If an aircraft parts repair company does 90%+ of its work for licensed carriers but also repairs some pre-sale manufacturer components and used/military aircraft equipment, is the machinery and equipment it uses for ALL that repair work exempt from Texas sales and use tax?

Plain-English summary

An aircraft parts repair company, holding a Texas Direct Pay Permit and performing all its repair work at a Texas facility, asked the Comptroller whether the machinery and equipment it uses to perform repairs is exempt from Texas sales and use tax. The company's work breaks down roughly as: about 90% is component repairs for licensed carriers; about 3-4% is repairs to air navigation, radar, and communication components that are part of newly manufactured aircraft not yet sold by the manufacturer (needed to fix test failures before the aircraft can be sold); and the remaining 6-7% is repairs of the same kind of equipment for used-equipment sales companies or government military aircraft.

The Comptroller's answer: Texas tax is due on the full purchase price of the machinery and equipment — no exemption at all. The reason is that Tax Code § 151.328(d) limits the relevant repair exemption to equipment used exclusively on behalf of certificated or licensed carriers and flight schools. Because this company's equipment is also used for the non-carrier work (pre-sale manufacturer components, used-equipment sales companies, and military aircraft), it fails the exclusivity requirement — even though that non-qualifying work is a small minority (roughly 10%) of the company's total business. The letter enclosed Rule 3.297 and the relevant statutory text for reference.

What this means for you

Aircraft repair companies serving mixed customer bases

The exemption under § 151.328(d) is an all-or-nothing exclusivity test at the equipment level, not a proportional or predominant-use test. If your repair equipment is used for ANY non-qualifying work — even a small percentage for non-carrier customers like manufacturers, used-equipment dealers, or the military — the equipment loses the exemption entirely, and Texas tax is due on its full purchase price. If you want to preserve the exemption on some equipment, you likely need to dedicate specific machinery exclusively to licensed-carrier/flight-school work and use separate equipment for everything else.

Accountants and tax professionals

This is a useful illustration of how "exclusive use" requirements in Texas exemption statutes function differently from "primary use" or "predominant use" tests seen elsewhere in the Tax Code — watch for this distinction whenever a client's exemption claim depends on statutory language requiring exclusivity.

Common questions

Q: If 90% of a repair company's work is for licensed carriers, does its equipment qualify for a partial exemption?
A: No, per this letter — Tax Code § 151.328(d) requires EXCLUSIVE use on behalf of certificated/licensed carriers and flight schools; any non-qualifying use, however small, defeats the exemption for that equipment entirely.

Q: Does repairing components on aircraft not yet sold by the manufacturer count as qualifying use?
A: No, per this letter — repairs on newly manufactured, not-yet-sold aircraft components fall outside the "certificated or licensed carriers and flight schools" category and count against exclusivity.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.328(d) (aircraft repair equipment exemption — requires exclusive use for certificated/licensed carriers and flight schools)
• 34 Tex. Admin. Code Rule 3.297 (aircraft)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9809893L

Original ruling text

September 24, 1998

Dear Mr. **:

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

Our client is an aircraft parts repair company that performs all repairs at its
Texas facility. They hold a Texas Direct Pay Permit and accrue all Texas use
tax accordingly. Based on our client's estimates, at least 90% of the work
performed is aircraft component repairs for licensed carriers. About three to
four percent is for repairs to air navigation, radar, and communication
components that are a part of newly manufactured aircraft that have not yet
been sold by the manufacturer. These components failed tests performed by our
client's customer and must be repaired before the related aircraft can be sold.
The remaining six to seven percent of our client's operations is for repairs
of the same type of equipment for either used equipment sales companies or for
government military aircraft.

Since virtually all of the repairs performed by our client are for licensed
carriers, would any Texas sales and use tax be due on the machinery and
equipment used to perform the above stated repairs?

Response: Texas tax will be due on the purchase price of the machinery and
equipment. Tax Code Section 151.328(d) limits the exemption by requiring
exclusive use on behalf of certificated or licensed carriers and flight
schools. Because the client is not exclusively using the equipment on behalf
of certificated or licensed carriers and flight schools, no exemption is
warranted. I am enclosing Rule 3.297 and a cut from the Statute for your
reference.

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