Is a Texas-executed aircraft lease exempt from Texas sales tax when the lessee will fly the aircraft straight to Canada and operate it there as a commercial carrier, paying Canadian sales tax on entry?

Plain-English summary

An aircraft lease is executed while the plane is physically in Texas; the lessee will fly it straight to Canada and operate it there in commercial airline service, paying Canadian sales tax on entry as part of Canada's own sales tax system. The taxpayer asked whether this transaction is exempt from Texas sales tax.

The Comptroller identified two independent exemption paths under Rule 3.297:

1. Certificated carrier exemption. No Texas sales tax is due on aircraft used as a licensed and certificated carrier — defined as a person authorized by the appropriate U.S. federal or state agency to operate an aircraft, vessel, train, motor vehicle, or pipeline as a common or contract carrier transporting persons or property for hire in the regular course of business. Importantly, the letter clarifies that airworthiness certificates and pilot's licenses are NOT the right proof for this exemption — those documents relate to the aircraft itself or the pilot's individual qualifications, not to the business's authorization to operate as a common/contract carrier. (The letter notes Texas treats Mexican aircraft with XA designations as qualifying carriers if they hold FAA landing rights.)
2. Export/out-of-state-use exemption. Under Rule 3.297(c)(9), Texas sales or use tax isn't due on an aircraft sold (and the Comptroller treats leases as sales, since both transfer possession for consideration) to a person for use and registration in another state or nation, before any use of the aircraft in Texas. Incidental activity like flight training in Texas followed by flying the aircraft out of state does not count as a disqualifying "use" in Texas.

Either exemption requires the proper mechanics: a signed exemption certificate (matching the form required by the rule) executed by both buyer and seller at the time of purchase, with the seller filing a copy with the Comptroller within 30 days. Signing the certificate authorizes the Comptroller to share a copy with the foreign state/nation of intended use and registration. Issuing an invalid certificate is a misdemeanor (fine up to $500) on top of the assessed tax, penalty, and interest.

What this means for you

Aircraft lessors and lessees with cross-border/out-of-state deployment

Don't rely on an airworthiness certificate or a pilot's license as proof of carrier-exemption eligibility — those documents answer a different question (is the plane/pilot qualified to fly) than the one the exemption asks (is the operator authorized to run a common/contract carrier business). If your carrier documentation isn't in order, consider the separate export/out-of-state-use exemption instead, which turns on where the aircraft will be used and registered, not on carrier status.

Accountants and tax professionals

This letter is useful for distinguishing two separate, independently available Rule 3.297 exemptions (carrier status vs. out-of-state export use) and for correcting a common documentation mistake (using airworthiness/pilot paperwork to prove carrier status). The exemption-certificate mechanics (30-day filing, misdemeanor penalty for invalid certificates) apply to either path.

Common questions

Q: Does an airworthiness certificate prove eligibility for the certificated carrier exemption?
A: No, per this letter — airworthiness certificates and pilot's licenses relate to the aircraft/pilot, not to authorization to operate as a common or contract carrier.

Q: Is a Texas-executed aircraft lease for exclusive foreign/out-of-state use automatically exempt?
A: Not automatically — per this letter, it can qualify under Rule 3.297(c)(9)'s export exemption if the aircraft is for use/registration in another state or nation before any Texas use, with a properly executed exemption certificate.

Q: Does flight training in Texas before flying the aircraft out of state disqualify the export exemption?
A: No, per this letter — incidental Texas flight training followed by flying the aircraft out of state doesn't count as Texas "use" for this purpose.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.297 (aircraft — carrier and export exemptions)
• 34 Tex. Admin. Code Rule 3.297(c)(9) (aircraft sold for use/registration in another state or nation before any Texas use)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9808795L

Original ruling text

August 25, 1998

Dear Mr. **:

Thank you for your recent aircraft which is restated in part with response
below.

An aircraft lease is executed while the property is within the State of Texas.
The lessee will be taking the aircraft straight to Canada and will only be
operating the aircraft in Canada in a commercial airline service. The lessee
will be paying Canadian sales tax on the value of the aircraft when entering
the country as part of the Canadian sales tax system. Would this transaction
be exempt from Texas sales tax?

Response: Rule 3.297 (attached) provides various ways in which the lease might
be exempted from Texas sales tax.

Sales tax is not due on aircraft used as licensed and certificated carriers.

Licensed and certificated carrier is defined as a person authorized by the
appropriate United States agency or by the appropriate state agency within the
United States to operate an aircraft, vessel, train, motor vehicle, or pipeline
as a common or contract carrier transporting persons or property for hire in
the regular course of business. Certificates of inspection or airworthiness
certificates are not the appropriate documents for authorizing a person to
operate as a common or contract carrier. These documents relate to the carrier
device itself rather than a person's right to operate a carrier business.

We currently treat Mexican aircraft with XA designations as carriers if they
have landing rights from the FAA.

Further, under Rule 3.297(c)(9), Texas sales or use tax is not due on aircraft
sold to a person for use and registration in another state or nation before any
use in Texas. Flight training in the aircraft in Texas and flying the aircraft
out of state does not constitute a use of the aircraft in Texas. We generally
regard leases as sales since they involve the transfer of possession of
property for a consideration. The rules states:

(A) To claim the exemption, an exemption certificate, substantially similar in
form and content to the certificate shown on the last page of this section,
must be signed by both the seller and the purchaser at the time of purchase.
The seller may accept a certificate if the seller lacks actual knowledge that
the claimed exemption is invalid. The seller must provide a copy of the
completed certificate to the Comptroller of Public Accounts within 30 days of
the sale.

(B) By signing the certificate, the purchaser authorizes the comptroller to
provide a copy of the certificate to the state or nation of intended use and
registration.

(C) Issuing an invalid certificate is a misdemeanor punishable by a fine not to
exceed $500 in addition to the assessment of tax and, when applicable, penalty
and interest on the purchase price of the aircraft.

This opinion is rendered 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. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division

Enclosure