A taxpayer bought and used an aircraft before it was a licensed and certified carrier, and later argued it was diligently trying to get certified. Does that get it out of paying tax on the purchase?

Plain-English summary

This is a short internal Texas Comptroller memo (from Tax Policy staffer Al Van Allen to June Zivley in the Revenue Opportunity Program) addressing whether a taxpayer owed tax on an aircraft it bought before becoming a licensed and certified carrier.

The bottom line: the taxpayer owes tax on the full purchase price of the aircraft. Texas has an exemption tied to being a licensed and certified carrier, but the taxpayer wasn't one yet at the time of purchase. The memo clarifies that not yet holding that certification doesn't, by itself, disqualify a taxpayer from the exemption — a taxpayer who immediately applies for certification and is diligent about pursuing an operating certificate can still potentially qualify.

Here, though, the taxpayer used the aircraft for purposes beyond "routine maintenance or crew member air taxi/commercial operator training," which is the narrow use Texas allows during the certification process without losing the exemption. Because actual use went beyond that narrow window, the exemption didn't apply and tax was due on the full purchase price.

The memo also flags that the taxpayer tried to lean on a prior administrative decision, Hearing 9537, to support its due-diligence argument. The Comptroller's office rejected that argument as "specious at best," noting that Hearing 9537 has since been superseded and can no longer be relied upon.

What this means for you

Aircraft buyers pursuing carrier certification

If you buy an aircraft before you're a licensed and certified carrier, you aren't automatically taxed just because you lack the certificate yet — but you need to (1) immediately apply for certification, (2) be diligent about pursuing it, and (3) limit your use of the aircraft strictly to routine maintenance or crew member air taxi/commercial operator training until certified. Any broader use of the aircraft during that window can cost you the exemption entirely, making the full purchase price taxable.

Accountants and tax professionals

This memo is a reminder to check the scope of use, not just the timing of certification, when advising a client on the licensed-and-certified-carrier exemption. A diligent, good-faith certification application does not cure use of the aircraft outside the routine-maintenance/training safe harbor. Also note that Hearing 9537 — sometimes cited for due-diligence arguments in this area — is described here as superseded, so it should not be relied on as current authority.

Taxpayers considering citing old hearings or prior guidance

Be cautious about relying on older administrative hearings without confirming they're still good law/policy. Here, the Comptroller specifically called out that the hearing the taxpayer relied on had been superseded, undercutting the taxpayer's argument.

Common questions

Q: Does an aircraft owner have to pay Texas tax if they buy a plane before being certified as a licensed and certified carrier?
A: Not necessarily just for that reason alone — but in this case, yes, tax was owed on the full purchase price because the taxpayer's actual use of the aircraft went beyond the narrow permitted use during the certification process.

Q: What use is allowed without losing the exemption while waiting on certification?
A: The memo identifies "routine maintenance or crew member air taxi/commercial operator training" as the use that doesn't preclude the exemption. Use beyond that defeats it.

Q: Does merely applying for certification and being diligent about it guarantee the exemption?
A: No. Diligence in seeking the operating certificate is necessary but not sufficient — the taxpayer also has to have kept its use of the aircraft within the permitted scope. Here it didn't, so the exemption still failed.

Q: Can the taxpayer rely on Hearing 9537 to support a due-diligence argument?
A: No. The Comptroller's office called that argument "specious at best" and noted that Hearing 9537 has been superseded.

Q: How much tax is owed in this situation?
A: Tax on the full purchase price of the aircraft.

Citations and references

No specific statutes or rule numbers were cited in this letter (the memo references a prior administrative decision, "Hearing 9537," but no statute or rule citation).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1421G14

Original ruling text

Date: July 2, 1996
To: June Zivley, Revenue Opportunity Program
From: Al Van Allen, Tax Policy
Re: Taxability on an Aircraft Transaction

The taxpayer owes tax on the full purchase price of the aircraft. It was not a
licensed and certified carrier at the time of purchase. That alone does not
preclude it from claiming the exemption if it immediately applied for and was
diligent in attempting to acquire an operating certificate. However, the
taxpayer made use of the aircraft other than for "routine maintenance or crew
member air taxi/commercial operator training ." Please refer to Hearing 9537.

Taxpayer's due diligence argument is specious at best. The hearing on which
it relies has been superseded.