment referenced by the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8709L0834B07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

September 8, 1987

Dear ***:

Thank you for you letter regarding applicability of sales tax to your
business.

The facts you presented are restated below:

I take photographs of people dressed in flight suits as they stand
in a jet cockpit. My questions revolve around whether or not I rent
flight suits to my customers. It is my understanding that if I rent
the equipment to the customers, I would not be required to pay sales
tax when I purchase the suits from a local retail surplus store. If
a customer wants to purchase the flight suit, the suits are for sale.

Question #1.
Please advise if I must pay retail sales tax on the flight equipment.

Answer:
You must pay tax on the purchase of the flight suits. This is not a
true rental as your customer does not have actual use of the suit.
You are actually using the item for your photographs. At subsequent
sale of the suit is a separate transaction and you must collect tax
on the selling price.

Additional facts:
I am also building a full scale flight simulator that will be offered
for rental on an hourly basis at a retail location.

Question #2.
Do I need to pay retail sales tax on components that are used on the
simulator such as electrical components?

Answer:
Exempted from tax are certain flight simulators used exclusively for
flight training in a licensed course of instruction. Please see rule
3.297(c)(1)(c) and (c)(7).

If you are not exclusively using this simulator in a licensed course
of instruction, and you are renting the simulator with an operator,
you must pay tax on the component parts. If you are renting the
simulator without an operator, and only your customer is using it,
you may purchase the components tax free. Please see rule 3.294(d)
(1) and (d)(2).

Question #3.
Do I need to charge sales tax on the hourly rental rate of the
simulator?

Answer:
If you are not exclusively using this simulator in a licensed course
of instruction as outlined in #2 above, and you are renting the simu-
lator with an operator, you will not collect tax on the rental charge.
If you are renting the simulator without an operator, and only your
customer is using the simulator, you must collect tax on the rental
charge.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Julie Pesl
Tax Policy Division