Is a hot air balloon company's charge for flight instruction, sightseeing rides, or demonstration flights subject to Texas sales tax?

Subject

Hot Air Balloon Services — Charge For Actual Flight Instruction To Student Pilots

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402L1287A01

Plain-English Summary

The taxpayer represented several balloon manufacturers, performed flight instruction to student pilots, and sold pleasure sightseeing flights. The Comptroller addressed the taxability of three distinct services:

Pleasure/sightseeing flights — Charges for balloon rides to people who simply want to go for a ride, with no further interest in ballooning, are taxable as an amusement service.

Flight instruction — A charge to a student for actual flight instruction is not taxable, but only if the instruction qualifies as "actual flight instruction," meaning the course is conducted under FAA Regulation, 14 CFR Part 61 or Part 141 (instruction for student pilots or for certificate holders upgrading to a Lighter Than Air (LTA) rating). Non-instructional flights with a pilot that do not transport the person to another location are still taxable amusement services, even if instruction is involved in some informal sense.

Demonstration flights — Flights given to a potential balloon purchaser to show off a balloon's capabilities (acting as a dealer for the manufacturers) are taxable as an amusement service. However, if the flight cost is later applied as a credit toward the purchase price when the individual buys a balloon, the price reduction is not taxed again — the ruling gives the example of a $10,000 balloon sale with a $250 demonstration credit, where tax is due only on the remaining $9,750.

What This Means For You

If you sell sightseeing or "just for fun" balloon rides: Collect Texas sales tax as an amusement service, regardless of whether a licensed pilot is flying the balloon.

If you provide flight instruction to student pilots or certificate holders: Your instruction charges are not taxable, but only if the course is conducted under FAA Regulation 14 CFR Part 61 or Part 141. A flight that merely involves a pilot and doesn't formally qualify as FAA-regulated instruction — and doesn't transport the passenger somewhere — is a taxable amusement service, not exempt instruction.

If you sell balloons and offer demonstration flights to prospective buyers: The demonstration flight itself is a taxable amusement service. If the buyer later purchases the balloon and you credit the demonstration fee against the purchase price, you only owe sales tax on the net (reduced) sales price — you don't have to tax the demonstration fee twice.

Q&A

Q: Is a hot air balloon sightseeing ride taxable in Texas?
A: Yes. A pleasure/sightseeing balloon ride for someone with no further interest in ballooning is taxable as an amusement service.

Q: Is flight instruction for a student pilot taxable?
A: No — a charge to a student for actual flight instruction is not taxable, as long as the course is conducted under FAA Regulation, 14 CFR Part 61 or Part 141. Non-instructional flights that don't meet this standard, and that don't transport the passenger to another location, remain taxable amusement services.

Q: If a balloon dealer gives a demonstration flight and the customer later buys the balloon, is the demonstration taxed twice?
A: No. The demonstration flight itself is taxable as an amusement service when given. If the flight's cost is later applied as a credit against the balloon's purchase price, that credited amount is not taxed again — tax on the balloon sale is due only on the net price after the credit.

Original ruling text

February 16,1994

Dear ***:

Thank you for your letter requesting information on the taxability of
services that your company provides. ***** represents 4
manufacturers in sales of balloons, performs flight instruction to student
pilots and sells pleasure sightseeing flights. Description and the
taxability of these services is as follows:

Pleasure/Sightseeing- people who simply want to go for a balloon ride and
have no further interest in ballooning.

RESPONSE: Taxable as an amusement service.

Instruction - flight instruction to student pilots or to certificate
holders wishing to upgrade their certificate to include LTA (Lighter Than
Air).

RESPONSE: A charge to a student for actual flight instruction is not
taxable. Actual flight instruction means the course is conducted under FAA
Regulation, 14 CFR Part 61 or Part 141. Non-instructional flights with a
pilot that do not transport the person or persons to another location are
taxable amusement services.

Demonstration - acting as a dealer for 4 manufacturers and showing the
capabilities of a balloon to a potential purchaser with the cost of the
flight being applied to the down payment on a balloon if and when they
purchase a balloon.

RESPONSE: A charge for a hot air balloon demonstration flight will be
taxable as an amusement service (balloon ride). If the balloon is later
purchased by the individual, the reduction in price for the cost of the
demonstration would not be taxed again (i.e., Balloon sales price $10,000
less $250 for demonstration, tax would be due only on $9,750).

This opinion is based on the facts presented. Other facts though similar
may provide a different result. If you have other questions or need more
information, you may call me at 1-800531-5441, extension 3-4502. The
regular number is 512/463-4502. You may also write to Tax Administration
Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9402066L