TX 9907725L Franchise Tax (PRIOR TO 01/01/2008) 1999-07-21

Did an aircraft owner have Texas franchise-tax nexus when it leased planes to a carrier operating flights involving Texas?

Short answer: It depended on the carrier's Texas activity. The aircraft owner was subject to franchise tax if its planes were leased to common carriers providing intrastate Texas transportation or maintaining Texas facilities or representatives. If the carrier operated exclusively in interstate commerce, had no other Texas representation, and therefore was not itself subject to Texas franchise tax, the lessor was not subject on the facts described.

Apply this to your situation

This page answers the general question as of 1999. Ezel answers yours, under current Texas tax law, with citations.

Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. The answer turns on whether the carrier provided intrastate transportation or had Texas facilities or representatives; the letter gives no final carrier facts. It applies pre-2008 franchise-tax nexus rules, replaced by the margin tax effective January 1, 2008; confirm current law. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The aircraft lessor had Texas nexus if the carrier provided intrastate transportation or maintained Texas facilities or representatives; it did not if the carrier was exclusively interstate with no other Texas representation.

The company owned five commercial aircraft leased to a domestic carrier with scheduled flights to destinations including Texas. Rule 3.546(c)(19) treated leasing tangible personal property used in Texas as doing business, while Rule 3.546(c)(7) addressed transportation companies with intrastate service, facilities, or representatives in Texas.

The Comptroller gave a conditional answer:

Nexus: aircraft leased to a common carrier providing intrastate Texas transportation or having Texas facilities or representatives.
No nexus on the stated alternative: aircraft leased to a carrier engaged exclusively in interstate commerce, with no other Texas representation and not itself subject to Texas franchise tax.

The letter did not state which set of carrier facts ultimately applied.

Currency note: Texas replaced the former franchise tax with the margin tax effective January 1, 2008. Confirm current aircraft-leasing and transportation nexus rules.

What this means for you

Aircraft leasing companies

The lessee carrier's operating footprint mattered to the lessor's nexus analysis. A scheduled Texas destination alone was not the only fact considered.

Tax professionals

Verify intrastate segments, Texas facilities, Texas representatives, and whether the carrier itself is subject to Texas tax before applying the historical response.

Common questions

Q: Did every aircraft flight involving Texas create lessor nexus?
A: The letter does not say that. It gives conditional results based on the carrier's intrastate activity and Texas representation.

Q: What if the carrier was exclusively interstate?
A: With no other Texas representation and no carrier tax liability, the lessor was not subject on these facts.

Citations and references

Texas Tax Code Sec. 171.001(c)
34 Tex. Admin. Code Sec. 3.546(c)(7) and (c)(19)
34 Tex. Admin. Code Sec. 3.557(d)(20)

Source

STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
Opinion: https://star.comptroller.texas.gov/view/9907725L

Original ruling text

July 21, 1999

Dear **:

Thank you for the information concerning ** ("COMPANY"). You have
indicated that the company owns five commercial aircraft that are leased to a
domestic carrier. The carrier has scheduled flights to various destinations,
including **, Texas. You have asked if the company has nexus for
Texas franchise tax purposes.

Texas Tax Code 171.001(c) requires our agency to tax to the limits of the
United States Constitution. Franchise Tax Rule 3.546 (c)(19) holds that
leasing tangible personal property which is used in Texas constitutes doing
business in Texas. Rule 3.546(c)(7) states that a transportation company that
provides intrastate transportation (within Texas) or has facilities or
representatives in Texas has sufficient nexus to cause the corporation to be
subject to the Texas franchise tax.

Therefore, it is our agency's position that the company is subject to the Texas
franchise tax if the aircraft are leased to common carriers that provide
intrastate transportation or have facilities or representatives in Texas. If
the aircraft are leased to common carriers that are not subject to Texas
franchise tax because they are engaged exclusively in interstate commerce and
have no other representation in Texas, then the company would not be subject to
the Texas franchise tax. Also, see Rule 3.557(d)(20).

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

If you have any questions, please call toll-free 1-800-531-5441, extension
3-4496 or (512)463-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division

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