The Aviation Division has received numerous phone calls from individuals requesting clarification about the requirement for flight schools to collect and pay sales tax.
As we advised in a recent WINGTIPS, “since there has been some confusion and possible misinformation provided regarding this matter in the past, Mr. John Sharp, Texas Comptroller of Public Accounts, agreed to forgive taxes due prior to July 22, 1994. However, FAR Part 61 schools will be responsible for paying future taxes…”.
The draft of the sales/use tax guidelines for flight training schools issued by the Texas Comptroller of Public Accounts, makes a distinction between Part 141 flight schools and Part 61 flight schools. In general, and with only a few exceptions, training at a FAR Part 141 flight school is tax exempt; training at a FAR Part 61 flight school is not.
What is the difference between a Part 141 flight school and a Part 61 flight school? Part 141 flight schools are those which hold an FAA issued “certificate” indicating FAA program approval. A Part 61 flight school has no FAA oversight of its training program.
Since each of these programs lead to a pilot’s license, why is one subject to paying sales tax, while the other is not? The law exempts “licensed” schools from paying sales tax. While there is no such thing as an FAA “licensed” flight training school, the Comptroller determined that schools that have an FAA “approved” program would be exempt. His determination is that the wording is different, but the law applies as though they were the same.
We have been advised that the final version of the sales/use tax guidelines for flight training schools will be distributed soon by the Comptroller’s Office in a publication called Taxpayer Policy News. The “draft” reads as follows:
I. Part 141 flight schools
A “Part 141 flight school” is a flight school holding an FAA issued certificate under FAR Part 141.
- a. The school may acquire aircraft to be used in student training tax free by issuing an exemption certificate, whether acquired by purchase, lease, or rental from others.
b. Rentals of such aircraft to flight training students enrolled in an FAA approved Part 141 curriculum/program are exempt. Rentals of such aircraft to other persons engaged in flight training shall be in accordance with other rules under “Part 61 flight schools.”
2. Parts and equipment needed for operation, maintenance, and/or upgrade of such aircraft may be purchased tax free. Supplies needed for maintenance/ operation of such aircraft, including motor oil, hydraulic fluids, windshield cleaners, paint, et cetera may also be purchased and used tax free.
3. The rentals of aircraft owned by third parties and rented to students on behalf of the third parties for flight training are not subject to sales tax at either a flight school or aircraft owner level.
4. The rental of aircraft for purposes other than flight training are subject to sales tax.
5. If the flight school uses such aircraft for a purpose other than training, aircraft maintenance, or checkout of flight school students or flight school instructors, the flight school must report and remit to Comptroller use tax based on fair market rental of that aircraft.
6. If aircraft rented from third parties are rented for non-training use, tax must be collected. If the aircraft is used by the school for a non-training use, the school must remit tax on the amount paid the owner. It is the responsibility of the owner of the aircraft to remit the sales tax to the state.
7. Engine/aircraft time and/or flights associated with routine and/or extraordinary maintenance of aircraft are not taxable.
8. Check-out flights of flight school instructors are not taxable.
II. Part 61 flight schools
A “Part 61 flight school” is a flight school not holding an FAA issued certificate under FAR Part 141.
- The school may either pay tax on the purchase, lease, or rental of the aircraft at the time of purchase or give a resale certificate to the seller.
a. If the flight school pays sales tax at time of purchase, it is the responsibility of the seller to collect sales tax and remit it to the state.
b. If the flight school does not pay sales tax at the time of purchase, lease or rental, the school must provide the seller/lessor/renter with a resale certificate or tax exemption certificate. The school will then be subject to use taxes as described more in detail as follows.
2. If tax is paid by the school at the time of purchase, the school must collect sales tax on all rentals of the aircraft to students flying solo and to non-students, but no additional tax is owed by the school when it uses the aircraft for dual training or other non-rental purposes.
3. If a resale certificate is given for the aircraft (and sales tax is not paid at the time of purchase/lease/ rental), the flight school must
a. Collect and remit to the Comptroller sales tax on all rentals of the aircraft to students flying solo and to non-students, and
b. Remit use tax to the Comptroller on its use of the aircraft for dual training and other business and personal uses based on the fair market rental value.
4. Parts and equipment needed for operation, maintenance, and/or upgrade of such aircraft may be purchased tax free. Supplies needed for maintenance/ operation of such aircraft, including motor oil, hydraulic fluids, windshield cleaners, paint, et cetera may also be purchased and used tax free.
5. When aircraft owned by parties other than flight school operators are rented to students for flight training (either solo or dual), flight schools shall collect sales tax and account to aircraft owners thereof.
6. Engine/aircraft time and/or flights associated with routine and/or extraordinary maintenance of aircraft are not taxable.
7. Flight time for a flight school’s instructors in the flight school’s own aircraft are taxable if tax was not paid on the airplane when it was purchased. If the aircraft being used is owned by someone other than the flight school operator, that use is taxable.
III. Purchases by third parties for purposes of allowing flight schools to rent the aircraft
- The purchaser of an aircraft that intends to place the aircraft with a flight school operator for flight training purposes may avoid sales tax at time of purchase if the purchaser holds a sales tax permit and provides a resale certificate to the seller.
2. If the purchaser makes any personal use of the aircraft, use tax must be remitted based on the fair market rental value.
3. Parts and equipment needed for operation, maintenance, and/or upgrade of such aircraft may be purchased tax free. Supplies needed for maintenance/ operation of such aircraft, including motor oil, hydraulic fluids, windshield cleaners, paint, et cetera may also be purchased and used tax free.
IV. Miscellaneous sales
- Sales tax must be collected on sales of books, equipment and similar consumable supplies by both types of schools.
2. In those situations where the owner of an aircraft is responsible for remitting sales or use tax to the Comptroller, the flight school may remit the tax on the transaction. However, shall the flight school fail to remit the proper amount of tax, the owner of the aircraft remains liable for all unremitted tax.
Watch for these sales/use tax guidelines to be published soon by John Sharp, Texas Comptroller of Public Accounts, in the Taxpayer Policy News.