Is chartering a helicopter, with the pilot included, a taxable lease of the aircraft, or a nontaxable service?

Plain-English summary

A company was leasing a helicopter that came with a pilot included in the service and asked whether this arrangement was a taxable service. The Comptroller said no: chartering an aircraft with a pilot is a nontaxable service, not a taxable lease of the aircraft — and it doesn't matter whether the charge is broken out separately for the pilot and the helicopter, or billed as one lump sum. Either way, the taxability outcome is the same.

The reasoning traces back to a 1992 Administrative Hearing (No. 28,332), where an agreement literally used the words "authorized use of" the aircraft — language that sounds like a lease — but the Administrative Law Judge still ruled it wasn't one, because the agreement required the aircraft owner to supply a Pilot-In-Command. Since the Pilot-In-Command stayed in charge of, and therefore in legal possession of, the aircraft throughout the flight, possession of the aircraft never actually passed to the customer. A lease requires a transfer of possession; a service where the owner (through its pilot) keeps control of the property doesn't meet that test, no matter what label the contract uses.

What this means for you

Aircraft charter operators and companies chartering aircraft with crew

If you provide a pilot along with the aircraft and your Pilot-In-Command remains in operational control of the flight, the arrangement is a nontaxable charter service, not a taxable lease — and how you word or split the invoice (aircraft vs. pilot, one sum vs. itemized) doesn't change that.

Businesses structuring equipment-with-operator arrangements generally

The core test here — does the customer actually get possession/control, or does the owner (through its own operator/crew) retain control? — is the same possession-transfer test the Comptroller applies to other equipment-with-operator services. Contract language alone ("authorized use," "lease," etc.) doesn't control; the real transfer of possession does.

Accountants and tax professionals

This letter cites Hearing No. 28,332 as the controlling authority: possession, not contract labeling, decides lease-vs-service status. Useful for any client renting equipment together with an operator who stays in charge of it.

Common questions

Q: Is chartering a helicopter with a pilot included subject to Texas sales tax?
A: No. It's treated as a nontaxable service because the owner's pilot retains possession and control of the aircraft.

Q: Does it matter if the pilot's fee is billed separately from the aircraft charge?
A: No — separately stated or lump-sum billing has no bearing on the taxability outcome here.

Q: What if the contract calls it a "lease" or "authorized use"?
A: The label doesn't control. Per Hearing No. 28,332, if the owner's Pilot-In-Command stays in charge of the aircraft, possession never transfers, so it isn't treated as a lease regardless of the contract's wording.

Q: Can I rely on this letter for my own aircraft charter arrangement?
A: No. This opinion is based on the facts presented, and additional or different facts may change the result; it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

• Comptroller's Administrative Hearing No. 28,332 (July 15, 1992) (possession-transfer test; Pilot-In-Command retaining control means no lease)

Subject

Aircraft — Charter With Pilot Vs. Rental/Lease

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9801095L

Original ruling text

9801095L

January 29, 1998

Dear ***:

Thank you for your letter concerning the taxability of a helicopter lease.

TV INC. is leasing a helicopter and the pilot is included in the service. You
were requesting a decision as to whether this comprised a taxable service.

Response. The charter of an aircraft with a pilot is considered a non taxable
service. Whether the lease is separately stated (pilot and helicopter) or for
a single sum has no bearing on the taxability of this service.

In Administrative Hearing No. 28,332 (July 15, 1992 the Administrative Law
Judge (ALJ) considered an agreement that clearly stated that the taxpayer
"authorized use of" its aircraft by a third party. The ALJ ruled, however, that
such language did not make the agreement a lease of the aircraft because the
agreement required the taxpayer to provide a Pilot-In-Command. The
Pilot-In-Command remained in charge, and, consequently, in possession of the
aircraft; thus, the agreement did not transfer possession of the aircraft to
the third party. Hearing No. 28,332 clearly shows that if the taxpayer remains
in charge of its property, there is no transfer of possession and the
transaction is not a lease.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Kevin Koller
Tax Policy Division